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Camouflage: Your Best Prospects Are Disguised as Customers

Strategically Speaking
Aug 1, 2012

Lee Wetherington Author: Lee Wetherington,


I live in South Georgia. On a dirt road. In the woods.

Camouflage is common here. On hunters, trucks, barco loungers, even toilet paper. Yes, toilet paper…the last thing you’d want camouflaged when you really need it. Go figure.

Maybe it’s where I live, but lately I’ve been seeing everything—or is it nothing?—in camouflage. It seems both banks and credit unions suffer from being unable to see what is lurking nearby.

To hedge against dwindling fee income per account, many financial institutions are desperately seeking new account acquisitions to bolster volumes. The problem, according to a Cornerstone Advisors’ report, Benchmarks and Best Practices for Mid-Size Banks, is that banks are closing 100 accounts for every 112 new accounts opened, i.e., they are “opening 112 new accounts to net grow only 12”.

Other financial institutions, however, are beginning to look inward for growth, and they are discovering major opportunities camouflaged among existing clientele.

Underbanked Disguised as Banked

Birmingham, Ala.-based Regions bank has received a lot of press recently for discovering that 23% of its customers are also consumers of alternative financial services such as check cashing, money orders and payday loans. In other words, Regions realized that they were already and unwittingly underserving the underbanked.

In response, Regions launched “Now Banking”, a suite of transaction products that includes check cashing with immediate funds availability, reloadable prepaid cards, money transfers, payday loans (at a rate well below that of nonbanks), savings accounts with matching fund contributions, and, next year, the ability to load prepaid cards via mobile Remote Deposit Capture (RDC). The offering has been so popular with existing customers that word spread quickly, and now the majority of “Now Banking” enrollees are new customers.

The strategic takeaway is twofold. First, financial institutions must do the analysis to identify major opportunities within their existing customer and member bases. Between 25% and 30% of retail banking customers use alternative financial service providers, according to the Center for Financial Services Innovation, a Chicago-based nonprofit.

Second, while many banks and credit unions already offer one or more products that appeal to underbanked consumers, few make those products visible to the very customers who would find them most valuable, i.e., those products remain effectively camouflaged.

In sum, financial institutions don’t fully see/understand those they already serve, and those they already serve don’t fully see/understand what their financial institutions offer. Camouflage can be double blind.

Businesses Disguised as Consumers

The underbanked, however, aren’t the biggest opportunity lurking in the consumer DDA base. According to a 2011 Aite Group survey, 56% of community banks serve small-to-medium size businesses (SMBs) through the same online banking solution provided to consumer customers.

Other research suggests that between 40% and 60% of SMBs do not have business checking accounts, much less the micro cash management and payments services they need most and for which they would be willing to pay. Even among SMBs that have business checking accounts, fewer than 7% use online cash management, and less than 1% use online bill pay.

It would be one thing if banks were knowingly ignoring SMBs, but they’re not. Most simply don’t know they’re there; they have not yet identified SMB owners among consumer DDA accounts, something that can be accomplished by cross-referencing account owners against a Dun and Bradstreet® database.

The stakes are high. While small-business owners represent between 10% and 12% of a retail bank’s customers, they account for up to 35% of a retail bank’s revenue, according to Novantas, LLC. When you add in the value of the small-business owner, who tends to be more affluent than the average customer, SMB owners can account for as much as 50% of retail bank revenue, a staggering share from an unidentified and virtually untapped segment.

Why Removing the Camouflage Matters Now

The popularity of mobile RDC is bringing new urgency to a better, clearer, and more accurate understanding of the consumers and businesses that financial institutions serve.

In a recent blog post, Celent’s Bob Meara exploded the conventional assumption that mobile RDC is primarily a consumer offering. According to Celent research, about two-thirds of all SMBs average less than five checks per deposit, making them perfect candidates for mobile RDC.

Since less than 10% of SMBs have RDC, and since SMBs are more inclined to pay for value, it’s high time financial institutions abandon assumptions, take a closer look, identify the underserved, and match value with price.

If consumers are willing to pay $.50 per mobile remote deposit—as they have already demonstrated in several markets—what might long neglected SMBs be willing to pay for the convenience? And what does it matter if a financial institution can’t first distinguish consumers from businesses within its own ranks?

So, ditch the customer camo, and please help me find that roll of toilet paper that I swear was just here a moment ago.


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