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Today’s expert is Ted Brown. He’s co-founder and CEO of a company called Digital Onboarding. He’s been in fintech for his entire career. His first company, Andera, built the first way to open up a bank account online. Now, his firm Digital Onboarding makes sure those people who opened up accounts become engaged, profitable relationships.
- abysmal attrition rates: why attrition rates of new customers are stubbornly high in banking (over 90%) when accounts are opened out of footprint
- a pamphlet and a prayer: Typical onboarding experiences at banks and credit unions are likely to fail -- Brown calls this the "pamphlet and a prayer" strategy. After an account is opened, many banks just send new customers some brochures and hope they stick around. There's little rigor or structure around onboarding.
- what top FIs are doing to improve onboarding rates: automation is important here but most of the time, smaller financial institutions struggle to implement good marketing automation programs.
- how onboarding is evolving and the role of technology to create engaged clients
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Challenger banks put up big headline numbers for account openings
Challenger banks have huge headline numbers of how many new customers they're acquiring. But there's always a question of like, how many of those actually stick around to use their accounts?
It's a really big question. And I don't know the answer to it, I would love to, I don't think this is a number that they publish very readily. But if their clients are anything like other consumers, in behavior -- we see traditional brick and mortar banks and credit unions, the engagement rates are probably much lower than you think.
With large national brands, the ones you've all heard of, we know that if someone opens up a checking account, in an area out of footprint, meaning in a state where they don't have any branches, the first year attrition rates on a checking account are north of 90%.
Someone opens up an account. They don't end up using it. They don't set up direct deposits. They don't transact on the account -- it goes dormant or it closes. Challenger banks are super effective in opening accounts, but not a lot of data exists in terms of how consumers view them as primary account. There are a number of studies that show that an increasing of people see digital challenger banks as their primary institutions.
Reasons behind lack of engagement
There are a lot of reasons why people don't use their bank accounts, but inertia is one of them. And inertia is one that we can solve for. There are some others -- it depends on how the bank acquired the customer, how they motivate them to open up the account in the first place. If they are buying people with cash bonuses, it's a little harder, because the intent the entire time was to get the cash bonus and leave.
Inertia is key. You can make the simplest accounting process in the world, which is a smart idea. One day, you'll be able to look at your phone, and we'll face ID you for the verification process, and your account will be opened. But it still takes time, effort, thought to follow up with things like direct deposits, and all those other steps like downloading the app, giving it a shot.
The follow-up process
For many banks and credit unions, follow-up is a packet of brochures and a prayer.
About 45% of banks and credit cards have no structured follow up process at all. So, literally, it is a welcome kit. We all know what's in everyone's closet or their trash bin. They're handed away in a branch or they mail it to the customer, and then they hope for the best and they never see him again.
There are banks that recognize this as a major challenge and something that needs to be addressed. You still see a lot of traditional tactics. I'm not exactly sure who popularized this, but there's this whole "two-by-two-by-two". This came out probably 30 years ago where you send two letters, you call someone after two days, two weeks, two months to kind of check in. But it's all very manual, it's based off phone calls and print. And it's very popular in terms of tactics. But when you start digging into the numbers, it clearly doesn't work, because the engagement is not there with the two by two by two methodology.
A new digital approach and digital first approach to the engagement process and the follow up processes are necessary to ultimately crack the nut on what is going to motivate people to complete that initial transaction.
Saturation of communication channels
I want to make a clear differentiation between advertisement and transactional reminders. We don't, as a platform, participate in the advertising realm. And there are a lot of reasons for that which we could dig into. But one of which is being sensitive towards consumer saturation. You know, I'm sure you've gotten that random text message, as an advertisement, from someone you never knew, hadn't heard of before.
There's a big difference between using that channel, SMS, to remind someone to get the most out of a product they just opened, versus someone out of the blue sending a text message. Think about that logically: I just opened up my checking account. Well, of course, my bank is going to remind me to set up direct deposits. Help me do that and show me the best ways to do it. So I think you have to think about the channel separately from the context of how you use that channel.
Push messaging and in-app messaging make a lot of sense. But someone's got to download the app first. A lot of people don't think of that. And part of that is because a lot of banks, particularly big ones, are siloed -- the person who's in charge of the mobile app is in charge of mobile app engagement. But often, they don't have control over the people who don't download the app. It's a different department or a different group. So they're on the hook for overall mobile adoption and engagement. But they don't necessarily have complete authority to affect what ends up being a massive gap, which is a whole bunch of people who never download the app in the first place.
You can build the greatest, most engaging digital banking app in the world and the greatest onboarding process inside that app. If no one downloads the app, nobody will ever see it.
Quick, relevant, often, and frequent communication is key. So, simply doing that, and testing for that, you've got to do it. And via text, email, all those things. If it's highly relevant, if it's contextual, it's different than the random spam email you get. So I'd say that's the number one critical gap that many institutions have.
