This week provided a great article, “Peter Pan, Unicorns and the DDA Cost of Acquisition“, from GonzoBankerby Ron Shevlin. Ron makes a number of good points in the article (as always). However, a colleague and I disagree with the authors assertion that that “an accurate estimate of your financial institution’s checking account cost of acquisition” doesn’t exist. It does exist for certain financial institutions and can be accurately calculated. It is true that most banks and credit unions don’t know the cost to acquire (COA) retail checking accounts, but our Temenos Profitability customers do know their true cost to acquire retail check accounts as well as the costs for the remaining suite of their products.
Chris and I find it amazing that banks and credit unions find “not knowing” these costs are an acceptable business practice. The author identifies 5 reasons why financial institutions don’t have accurate checking account COA:
- They haven’t appropriately allocated marketing investments to individual products.
- They haven’t accounted for acquisition-related spend that occurs outside of the marketing department.
- They haven’t accurately accounted for costs related to marketing to existing customers.
- Cost of acquisition, by channel, is insufficient.
- A single COA number is deceiving.
We would argue that all these reasons are true if financial institutions are not using a good activity-based costing profitability solution. We happen to think that we have a great activity-based costing profitability solution in Profitwise that can help to remedy the issues above.