This Bank's Deposit Innovation Should Spur Your Bank's Creativity

Deposit Innovation

We talk to more than 4,000 banks nationwide and sometimes that is not enough. Last week we had to go out of country in order to get the scoop from Alfa Bank, Russia’s largest private bank ($82B in total assets) and learned something new. The Bank introduced a new deposit account that has a rate of interest tied into an activity tracker.

 

Now, we see a lot of deposit programs, but this is the first of its kind and represents the new face of banking. Banks, in any country, need to think more about how to integrate themselves into a customer’s lifestyle and this is an innovative marriage. Using existing APIs, the Bank was easily able to build an application that connects to RunKeeper, Jawbone UP and Fitbit (these cover about 85% of the activity tracker market) into its online and mobile banking applications.

 

The program sets up a high rate of savings account tied to a checking and allows customers to move money up to the limit of the number of steps you take. The results are impressive as banking engagement shoots up, brand is reportedly enhanced, saving balances are growing in those accounts twice as fast as normal savings balances, and customers are moving 1.5x more than the average fitness tracking user.

 

The Moscow-based bank released a complete advertising campaign around “Healthy is the new wealthy” and positioned the Bank promoting the premise that there is more to life than money. It is a brilliant campaign and plays strongly into the trends of fitness, longevity and quantified activity. 

 

While the high rate is attractive and could hurt the bank’s cost of funds, limiting to daily activity provides an upward bounds of what customers can transfer. Further, while more expensive, the research shows that once customers work hard to move the money into the account, they are very reluctant to withdrawal the funds as they have to have increased activity to get the money in.

 

This behavior connection makes the account exhibit very low interest rate sensitivity and positive convexity. As such, what the account cost in rate, it makes up for in performance and marketing. Customers are attracted to Alfa Bank as it seems fun and supportive of a healthy lifestyle. This psychological tie in, makes customers identify with the bank in a sort of instant brand association. When rates go up the account balances should remain “sticky.”

 

The other thing that the account does well is drive engagement. Now, not only are customers checking their fitness tracker, but they are also curious to see what impact activity has had on their balances so they have increased online and mobile usage.  This further helps cement the brand.

 

The most important takeaway here is to think outside the traditional ways of bank promotion. Normally, a bank would convene a committee and talk about all the standard promotions. The Activity campaign, ties two very different concepts together, but does it very well.

 

Last year, Chevron did something very similar tying gas discounts to several major grocery store chains. The more you shop, the more discounts you received off gas. Chevron gave away almost a third of their profit, but what it gained was increased traffic, increased revenue and desensitized the customer to gas prices as they felt that it didn’t mattered what prices were as long as they could get 20 cents off. While it took a year for the program to catch on, now more than 20% of their clients use the promotion and per tank volumes are up as the number of customers resulting in greater per tank revenue.

 

In this day and age, many companies make “APIs” or pre-built “hooks” into online and mobile applications. Despite being a large bank, Alfa Bank could have created their Activity application for as little as $85,000. Split this cost amongst several community banks and applications of this type are very reasonable. We will be discussing banking innovation at our upcoming Bank Management Conference (only 2 spots left) where we will show banks the Activity concept as well as other available tie-ins with a whole host of non-bank companies and loyalty programs. 

 

Deposit Account Innovation