By Nicole Volpe, Contributor at The Financial Brand
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For banks and credit unions, cash incentives are a powerful way to lower the effective price of a checking account to gain market share — provided of course that the lifetime value of the customer or member exceeds the total cost of acquisition. But with other acquisition channels drying up, more institutions are reaching for the same lever — and many are doing so without a clear strategy.
Institutions seeking growth recognize the market forces that are driving the action. Account balances grew strongly in the pandemic but have since fallen as inflation and spending rose. Meanwhile, as Fed hikes level off and head down, CD and savings rates are less effective for new account acquisition. And competition from fintechs, neobanks, and money market funds is only intensifying. Over the past three years, campaign volume has grown 24%, checking-account incentives 57%, and average spend per campaign 75%, according to a Vericast analysis of Mintel/Comperemedia data.
“An institution that is willing to offer a competitive cash incentive will always outperform, all things equal, an identical institution that does not offer a cash incentive,” said Fred Cadena, Head of Client Strategy at Vericast. “The cash is so prevalent in the market that you are going to hinder your competitiveness by not offering one.”
But many institutions choose not to, Cadena said — whether because they don’t believe in paying to acquire, or because they haven’t been able to make a good business case, or because they’ve been burned in the past. For institutions reconsidering their position, what follows is a framework for getting it right.
Misconception 1: Chase is Driving the Arms Race
Perhaps because Chase offers show up in so many of our mailboxes, many institutions might assume it’s the incentive pacesetter. But the biggest spender isn’t the country’s biggest bank.
It’s the tier just below: large nationals in the $250 billion to $1 trillion asset range, which offer average incentives of $484, according to Vericast, versus the $410 that Chase and other trillion asset-plus mega banks field on average.
Another mega bank specter haunting small-institution strategists is Wells Fargo, which was freed last year from the regulatory growth cap it had operated under since 2018.
Misconception 2: Credit Unions Don’t Need to Offer Big Incentives
The conventional wisdom is that credit unions don’t need to out-bid banks for new accounts — their inherent cost advantages make up the dollar difference, and they tend to be more conservative about acquisition in general.
That may still be true.