A reliance on virtual channels for new customer acquisition. That may sound like the standard playbook for any FinTech, but it is increasingly the approach taken by financial services incumbents—with a twist. In a trend seen in recent market developments, a reshuffling of the go-to-market approach is giving a boost to the traditional physical network.
For many financial institutions, customer acquisition has been tied to the constraints of a “physical” operating model. Banks have tended to lead with checking accounts, often out of branches, to grow their customer base while wealth management firms have targeted customers with higher levels of wealth to cover physical operating costs.
But as institutions build out their digital platforms, customer acquisition methods will change. New methods will focus on scale, which can include bulk acquisition or products flexible enough for national reach through digital-only channels. Both approaches will change the top of the funnel, and can inform strategic decisions and accelerate growth for the broader “physical” business.
Customer acquisition first, branch proximity later
At its recent investor day, JPMorgan noted that it has 6.5 million credit card customers in Boston, Philadelphia, and Washington, DC, three markets where it has been opening branches.1 Management noted that these credit card customers are by far the largest source of new in-branch account openings as branch expansion now supports the needs of what had been just a virtual relationship.
This is just one data point, but it reinforces the change seen in acquisition strategies: pursue a customer, not a product. Traditional bank logic is arguably constrained by the boundaries of the physical branch or human network to generate new customer growth. With digital assets, whether a traditional credit card or a financial aggregation app, a nationwide approach can amplify customer acquisition potential with a data-rich framework to then inform the physical strategy. Based on consumer spending patterns or financial wellness, institutions can make more informed decisions on branch expansion or closure, as well as on how to do a better job in developing relationships across discrete customer segments.
Bulk acquisitions and scale enabled by digital tie-ins
Digital platforms also provide the opportunity for bulk customer acquisition. Morgan Stanley’s recently announced acquisition of Solium provides a pipeline to one million captive customers, giving it immediate leverage for its client acquisition strategy.2
The wealth management industry has historically been bound by the capacity of its advisor network and fee potential for particular wealth thresholds. Lower cost digital distribution and robo-advisor capabilities changed the economics of the industry, enabling firms to target customers earlier in their wealth accumulation. Whether incumbent wealth management firms missed the robust period for digital acquisition is up for debate, but as institutions build out their digital platforms, nontraditional approaches to add scale to capture a broader set of desirable customer segments become increasingly likely.
The US wealth management industry is roughly a $400 billion annual revenue opportunity. As digital and incumbent advisors increasingly target customer segments earlier in their wealth accumulation, it will open 25% to 50% of this opportunity—a segment that was difficult to profitably serve without digital capabilities. Whether industry participants look to add scale with outright acquisitions or wholesale partnerships (wealth advisors partnering with large commercial entities to develop a pipeline to an employee base, for example), atypical approaches for bulk customer acquisition may become more common.
Should this play out, developing personalization at scale could be the challenge. As digital-only channels gain wider acceptance, much of the client-to-advisor personal connection may arguably be lost. Like with banks, success hinges on how to replace this traditional avenue for relationship building. Options will likely include granular client segmentation (multiple tiers with different price thresholds to capture the lower-end), personalization, and holistic management—meaning a comprehensive relationship to cover multiple spend now, spend later, save now, save later decisions.
As the customer acquisition funnel changes, the goal should be to have all products act as entry points for relationships
Multiple line of business customers generate 2.5 times the amount of pretax income than their single line counterparts. The industry is beginning to realize that personalized digital relationships are the most logical pathway to achieve this, as digitally engaged customers are twice as likely to be a multi-line customers generating twice the card spend. This in turn creates greater growth prospects, both from a profitability standpoint and an overall balance sheet standpoint.
Data-driven personalization across products, particularly as digital becomes a larger piece of the acquisition story, will allow companies to improve their ability to strategically acquire target demographics rather than target a specific business mix. No matter the product, single line customers are far lower in profitability than those who hold multiple products at the same institution, and traditional product-based acquisition strategies appear more likely to lead to a single product relationship.
Financial Services Leader, PwC US
Financial Services Advisory Digital Leader, PwC US