Competition Update: Banks Want Your Friends and Family

CU360
October 30, 2007 | COMMENTS

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. Wachovia recently rolled out its first national referral program, giving customers a $25 Visa gift card for each friend they get to open a checking account. Each new customer gets the same gift.

In recent years, a handful of large and small banks--Bank of America, Banco Popular, and Bank of Oklahoma--have adopted similar programs, 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 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, Palm Beach Gardens, Fla. "It's no longer just about a bank's location."

"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," says Cohn.

Consumers already get points or gifts for using their credit cards. Banks say they're enhancing reward programs because consumers have come to expect these freebies for everyday transactions.

"The referral program isn't rocket science because everyone gives out gifts," says Juan Carlos Cruz, a spokesman at Banco Popular, which offers gifts such as luggage. "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. "When we have the checking account, then we can cross-sell different products and services."