The Argus-Equifax Approach: Acquiring Profitable Checking Accounts Through Advanced Targeting
Times are changing for financial institutions and their marketing campaigns. Unfocused mass mailings are no longer likely to acquire profitable checking accounts, nor are they delivering a profitable return on investment (ROI). Today’s prevalence of advanced data allows institutions to specifically identify individuals that are statistically inclined to open and fund profitable checking accounts, while also providing lifelong value and high potential for relationship expansion.
The importance of identifying profitable accounts
There are two major costs typically associated with acquiring a new account: marketing and premiums. Marketing mainly incurs costs for design, printing, production and postage of materials. Premiums, on the other hand, are offered as financial incentives and rewards to encourage new clients to open checking accounts. While marketing costs have generally remained steady over the years, a recent BAI Banking Strategies Executive Report states that premium costs have increased in two ways:
- Five years ago, the average premium offer was $50–$75. Now the cost commonly hovers around $200–$300, with offers reaching up to $5001.
- Approximately half of all customers who accept these higher offers would have opened an account regardless; thus, a $400 offer really costs $800 net per new account2.
“The problem is, the response models are going to select people who are less profitable than average,” says David Bolocan, managing director and head of Retail Banking Solutions at Argus Information and Advisory Services. “The models that we’re building are designed to focus on profitability, expected retention, primacy and relationship expansion. Having that information appended to a segmented list enables you to not just manage your marketing based on response rate but manage it based on profitability.”
Leverage the numbers
Statistics bolster this approach, Bolocan says. The top 25 percent of all checking accounts are very profitable, accounting for about 150 percent of all profits, while the bottom 25 percent often have a negative contribution. It’s clear that identifying the most profitable, while avoiding those with negative contribution, is required for successful portfolio growth.
According to Bolocan, the opportunity for revenue has been reduced from customers who keep low balances, don’t pay fees and yet perform transactions that incur expenses for the bank. The key now is to maximize the acquisition of prospects likely to be in the top tiers and who ultimately produce maximum return on marketing investment.
Combining forces to strengthen data
Argus and Equifax recently announced a strategic alliance to offer Primary ImpactTM, a solution designed specifically to assist banks in profitable checking account acquisitions. The Argus-Equifax alliance takes advantage of an intersection of complementary data sets that aggregate and analyze financial and household insights, in anonomized fashion. Primary Impact employs four proprietary models that, according to Bolocan, “seek to predict the first-year profitability of the account using our knowledge both of the likely revenues and likely expenses.”
But once identified, how exactly should a bank reach a given prospect? “We see the initial application being direct mail, but we also see applications in the space of email marketing, social media and search engine optimization,” says Bolocan. “Being able to control who receives the offer, making a relevant offer and making it sizable enough to cut through all the noise is very important.”
Looking ahead, it seems likely that the acquisition of profitable checking accounts will rely fully on such data-driven segmenting models to yield positive net response rates and increased marketing ROI. According to Bolocan, however, “those banks that move quickly in this area will have a first-mover advantage.” So the time to leverage segmentation has never been greater.
1 David Bolocan, “Targeting Profitable and Primary Checking Prospects” BAI Banking Strategies Executive Report (October 2014) 13.