Pinwheel’s Power of Primacy report exposes myths

Pinwheel’s Power of Primacy report shatters some myths about defining primacy while offering a better way forward. The report, which surveyed 200 executives from banks and credit unions with more than $500 million in deposits, is available here.

Many institutions use the number of new account openings as a success metric, but they shouldn’t. They may run a campaign that generates a few thousand new accounts, but what happens next?

Often, the answer is nothing. Such campaigns are notoriously ineffective; it’s common for most accounts to be dormant within 90 days. There was no connection with the customer, no relationship to build. Customer acquisition costs are hundreds of dollars per account; the cost is in the millions to acquire a few thousand customers. Maybe 20% deliver long-term value.

Primacy is different with Generation Z

Generation Z and Millennials are driving even more change in the digital age. They average as many as seven accounts and are exposed to embedded financial options daily. The norm sees income distributed across many accounts, where your pay lands (possibly spread across multiple accounts) are no longer reliable indicators.

Millennials churn more frequently than other generations. They hold lower balances and are more likely to open accounts online. Very receptive to offers and incentives, Millennials are less likely to use their account as a primary relationship indicator.

Institutions must develop comprehensive relationship-building programs that begin with more selective customer targeting for segments linked to the underserved. Hyper-local campaigns must be based on advanced analytics.

Ensure a simplified onboarding process. Make it easy for new customers to join with smarter switching capabilities. Include personalized journey mapping.

Keep them around with incentives that reward payroll, benefits, deposits and transaction volumes. Savings and budgeting tools drive further stickiness. Use modern technologies to identify and meet needs through relevant products.

“To overcome these headwinds, financial institutions must transform into agile, customer value-driven enterprises initiating strategies that increase their relevance and role as primary financial providers in consumers’ lives. This will require a doubling down in data and artificial intelligence capabilities to deliver personalized financial operating systems, accompanying customers across their financial journeys, thereby strengthening trust and loyalty.”

Obviously, folks won’t bank with you if they don’t trust your institution. Build trust through value alignment, customer centricity, protection from adversity, providing digitally superior experiences, accurate anticipation of needs and personalized service.

Direct deposits as a primacy indicator

While an imperfect measure, direct deposit accounts provide a good foundation for primacy. They maintain 23% higher balances and remain open twice as long as non-payload accounts. Such accounts are associated with higher satisfaction, loyalty and referrals. 

Seamless onboarding is crucial. It must make direct deposit transfers simple to perform. Intelligent switching, in one case, helped a regional back increase new account balances by more than 50%.

“While direct deposit constitutes the cornerstone, integrated digital onboarding spanning full lifetime journeys also proves foundational to securing primacy,” the report states. “Applying decision engines at the point of account opening can qualify customers for relevant cards, accounts and lending products upfront based on integrated data analytics. Instant issuance and fast funding empower new users to immediately access preferred payment types, money management tools, and optional spending or borrowing.”

Pinwheel co-founder and CEO Kurtis Lin said it’s common for consumers to use different accounts for specific purposes. One account may be devoted solely to mortgage payments. Also gone are the days when establishing a checking account guaranteed primacy.

“Are they graduating to an auto loan, mortgage and savings account?” Lin asked. “If they’re not, I would also argue that’s not a primary customer. It’s just somewhere to dump their money for the time being.”

Where banks struggle with primacy

Banks struggle with primacy on two fronts. Many still apply legacy mindsets to customer acquisition in the digital age. Lin said it becomes harder to apply nuance and detail in analysis as they grow larger. Many institutions use suboptimal metrics.

Kurtis Lin said changing economic conditions and an increasingly digital society are changing how banks must approach primacy.

Some analyses suggest data is the center of the new customer relationship. Lin said data has its place, but its influence varies at different points. It should drive simple administrative tasks and is crucial for PFM systems.

But it complements the human touch on more sensitive topics. Even on new account openings, major banks see most of their new account openings completed in person.

That’s quickly changing with Generation Z, who only knows mobile.

“The majority of people are still used to a certain way, and they’re not going anywhere anytime soon, so you still need to make sure that they feel taken care of,” Lin said. “But you have an ever-increasing population of people who have an expectation that their banking app works as seamlessly as all the other apps on their phone.

“They’ve never lived in a world that’s mobile-first or mobile-enabled… it’s mobile-only.”

Homeownership, pandemics and data: Other factors affecting primacy

Over the past 15 years, Generation Z’s financial path has been shaped by a financial crisis and pandemic. While past generations deemed homeownership a cornerstone behavior, Generation Z, including some in Lin’s circle, are priced out of the market. That is changing outlooks, and financial institutions must adapt.

“This generation of consumers… may not want to be a homeowner anymore,” Lin said. “So what does that look like? What is the end of that journey when they don’t consider homeownership the pinnacle of their financial achievements?”

Consumer loyalty will be increasingly affected by embedded finance and data portability. Unlocking data brings previously unavailable products to more people. Fintechs can work with a range of partners to provide unique services.

“Whether it’s us doing that payroll data portability or others doing identity and other data portability, all of it converges on this larger idea that you should able to go wherever you want with all your information,” Lin said. “Providers are obliged to not rely on this single number or this small subset of data. That will be the defining characteristic of this future ecosystem.”

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  • Tony Zerucha

    Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.