Email automation is not new. But a lot of the pre-existing systems for them are not catered to financial institutions specifically, which have some unique challenges. There are tons of marketing automation platforms. And think about why half of the banks don't have one set up. If you've ever gone through the process of deploying a system like that, it's a brutal process. It takes months. You go through setting up these completely arbitrary trigger rules. Like, if this happens, I'm gonna send this email. Why? I don't know why, but seems like a good idea. I just want to get through this implementation process, right?
You get to the end of that after many months, you set it up, it's running, the last thing you want to do is open up that can of worms and test it again, or optimize those decisions you made. So I'd bifurcate financial institutions: those community banks and credit unions that really just do not have the capacity or capability to set that up to begin with. So, they just hand out the pack of brochures and make some phone calls. And then you have those who have trudged through that process, but they were so glad to move on to the next one, they didn't test and optimize, see if it worked. It's just set it, forget it. Move on to the next thing.
Both of these are problems that we as a company solve for. For the smaller institutions, the community banks and credit unions, our softare is ready to turn on and start watching. Like it's built for a lot of these objectives that a bank or credit union have -- they all want to encourage direct deposits adoption, they all want to make sure people download the mobile app. So it's ready to go for all those things: you've got the messages, you've got the landing pages, the copy, the content, the nurturing threads, you just turn the thing on watch it work.
Same is the case for the large institutions, but they have slightly different motivations. They think it's 2020, so there's no reason they should have to have a full time marketer to identify every variable testing and optimize it. Our platform is built just for this purpose and can read across all the different institutions, doing different things, and having different success, to figure out automatically what you should test or what you should try. A lot of people are still handing out brochures when you open up your account online. And a couple days later, you get a postcard to tell you about all the great digital services, online banking, mobile banking -- it doesn't make any sense.
Community banks' competitive advantage
You make a very good point in terms of the relative advantage for community banks and credit unions. It's their pre-existing relationships. And by pointing that out, I emphasize their pre-existing relationships, because their unfair advantage is not necessarily competing in the digital world. I know that's somewhat controversial to say. But you know, it's logical to want to build a digital brand or bank. But the hard reality is that, for the thousands of community banks and credit unions, they'll never compete with Chase, Bank of America, large regionals or the digital neobanks, in terms of spend or digital reach. So, the unfair advantage is the loyalty of their existing relationships and their presence within their local communities.
And that's where we say, if you're going to decide where to spend this one scarce dollar, it's a lot smarter to spend it on optimizing your existing relationships, bringing new digital services to those relationships, packaging them together, rather than trying to find a new one to compete with the big boys.
Where onboarding is heading
Onboarding is a loaded term. Most people think of onboarding as account opening. I mentioned my background was digital account opening -- we kind of invented the first way to do that. So when I started my career, it was literally impossible to open up your bank account online. So we were inventing the way to do that, do the background checks, complete the KYC and make it possible to happen. And a lot of people ended up calling that onboarding. We never called it onboarding. We call it account opening. And it's transactional. And now there's dozens of people who will help you with that. And they'll call it onboarding.
I make the analogy: I say, hey, you look at it from an employee or a recruiting standpoint, the onboarding process is not signing the offer letter. It's everything that comes after that to make you productive in the company you just joined. It doesn't stop with the initial transaction or making sure someone's productive with the initial product. We say you should always be onboarding, extending beyond that initial relationship is just such a critical part. If someone doesn't start using the product, they asked for you within 30, 60, or 90 days, the numbers tell you they never will. So you can try to re engage with that user a year later, two years later, it's just not gonna work. It really starts from the second that transactions completed and never stops in terms of engaging and deepening that relationship.
I think onboarding is evolving and evolving quickly. COVID has accelerated a lot of things in terms of all institutions bringing new digital services to their consumers. But this is a sort of a shock to the system to a lot of people who aren't used to an onboarding process or an engagement process, particularly in digital.
They are used to consumers coming in to talk to them in a branch. That's not happening anymore. Look at the big picture. There are a ton of awesome, cool fintech innovations. It's sort of a golden age for fintech. We started off talking about the challenger banks. Well, the advantages they have is cool new fintech innovation. The disadvantage is that they don't have pre-existing relationships. And the hard fact that everyone has to deal with eventually is the cost of acquisition in financial services is extremely high. So you have a lot of these individual cool new fintech innovations, a lot of them start off B2C. And unless you can raise money at a clip like Chime does, who's been extremely successful in raising money and acquiring customers, you're ultimately going to pivot to some sort of B2B2C model, because the cost of acquisition is a lot lower.
In theory, it makes sense to leverage the pre-existing relationships within the banks and credit unions. But the gap in that theory is that many of these institutions don't have it in their DNA to bring new services to their existing members. And that's the real key to what we're filling in that ecosystem -- it's engagement as a service or onboarding as a service, to be able to complete that gap, bring these new innovative fintech solutions in a more efficient way to the end consumer.