‘Everyone talks about stickiness, but how do you start the journey to stickiness?’: Behind Q2’s acquisition of ClickSwitch
- Q2 is acquiring ClickSwitch, which enables new accountholders to more easily port their direct deposits and automatic payments over to a new account.
- Q2 will add the software to its product sets and make it available to its Banking as a Service clients, too.
Q2 has acquired ClickSwitch, an automated account switching solution for financial institutions.
Banks and credit unions use ClickSwitch to help new customers switch their direct deposits and recurring payments over to a new account as part of the onboarding experience. ClickSwitch has 450 customers, including DCU, California Credit Union, 3Rivers Federal Credit Union, and challenger bank, MoneyLion. The firm says it works with four of the top six challenger banks.
The Austin-based Q2 started visiting with ClickSwitch four years ago, and was impressed with the people, the technology and also the process it enabled. ClickSwitch solves a vexing problem: getting new accountholders to actually use the accounts they're opening.
Q2 provides core banking and experience software for 400 banks and FIs, touching 18 million end users.
"Everyone talks about stickiness, but how do you start the journey to stickiness?" said Will Furrer, Q2's chief strategy officer. "We heard from our customers that getting people to switch over their deposits, to engage, was a critical gap."
ClickSwitch has created a global database of employers and has connections with various payroll processors. This enables the software firm to redirect a direct deposit on a paycheck to a new banking relationship within a few clicks and in many cases, in a matter of minutes. ClickSwitch claims its software helps to increase deposits by converting more account openings into engaged customers.
“As customers can easily open checking accounts, banks are kind of forced with this dilemma as to how they recognize a primary account holder,” Cale Johnston, founder and CEO of ClickSwitch, told Tearsheet last year.
Direct deposit of a paycheck can be a leading indicator that a user considers a financial relationship to be a primary account. Becoming a primary account and activating new customers is important to drive usage and engagement, and ultimately ROI on marketing spend for FIs.
ClickSwitch can tell, for example, if a direct deposit and three recurring payments are set to hit a new account, the end user is 10 times more likely to get an auto loan with their financial institution or 25 times more likely to use their credit card or debit card with that financial institution.
Getting users to port over their automated payments is a key step in activating them.
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"The 'first mile' of a user's experience in any consumer tech app can make or break a customer relationship," said Etan Efrati, managing partner at Growth Element, an internet marketing consulting boutique. "Optimizing for the ideal signup and onboarding flow proves to be especially tricky in financial services, where security, regulation, and other requirements add significant complexity."
ClickSwitch uses a pricing model that charges financial institutions for successful switches. Fees can run from $8 for a challenger bank when a user interacts with an automated agent to switch over a direct deposit to $20 for a client that has a customer switch over a more complicated direct deposit and 10 auto-pays.
Q2 is interested in this additional revenue stream. "They are being paid on every switch. It's very interesting. Since most banks find that only 30% to 50% of their customers make their accounts primary, there's a lot of greenspace for Q2's customers to grow," said Furrer.
The direct deposit switching space is seeing more interest as the industry puts more emphasis on activating new accounts and not just flashy headlines of new account openings.
Financial data firm Plaid recently launched Deposit Switch, a tool similar to ClickSwitch. The offering provides customers with digital and fallback account funding options. The digital account funding, which is available to large companies, SMBs and gig economy workers, connects customer payroll or employer accounts.
Q2's Furrer isn't worried about new competition. He said Plaid is a partner of both Q2 and ClickSwitch and given the size of the market, he expects there to be more activity in the future. "It's a big market and it will take time for others to eat into it," he said.
Q2 will fold ClickSwitch into its operations and product sets, eventually including it under its Banking as a Service offerings, as well.
"The acquisition runs perfectly alongside our concept of 'digital is banking'," said Furrer. "The switching component is embedded in digital workflows, in the experience when users join a new financial institution. It can be part of every digital scorecard. If you can’t switch like this, you’re not really talking about enabling digital."
ClickSwitch will continue to operate from its Minneapolis, Minnesota headquarters. That location will join Q2's investment in local communities in Austin, Texas, Des Moines, Iowa, and Lincoln, Nebraska.
"With this strategic acquisition, Q2 should be able to greatly reduce friction for its customers' new users, making their products stickier and increasing activation," Efrati said.