• Alexey posted an update in the group Group logo of Relationship Centricity Relationship Centricity 6 years, 4 months ago

    I would like to talk about measuring the relationship strength. There are many different methods… Personally I prefer to look at the following KPI: number of products per customer, lifetime in the bank when customer is active (months), number of transactions per month, income per customer, DDA balances per customer. What do you think would be interesting to look at?
    Also, I would like to talk separately about DDA balances. The idea is the following: if the share of DDA balances in all deposits is high (more than 30-40%), it means that customers are using the bank on everyday basis and keep their money in the bank not because of high interest rate, but due to convenience and comfort. These money are cheap for he bank and more sticky than term deposits because there is no “price factor”. This is one of the indicators that shows relationship strength between the Bank and it’s customers.
    However, I think that in order to use this ratio as a benchmark, it requires some segmentation approach… There are different customer segments which use their money in different way, for example Affluent customer will never keep all their money on DDA. Probably they will keep some amount for day-to-day usage, and the rest they will invest into deposits, mutual funds, etc.
    What do you think the DDA share for different segments is? Affluent? Mass Affluent? Mass?
    What is the standard behavior of these segments in terms of savings?
    How do you think the Banks can be segmented in order to use “share of DDA” as a benchmark showing the relationship strength?

    • Great comments Alexey (and questions) !! One specific comment I would like to make is the following: You would be surprised how much affluent customers tend to leave in DDA balances. As a % of their overall accumulated wealth, it may be small, but compared to mass market customers, it may be many times larger in real cash value. The reason is that affluent customers have different (larger) spending habits and also like to keep a larger reserve (or emergency) amount for unexpected situations.

      On another note, share of DDA balances is a good indicator that a day-to-day banking relationship exists, but it does not indicate the level of loyalty established with that customer. There must be a separate measure of relationship strength to truly understand the level of loyalty earned.

      • Thank you for clarification, Michael. I would also think that DDA balance say something about customer’s loyalty, but it’s true that alone it doesn’t indicate the relationship strength. Maybe this affluent customer has a number of such accounts and is not particularly loyal to the specific bank.

      • To piggyback on a little of what Michael has said, I believe that DDA balances is a good indicator of the opportunity to foster a relationship with customers. People who have multiple accounts can end up stagnating, not touching the account for a while, therefore becoming less of an opportunity to grow with the bank. I once forgot that I had a small savings deposit with the bank until they mailed me a letter saying their minimum balances were changing, and that was when I closed the account! However, with the bank I use on a regular basis, I would be a bit more open to options if they provided me with some – savings accounts, credit cards, loans and CDs, etc. This is a bank that I use on a regular basis, and they will know my usage history, giving them the opportunity to make suggestions. From there, they could build upon that to offer me products that I may find interesting. However, it all starts from that continual contact, so unless they start approaching and talking to me, nothing will happen.