Amid fierce competition for deposits, a growing number of banks are relying on customer referrals to expand their business. And they’re using freebies to attract your friends and family.
Last week, Wachovia rolled out its first national referral program, giving customers a $25 Visa gift card if they get a friend to open a checking account. The new customer gets the same gift.
In recent years, a handful of large and small banks — including Bank of America, Banco Popular and Bank of Oklahoma — have adopted a similar program, offering incentives such as cash to points that can be redeemed for airline tickets.
The development is a new twist on an old strategy. For years, banks have dangled free toasters and iPods to new customers who open checking accounts. Now, banks are offering rewards for referrals so they can attract new business as well as boost the loyalty of existing customers. The trend comes amid a low-interest-rate environment, when more customers are shopping for higher rates on interest checking, savings and certificates of deposit. Brick-and-mortar banks are also fighting competition from Internet banks — which don’t have physical branches — whose assets have surged in recent years.
“Deposits have always been competitive, but it’s more competitive today because of Internet banks,” says Gary Cohn, president of Datatron, a company that consults with banks. “It’s no longer just about a bank’s location.”
Adds Cohn: “The harder a bank makes it for you to leave, the less you’re likely to do so. If I bring a friend or family member in, then it complicates my life.”
Consumers already get points or gifts for using their credit card, shopping at the supermarket or drugstore. Banks say they are enhancing reward programs — and introducing others — because consumers have come to expect these freebies for everyday transactions.
The referral program is “not rocket science because everyone gives out gifts,” says Juan Carlos Cruz, a spokesman at Banco Popular, which offers gifts such as a panini grill and a luggage set. “But it’s working for us.”
Why offer rewards for checking accounts? They provide the “foundation” for customers’ relationship with the bank because customers think of their primary bank as the one where they have a checking account, says Cece Sutton, an executive vice president at Wachovia.
She adds, “When you have a checking account, then we have the opportunity to cross-sell different products and services.”
Yet with so many banks competing for your business, consumers shouldn’t open accounts just for the gifts. “Even if I recommend you to a bank, you’re the one who ultimately has to decide” whether it works for you, Cohn says.
