With the adoption of unconventional banking methods (such as Apple Pay and PayPal), financial institutions are seeking new ways to improve their bottom line. Loyalty programs are emerging as an attractive option, with research demonstrating most customers only align 46% of their deposit share with one FI brand and 70% of banks believe new customer acquisition is more expensive than retaining existing customers.
Banks are shifting attention to their “most valuable” customers—a high-net-worth, loyal demographic with greater financial needs. Wealthy customers—those with assets valued anywhere from $1 million to $30 million–are six to ten times more profitable than regular customers. While they constitute no more than 30% of financial institutions’ customer bases, they are responsible for as much as 60% to 70% of total customer profits.
The demographic has so much purchasing power that The Boston Consulting Group estimated those within the category worldwide had investible assets of some $122 trillion, enough to buy all New York Stock Exchange securities ten times over.
No longer are large retirement savings pools or rapidly developing economies the most attractive places to find new, high-value capital. After the downturn, Bain Capital theorized wealthy investors’ new needs for diversification would be equally successful drivers.
To convince these existing high-wealth customers to trust a given institution with even more of their assets, FIs need to find out what customers really want and need from their providers.
Transitioning to this new revenue strategy will require a well-executed plan that emphasizes cross-sell, upsell and a return to data and analytics-driven segmentation. In today’s competitive market, FIs need clearly defined motivators for customer behaviors within different income brackets, particularly for those expected to have a high net worth in the future.
High-wealth customers are key to revenue growth
While every customer is important, given the value of the assets they possess, the high wealth customer segment has a much greater potential to make a significant difference in bank revenue than lower-income segments. By using segmentation and the analysis of existing data to isolate this customer group, banks and financial services providers can get a much closer look into the individual customer profiles and take action to ensure the services they receive match their financial needs – or anticipate their future ones. To gain trust and capitalize on this investment, however, banks and financial services providers must identify the three or four attributes that differentiates their behavior and shape their relationships accordingly.
Too much attention can get too difficult
Banks need to reach an unprecedented level of understanding for the preferences and motivations of wealthy customers. Delivering on them and connecting on a personal level motivates further engagement with the brand. Key to the equation is finding a balance between relevancy and practicality.
In an effort to interact with customers on any level, many financial institutions waste time and resources offering incentives and rewards for products customers already intended to use – or even have. However, improved targeting and motivation are easier touted than implemented. Advances have improved analysis and segmentation across industries, but banks are limited by their historic reluctance to invest in new technologies.
For high-wealth customers, large investments in an FI brand usually involve less risky, fixed-income securities with a pre-determined return on investment. Historically, banks only start courting these customers as the end of their term approaches—creating renewal opportunities, but limiting cross-sells and upsells. Instead, financial institutions should communicate with these customers on a regular basis, build a high-engagement relationship over time by learning whether needs are being met and whether they should address any core concerns about the brand. Instrument maturation dates are too late to operate on, as most customers will have already researched any next steps and alternative institutions.
The key for FIs is to cultivate a situation in which a customer has been treated so well he or she feels a moral obligation to continue the relationship.
What do high wealth customers want?
Following the late-2000s recession, wealthy customers, more than ever, demand to understand how their financial services providers are simultaneously protecting their assets and producing strong returns. They also seek an emotional component to their relationship with the bank —knowing they can trust a given brand, and perceive a direct interest from that bank in their well-being beyond wallet size. These customers also crave consistent follow-up and reassurance that their immediate needs are a priority for the bank to meet. They’re accustomed to concierge services and single points of service for all needs, be it ordering or cashing checks or purchasing new financial products.
An example of this can be seen at BB&T private banking. A former employee said the bank made everything negotiable to high-net-worth clients, from interest rates on products ranging from CDs to checking and deposit accounts, bank fees and closing costs on mortgages or home-equity loans.
For the best chance at retaining customers in this income bracket, FIs need targeted strategies that include efforts to enhance the overall customer experience, bridge the gap between older and more modern high-wealth customers and keep this demographic talking about the brand. From hotel stays to concierge services and personal shopping, customers of this status are used to receiving the highest levels of attention. FIs are no exception, and should strive to offer a holistic experience that includes asset allocation, insurance assistance, retirement/ tax planning and debt/trust fund management.
High value, high stakes
Future leaders in the financial sector will be those who understand that segmentation is not a one-time ordeal, but an ongoing process as is the analysis of customer behaviors and preferences found in their data. It will change as demographics, customer needs and technology change, and give financial institutions the tools they need to personalize products and services for high-wealth customers.
So how can institutions prospect this valuable customer segment? We see it through the application of analytics to data and ongoing evaluation of currently held financial information. Wealthy clients are more likely to spread investments among advisors and various account types, to pay lower fees and have more fee-based accounts than mutual fund investments.
The bottom line: With this select customer segment contributing more than 60% of a bank’s profitability, the stakes are very high. Banks simply can’t afford not to invest in analytics that will help them not only identify high-value (or potentially high-value) customers, but help them cater to their very exacting needs.