David Wallace, SAS

How do you find, and keep, tomorrow’s high-value customers? That’s an important question for banks faced with a slow-growth environment. For some institutions, investing heavily in the latest technologies to woo young, tech-savvy customers would seem a strong bet. And it might be – but only if banks have done their homework.

Financial institutions understand that they need to keep their high-value customers, while also trying to figure out how to lure the high-value customers of tomorrow. Segmenting customers only along rigid age and income lines does not accomplish this.

A recent study by BAI Research helps explain how careful, detailed customer segmentation can make a difference both in choosing new platforms to deliver services on and marketing them in the most cost-effective manner possible. In addition, the BAI report notes something that financial institutions will find reassuring: If you aim the right pitch at the right group of consumers, they’ll welcome it.

Asking the right questions

Financial institutions know a customer with a loyal streak is certainly more valuable over their lifetime than one who hops from bank to bank. But how do you figure out who these customers are now – and in the future? And what will it take to bring them in and make them happy? Which services matter, and why?

In its report The New Dynamics of Consumer Banking Relationships, BAI has identified an interesting segment it calls the “struggling techies.” They are young, and have the lowest income of the middle-class customer group that BAI surveyed and analyzed. These individuals have the lowest deposits, fewest loans and are the biggest users of mobile banking and mobile bill pay.

It’s easy to think, “interesting category, let me slap a ‘do not market’ sticker on this group.” In addition, given this group’s heavy use of mobile banking and mobile bill pay, institutions that haven’t invested in these areas might wonder if they are worth it. Think again. Struggling techies – a category that didn’t exist the last time BAI researched consumer trends in 2003 – have great growth potential, a loyal streak, and are quite receptive to well-calibrated pitches. Drawing them into your institution early can turn them into a very profitable segment later on.

Struggling techies are the youngest group with the lowest income. According to the report, they are active in managing their finances and very receptive to financial institutions proactively pursuing their business with tempting offers. A large percent use online, mobile and debit services – and use them frequently. Although they have the lowest deposit balances of any group segmented, they have the highest share of wallet at their primary financial institution.

Why struggling techies are a potential goldmine

It might be tempting to wait for struggling techies to morph into something more recognizable, such as dual-income direct depositors with a mortgage and some 401k money to roll over. I’m sure some banks thought the same thing when the ATM machine arrived. But in the past, people searched for an institution with the best ATM locations, or the biggest network, or the lowest fees. Struggling techies are smart seekers. Let’s learn more about them.

Eighty-three percent of struggling techies will choose one financial institution for all their needs if offered a financial reward of some sort – the highest percent of any of the groups that BAI identified in their report, including those like the “sophisticated opportunists” and the “satisfied traditionalists” who earn higher incomes and keep more money in their banking accounts. Seventy-four percent of struggling techies will choose one institution if it has everything they need (second only to sophisticated opportunists.) Forty-eight percent are willing to switch financial institutions for one that is more innovative – the highest of any segment.

But how does that translate into portfolio growth? This is where it gets interesting. Despite being the lowest-earning group of those BAI identified, struggling techies can have the biggest potential portfolio growth if share of wallet hits targets. Attracting struggling techies to loans could increase growth by 46 percent. Attracting them to investment products could increase growth by a whopping 166 percent. The wealthier sophisticated opportunists group can help increase growth by 26 percent and 107 percent respectively.    

So how do you find these struggling techies and help them make a home at your institution? Age alone isn’t enough to segment on, nor can you do it strictly by income. Financial institutions need to be able to go beyond basic demographic indicators like assets and income, and instead look at how existing customers interact with the bank. Do they bank online or in person? Move accounts when offered a promotion? Sign up for the latest app? And remember – segments aren’t cast in stone. Some banks might find segments within their customer base that are different than what BAI found. But they won’t know until they ask the questions and explore the data.

Ultimately, the coolest technological offerings – and the most robust social media operations – will be ineffective if institutions don’t understand how they relate to the customers they have, and the ones they seek.

Read the full report: The New Dynamics of Consumer Banking Relationships

This article was originally published by Bank Systems & Technology, June 2012.