Blog Posts Process Analysis

Financial Health: The Key to the Future of Customer Acquisition

Blog: Enterprise Decision Management Blog

For all the differences between traditional banks and new online lenders, there is one business challenge that unites both groups: acquiring new customers.

Despite the advancements made by online lenders in many traditional financial services processes (such as account opening), the methods most online lenders use to advertise to and acquire new customers come straight out of the bank marketing playbook – third-party brokers, television ads, and even direct mail solicitations.

While online lenders experiment with offline marketing tactics, banks are aggressively ramping up their online marketing efforts, with total digital ad spend by U.S. financial institutions predicted to top $10 billion in 2019 (up from $5.3 billion in 2013). This shift is being motivated by continuing declines in branch activity and the increasingly-evident risks of branch-based sales strategies.

The result is that both groups are converging on a set of established acquisition techniques that are compatible with a post-branch environment. The problem, of course, is that this convergence will drive up all parties’ acquisition costs. While more intense competition in these marketing channels will be great for Google, Facebook, and the U.S. Postal Service, it will likely prove unsustainable for both banks and online lenders in the long run.

A new approach is needed. One that is aligned with the digital-centric preferences of today’s consumer, sustainable from a cost perspective, and able to differentiate your company from the numerous competitors jostling for your prospective customers’ attention.

Several leading banks and online lenders have started to experiment with a new approach by providing free financial health and planning tools to customers and non-customers alike. This approach enables these lenders to build a “user base” of engaged prospects who start to look to the lenders for information about their financial health and recommendations for improving it. This puts these lenders in the privileged position of knowing users’ financial situations and being able to (eventually) make relevant product and service recommendations that will help users meet their financial goals.

Here are a couple of interesting (though nascent) examples from both online lending and traditional banking:

If you use either of these services, it becomes apparent that Prosper and Discover are more focused on providing valuable financial management assistance to users than they are on marketing or cross-selling. This patience speaks well of both companies. Developing a critical mass of highly engaged users takes time and can be easily undercut by early attempts at monetization. This is particularly true in financial services, where users are looking for services that they can trust to prioritize their personal financial health and success over the short-term profits of the companies providing those services. Establishing that trust is critical because it opens the door to carefully crafted, highly targeted product and service recommendations down the road.

In a way, these new financial health tools are trying to establish a modern replacement for what bank branches used to provide – a trusted environment for financial services and advice.

Banks and online lenders looking to replicate this approach (and eventually monetize it) will need a couple of key ingredients:

When the question is how to develop a new, differentiated approach to customer acquisition, the truth is that there is no easy answer. However, at a time when banks and online lenders are increasingly competing for the same customers in the same marketing channels, we know that this question is of paramount importance.

While it is too early to know definitively what the future of customer acquisition will look like, the financial health initiatives at Prosper Marketplace and Discover give us an intriguing hint.

FICO is a Gold Sponsor at LendIt USA 2017 which will take place on March 6-7, 2017 in New York City

Alex Johnson is a senior thought-leader for FICO’s credit risk lifecycle solutions 

The post Financial Health: The Key to the Future of Customer Acquisition appeared first on FICO.

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