Customer acquisition – a loss-making business? To what extent are comparison websites and online marketing channels worthwhile for banks?

19. February 2020

Comparison portals and online marketing channels are on the rise with the aim of disrupting the market. To what extent is it worthwhile for banks themselves to invest in them? First off: While it may seem tempting to be found by potential new customers via third-party providers, playing with the allegedly profitable providers does have its pitfalls.

Comparison websites and Google Ads – good for gaining new customers?
Comparison sites such as Check24, Idealo or Verivox are firmly established players in the market. This is great for customers, as the portals present and compare all the participating banks, providers, and products in one place. But what does this seeming opportunity mean for the banks themselves? Are such channels effective in increasing the number of new customers?

Besides bank’s own incentive campaigns, most prospective credit customers these days come via online marketing channels. Only a very small minority still take the direct route via a bank’s homepage, and Google search as a guidance tool is becoming ever more relevant.

The German market for online marketing in the banking world has been divided for years between just a few providers, with Check24 and Google Ads accounting for the bulk. Over 75% of the online marketing budgets of the leading German retail banks are channelled to these two providers. This was the conclusion of a recent study by financeAds, in which experts from 20 major banks participated. The following analysis aims to clarify the costs that banks incur in such cases, and the effects of investments in comparable providers.

Customer acquisition via Google Ads: tougher than expected
Previously known as Google AdWords, the advertiser pays for every click on the ad. If, for example, you click on the topmost ad for the search term “current account”, you generate a turnover of > 7 euros for Google. Depending on the search term, the price can vary greatly and may even be much higher. Even double-digit euro amounts per click are not rare. In most cases, only the top three positions are clicked on. However, the ad that reaches the top position is determined not only by the click bid, but also by a variety of relevance factors that are only partially known to advertisers.

As already indicated, the advertiser has to bid for his position in Google Ads. The allocation of the position is based on the highest bid and qualitative criteria. If a bank wants to purchase the top position with a new ad, a comparatively high price will be charged. However, if customers do not find what they are looking for in the ad text, they will bounce relatively quickly. In this case, the ad fails to meet the necessary quality factors for the specified keyword and cannot retain the first position. No bank has succeeded in keeping its own product ads at Google’s top position in recent years.

This is because the top slots continue to be dominated by comparison sites that secure pole position on the basis of high-quality content. Since such portals act as brokers, they simply transfer banks’ newly won customers to one of their partner financial institutions and, before they know it, the original “winning” bank has lost its new customer.

Google Ads costs – a sample calculation
The following sample calculation illustrates how this looks in practice. For the 7 euros per click mentioned as an example for the search term “current account”, Google predicts about 30,000 clicks. For a combination of “current account” and “comparison”, around 2,000 clicks are expected. According to financeAds, the conversion rate for such a customer is 5%.

So if a bank secures first place, everything runs smoothly and new customers are virtually pre-programmed. Unfortunately, things are not that simple, because a new customer is only one who has successfully completed the entire application process including a Schufa credit check and legitimation. The probability of this is around 50% (confirmation rate). This means:

Advertising costs for Google Ads with 2,000 clicks at 7 euros each = 14,000 euros
2,000 clicks at a conversion rate of 5% = 100 new customers

Accordingly, the Google Ads costs alone for each new customer amount to 140 euros. To this can be added the costs for the company’s own marketing team or commissioned agencies along with any incentives (currently between 50 and 150 euros new customer bonus). If we stay with the current account example, the bank has still not earned a cent with the new customer. On top of that, there are also costs for accounting, handling, and processing. Although the number is decreasing, many banks still offer free cards for checking accounts. The unit price for these is between 5 and 15 euros. The true cost for a new customer via one of these online marketing channels is, therefore, an estimated 500 euros.

Are comparison websites the more efficient alternative?
For many banks, comparison sites are slowly becoming their downfall, especially since the first of the portals have already applied for banking licenses of their own. Nevertheless, this does not seem to deter the banks as advertising partners. How should banks react to this trend? For a definitive answer, we first need to take a closer look at the cost breakdown.

Here is what a bank might expect when a new current account customer is generated via a comparison website:

Placement costs are generally not required. A bank must pay around 80-120 euros directly to the portal when acquiring a new customer. The prerequisite for this is that the current account is opened. Whether the customer cancels the account a day later is of no consequence. There are nevertheless influencing factors that can rank the respective ad higher up the list. By controlling the top rankings, the comparison portal indirectly influences the incentive. An example: a bank may offer a bonus of 50 euros to new customers when they open an account. For a good placement, however, they have to increase this amount to 100 euros. This assures the bank a correspondingly good position in the overall ranking, but increases the cost of customer acquisition. What each new customer ultimately costs depends on the individual bounce rate. It is therefore solely at the bank’s discretion as to whether cooperating with comparison websites is worth it in the final analysis.

How much is the new customer really worth to you in the end?
Every bank should assess the value of a new customer. There is no doubt that comparison sites are high-quality channels for acquiring new customers. But does this justify paying any price? And at what point does a bank start earning on its new customer? Is it worth it in the end?

It should also be noted that any customer acquired via a portal is also a customer of theirs. This is particularly important when it comes to a later extension or follow-up business. Because the comparison website will once again offer its services and, in certain circumstances, new customers may depart as quickly as they arrived. Here, therefore, are some possible approaches to investing the acquisition budget more efficiently:

Approach 1 – define the average value of new customers

Approach 2 – evaluate current marketing activities and channels in terms of their new customer price

Approach 3 – differentiate the value of new customers according to their entry channel

Possible alternatives to comparison websites and suchlike
Due to the ongoing changes in the financial world, many banks are faced with declining margins and rising costs. Those banks that are creative, innovative, and do their sums properly are definitely in a better position than those that blindly spend vast sums of money on online marketing activities. So what alternatives to online portals do banks have? Fortunately, there are a number of answers to this question.

1. It pays to look after existing customers!

One factor should not be underestimated in all the efforts to acquire new customers – the customers themselves. Banks should focus on their existing clientele. Why? Because customers who are already convinced of the product have trust, and are therefore more likely to be convinced a second time. The contact to the bank already exists, and can be built upon on this basis. Furthermore, switching to a new financial institution involves effort. If the current bank offers attractive conditions, no one voluntarily takes this upon themselves.

2. Innovations increase customer loyalty
Banks need to ask themselves what causes their customers to change providers, and invest accordingly in countermeasures. Innovative options are a convincing approach. The keyword here is customer centricity. The customer is king and wants to be able to access all account information online at all times, to enjoy digital offers, and to handle the most important processes by mobile phone. Valuable applications make it possible to perform customer-specific processes via smartphone with little effort on the client’s part. This not only simplifies all the processes, but is also in the interest of a satisfied customer.

3. Save resources by using the right tools
Making an attractive new offer to existing customers when their contracts are about to expire requires fewer resources than the expensive acquisition of new ones via online channels. Customer-centric software tools can even handle this for you. With solutions like the digital workplace fintus Cockpit, customers can be contacted automatically by the system with a new offer when contracts are coming to an end. This enables the bank to act in good time and retain existing customers.
The use of customer onboarding software can also increase conversion rates and significantly reduce acquisition costs. Software solutions such as fintus’ Digital Customer Onboarding, for example, handle the entire application process including all the necessary checks and credit decisions without requiring any human input.

David Lenk,
February 2020

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