As more customers spread their wealth across multiple accounts, financial institutions need to develop new marketing strategies to engage their existing customers.
In retail financial services, a new demographic is emerging: the overbanked. An overbanked customer has accounts with at least three different financial institutions. As new technologies take the hassle out of overbanking, the demographic is growing rapidly, threatening to upend the traditional relationship-based banking model.
The Multi-Bank Advantage
The overbanked tend to be tech-savvy and wealthy. They have high financially literacy, but no financial loyalty. They deny having a “relationship” with any financial institution. For checking, they hold an account with a large bank with plenty of local ATMs. For savings, they benefit from superior interest rates with an online-only bank. For investments, they have a discount online brokerage account for active trading, and a separate index-investment account for long-term retirement goals.
Their end-goal is to maximize returns and minimize fees. They would rather switch banks than start paying fees to their current bank.
The good news for penny-pinchers is that thanks to technology, overbanking is no longer the headache it used to be. Comparison engines like NerdWallet make it easy to shop across providers for the best deals. Aggregation products like Mint allow consumers to view and manage all of their accounts in one place. Even transferring money between banks has become a breeze. This year, the country’s largest banks teamed up to create ClearXChange, a technology that enables same-day transfers between institutions.
Thanks to these new technologies, multiple accounts no longer means visiting multiple banks, remembering multiple passwords, or waiting days for your money transfers.
A case for the overbanked
Overbanked customers achieve peace of mind in addition to bottom-line savings. Since the financial crisis of 2008, people have been reluctant to keep all their financial eggs in one basket. Having multiple accounts also ensures constant connectivity; brokers and banks experience occasional service outages, so it’s reassuring to have a backup account to place a critical trade or withdraw cash in case of an outage.
Today, 38% of investors are able to get a better deal by looking outside their primary provider.* Most retail investors have two or three brokerage accounts. With comparison engines, aggregation software, and same-day transfer capabilities, it’s no longer a hassle to shop around for financial products.
As these enabling technologies become more popular, it’s no surprise that overbanking is on the rise. Last year, more than one-third of consumers shopped for financial products outside their primary bank.* While this trend continues, financial institutions will need to develop new ways to engage their existing customers, as loyalties increasingly depend on rock-bottom fees.
*Source: Oliver Wyman