When we discussed the business motivation with many of our Temenos customers, ranging from small credit unions and mutual banks to large national institutions, it becomes clear that the priority is not driven by a simple profit per customer equation.
Revenue from a new deposit account typically ranges from $100-400 annually, depending on the features and fees. The cost of delivering service ranges from $100-300, according to an informal survey of friendly institutions. So direct profit is often minimal.
Customer to Profit Cycle
The real reason new customers are so important is that their deposits fund the real profit drivers at the bank – lending. Each Dollar, Pound or Euro on deposit gives the bank the ability to expand its interest-earning assets through personal, business or real estate loans. Reserve ratios for the bank balance sheet control how much of depositor’s cash must be kept on hand and the rest can be lent out to earn interest. Additionally, some of those loan proceeds will be held as deposits in the bank, creating a multiplier effect to increase lendable capital even more.
The picture tells the story of how acquiring new customers drives more new accounts, which means more deposits, and results in profit earning assets.
Why This Is Important
When considering the value of radically transforming digital customer acquisition, it is critical to evaluate the entire profit impact on the bank, not just direct increases in fees from deposit accounts. Banks must look broadly at the way accelerating digital customer acquisition brings capital to fund new consumer and real estate loans. In addition, when this is done, the economics are extremely compelling.
Temenos Infinity is the leading solution worldwide for transforming the digital acquisition and onboarding of retail banking customers.