A Comprehensive Approach Requires an Offense and a Defense
Traditionally, customer or member acquisition was related to securing checking account customers. While that’s still a large component of customer acquisition strategies, it’s still only one of the proven strategies used to acquire new members. In this article, we will explore several components of a comprehensive customer growth strategy. We will also identify which of these strategies will serve as a defensive measure related to customer attrition.
Acquisition Practices Need to Change with Consumer Behavior
The pandemic has changed consumer behavior. Businesses have had to cope with many barriers to business as usual, with closures, social distancing, reduced foot traffic, etc. Consumers are concerned with both family health and financial well-being. Financial institutions are no exception to the new pandemic world. Now with the Omicron variant, the country is becoming more cautious again. Lobbies have closed again. More and more banking procedures have shifted to online transactions. Account openings, loan approvals, and online chat have replaced most of the face-to-face activities in the past. Sources of lending have been affected as well. New auto loan sales fell dramatically, with dealerships unable to move inventory for numerous reasons. For several months indirect lending has dropped to lows never seen before! One of our larger clients stated it was the first time that direct auto loans outpaced their indirect portfolio! The Stellar Financial Group’s auto loan refinance program has grown assets to record levels each month during the pandemic. Used auto sales are at an all-time high. CNet.com reports that “used car sales rise as Americans tighten belts during coronavirus.
The used car market has become larger than the new car market. More used cars exchange hands each year than new cars are sold.” Used car prices hit a record high during the pandemic (barrons.com). Nypost.com states “Americans typically become more frugal and favor used cars in uncertain times. Cars remain a vital commodity in a country where getting to work without a vehicle is impossible in all but a few large cities.” According to Cox Automotive, new vehicle sales for the week ending May 28th were down 28 percent, but sales of used vehicles were up 6 percent. We haven’t seen these numbers change at all through the fall of 2021.
The Auto Loan Refinance Opportunity
First, there are some $3 million auto loans in the U.S. totaling an excess of $30 billion in loan volume where the consumer is grossly overpaying. In some cases, this translates to $6,000 over the term of their loan. Most of these consumers have no idea this is the case. They can be easily identified, and most would save well over $1,200 annually if their loan was refinanced. Is it fair to assume this first interaction with a consumer may very well retain them for the long term? Is it also fair to assume they might be pre-disposed to do additional business with you in the future? Of course, the answer to both questions is an unquestionable “yes”. Oh, by the way, the loan loss percentage on these consumers is well below the average of your auto loan portfolio and we are currently seeing on average an interest rate after refinancing over 6%. Keep in mind this opportunity also serves as a defensive. measure against member attrition. Every day refinance companies are targeting your members with the opportunity to save money. Take the initiative and serve your members first before they get poached by another company.
Hot New Member Acquisition Strategy – Our Proven Solution
The Stellar Financial Group’s success-fee-based auto loan refinancing program provides real membership growth that is extremely profitable to the credit union. These new members look and act like your current members. They live in the same kind of homes, have similar incomes and banking needs, and will act similarly to your current membership account mix. Our typical gross yield is between 6-7%, and net margins around 5%, these new members provide a great return on investment! Our average interest income being generated is many multiples of the acquisition cost, with a Stellar average of $2,581 in interest income within 30 months, as well as $540 in non-interest income from GAP, MBI, AD&D, etc. But, that is just for the current loan. We are seeing close to a 40% penetration of account transactions accompanying these loans. That’s an additional 30% increase in additional loan activity. Bottom line, balancing new member acquisition costs with member return value must be considered when growing an institution organically. Stellar’s turn-key program brings new members that have proven balanced loan portfolios, creating greater ROI’s, and reducing overall marketing risks. Stellar pays for 100% of the marketing costs. The credit union pays when loans are funded that can be directly matched back to Stellar’s efforts.
Your Members are Vulnerable
One of the most overlooked vulnerabilities are your current members that have an auto loan that carries a higher than necessary interest rate. Those members are being marketed to daily by the refinancing companies. Keep in mind that retaining a member carries the value of having to pay for two additional members. There’s a simple solution to this costly retention problem. Monthly campaigns to these members that you know have an auto loan with another lender and also targeted campaigns to those members that may have a loan with another lender. These two distinct member groups respond at accelerated rates and are critical to sustained member growth. Stellar provides this solution to numerous clients with outstanding results. Due to the accelerated response rates, we offer this solution at a success-based-fee starting at an industry-low rate of 1.25%.
Market Disruption has Presented a Huge Opportunity
Market disruption has never been higher. Think about it, we are even seeing credit unions buying banks and vice versa. That would have been dismissed as impossible just a couple of years ago. This phenomenon continues to gain strength as the opportunity to grow your checking and deposit base peaks. We have seen this with our checking account acquisition program for many years. Clients that continue marketing and building their brand gain a disproportionately larger share of retail deposit growth. Many institutions have ignored this growth opportunity due to being flush with deposits. Our clients that have maintained their marketing efforts over the past several years have seen significant growth that would have otherwise gone to a competitor. Consider this benefit that has gained significant strength over the past two years. The pandemic has changed consumer behavior related to payments. Debit cards are used for multiple purchase types at rates we have never seen before. Debit card growth has outpaced credit card growth. The interchange fees related to this change in consumer behavior have made the checking account more valuable than ever.
Checking Acquisition – Small Budget, Big Results
The Stellar “Deposit Direct” strategy is designed for any size institution to participate in gaining retail checking growth regardless of their available budget. One of our clients has maintained their marketing efforts with Stellar over a period of 10 years, spending on average less than $50,000 per year. In addition, we managed their program without ever having them commit to more than the next campaign. Signing three and five-year contracts is simply not necessary if the solution works. We simply don’t believe in contracts unless required by our client.
Overdraft Fees & Programs Must Be Addressed
Consumers, politicians, the media, and regulators are forcing a change in how these programs are priced and administered. Failure to take these changes seriously and develop your own overdraft program will ultimately be viewed as a missed opportunity to do the right thing for your customers and members. Numerous neobanks and several large banks such as Wells Fargo and BofA have already announced significant changes to their programs and pricing. This issue is not going away and is just gaining momentum.
Recent Market Changes Require a New Strategy for Growth
When developing a comprehensive growth strategy, it’s a mistake to not include initiatives that address attrition. Much of what we talk about in this article, and execute daily for our clients, is a combination of growing their customer base and ensuring the loss of customers is minimized. That approach has never been more critical for the banking industry than it is today. As consumers buying and spending habits change, it’s incumbent upon every banking institution to not only be cognisant of the changes but also address those changes in their strategic planning. Failure to do so will have a long-term negative effect on your ability to compete. The industry is changing rapidly, are you making the necessary changes in your growth strategy to maximize your revenue potential?
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