It's expensive for banks to acquire new customers. The acquisition cost of a retail banking customer is roughly $200. Now more than ever, banks are under pressure to reduce customer acquisition costs in order to achieve sustainable growth.
The reason for this is twofold. First, the competitive landscape is changing. Challenger banks and fintechs are winning customers through aggressive growth strategies. They're taking a growth hacking approaching customer acquisition -- and it's working.
These disruptive new entrants are also reshaping customer expectations. The truth is, banks are no longer competing on interest rates, fees, or rewards. Instead, they're competing on customer experience.
In this article, we'll take a look at four ways banks can win new customers and decrease their customer acquisition costs. We'll explore growth challenges and opportunities banks face in 2020 and beyond.
Friction in the customer journey = missed opportunity to reduce customer acquisition costs
Unsurprisingly, much of the opportunity to decrease customer acquisition costs happens during the onboarding process. Opening a new account is the usually first experience customers have with a bank, and making a good first impression counts.
Banking customers are increasingly opening accounts online, especially in the wake of COVID-19. This, in and of itself, is good news for banks. The cost to acquire new customers is less when done online.
Yet, digital onboarding in the banking industry needs some work. 40% of consumers abandon onboarding processes when opening a new bank account. The top three reasons are:
- too lengthy of a process
- time-consuming authentication
- difficulty in filling out forms
Similarly, 61% of people believe it would be at least somewhat difficult to switch banks. 70% of Americans have never switched banks, despite the fact that:
- Nearly 50% of Americans would switch banks for higher interest rates
- 40% of Americans would switch banks for lower fees
This paints a clear picture. The (perceived) hassle of switching banks deters people from doing so. And, they're not exactly wrong. With a 40% abandonment rate during the onboarding process, there is clearly some room for improvement.
4 ways to reduce customer acquisition costs
1. Make lead generation a conversation, not an interrogation
To compete, retail banks need to take notes from challenger banks. These tech-focused financial institutions owe their success to providing a simplified and intuitive customer experience.
Take N26 for example. N26 helps customers create a bank account in just 5 minutes. What's more, the whole process is automated in a way that feels like you're chatting with a friend.
Neobanks and fintechs aren't the only ones getting conversational. Conversational banking is a hot topic for most retail banks. Conversational banking is a multi-channel approach to marketing, selling, and serving customers. It creates a cohesive customer experience no matter how or where a customer reaches out.
This approach significantly cuts down on the costs associated with customer acquisition. Until now, a fully automated approach to onboarding would have been difficult to do well. In 2020, purposeful automation adds value to customer experiences.
2. Identify sources of friction
Similarly, banks need to pinpoint the sources of friction in the customer journey. In other words: what specifically is making customers abandon the onboarding process?
Again, let's use N26 as an example. The bank is continuously making the account creation process faster. By integrating facial recognition and fingerprint technology into its conversational app, it's easy for the customer to verify their identity.
The company reports that what took three minutes in the past is now possible in 15 seconds. Therein lies the main goal of modern user interfaces — minimize the number of steps it takes to complete a goal. Doing so reduces friction, frustration, and customer churn.
3. Nurture leads
Banks also need to rethink their lead nurturing strategies. The goal of lead nurturing is to build relationships with potential customers that are not ready to buy. But, many banks are still taking an outdated approach.
Successful lead nurturing delivers relevant and contextual content in order to move them closer to the desired goal. This shouldn't be limited to email campaigns or mass promotional pushes.
Instead, banks should approach lead nurturing in a conversational manner. Having 1:1 conversations with potential customers is the best way to address objections. A two-way dialogue is much more effective than sending an email and hoping it sticks.
The best way to nurture leads is to hold personal conversations on the channels that they prefer.
4. Meet customers on their preferred channels
That brings us to our fourth point. People prefer messaging to other forms of communication — sending over 65 billion messages each day on WhatsApp alone.
More than half of us would rather message a brand than call customer service. Yet, many businesses are still forcing their customers to contact them through traditional channels like phone and email.
For now, the communication gap represents a chance for companies to address a common pain point for customers. Those who bridge the gap build more competitive business models and decrease customer acquisition costs.
Messaging, combined with automation, is the only way to do this at scale. Businesses that open up new messaging channels handle more support volume without the need to grow their existing teams.
A thoughtful approach to automation makes teams more efficient, freeing up human agents to focus on supporting customers in a more meaningful way. This, of course, will reduce customer acquisition costs.
The solution for modern banks
It's clear that personalization, speed, and convenience are necessary to reduce customer acquisition costs. Banks must adopt a conversational platform that makes winning new customers less expensive -- while also making things more seamless.
Conversational applications are the only way forward. They combine existing communication preferences, intuitive experiences, and automation for winning customer experiences.
Are you ready to reduce customer acquisition costs with conversational apps? Get in touch with the experts at Hubtype, today