The Financial Brand Insights - Fall 2021

” Research demonstrates that when lifetime value (LTV) is taken into account, digital customers can prove to be high-value investments.

By Raj Patel COO & Co-Founder at MANTL

Howto Boost Customer Lifetime Value in Banking

Digital channels allow banks and credit unions to acquire a much higher volume of customers than they would through branches alone. By enabling consumers to open accounts digitally, financial institutions can expect to originate 20% or more of all new accounts online. Yet the increased popularity of digital banking services has led many financial institutions to contemplate the value of their new, digitally- acquired customers. Banks and credit unions may be concerned that digital customers—though typically easier to acquire—may be less valuable when compared to customers onboarded through physical branches. However, research demonstrates that when lifetime value (LTV) is taken into account, digital customers can prove to be high-value investments. LTV is a measurement of how valuable a customer is to your institution across the length of the relationship. For banks and credit unions, it is a useful metric in circumstances where immediate profit margins are thin and it may take a while to break even on acquisition costs. Considering digital customers from an LTV perspective helps solidify the distinct advantages of growing your digital brand. Further, financial institutions that embrace this concept can work to effectively increase the LTV of their customers. Why Lifetime Value Matters LTV helps you determine how much time and resources to invest in acquiring a customer. Since it costs less to keep existing customers than it does to acquire new ones, increasing the value of your existing customers through cross-sells can be an efficient, ongoing way to drive growth.

LTV also helps uncover untapped opportunities for growth in different demographics. For instance, certain age groups may appear less profitable at the start, but provide a higher LTV over time. Typically, older customers have higher deposits and are the primary customers of bank products—but they also have a shorter life cycle with your financial institution. Younger customers, on the other hand, have a longer life cycle with their bank or credit union and more opportunities to invest in products as they go through different life stages like marriage or homeownership. While their initial deposits tend to be lower than those of older customers, focusing on the LTV of younger customers can help banks rethink their acquisition strategy and how they capture value over time. The Key Difference: Older customers have higher deposits, but younger consumers offer opportunities to build substantial LTV as they move through life stages. But you must have the right digital acquisition strategy to attract them. The personal finance company SoFi provides a compelling case study for fostering long-term relationships with digital customers. SoFi started by lending to high-potential college students whose educational backgrounds indicated that they would be more likely to pay off any loans —even though many of them did not have a

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THE FINANCIAL BRAND INSIGHTS FALL 2021

THE FINANCIAL BRAND INSIGHTS FALL 2021

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