What banks (and customers) should learn from the cancelation of Santander’s Extra20 account

An Overview of the Product

Santander announced Extra20 in late 2013 as part of an aggressive advertising and branch expansion campaign. The product was extremely generous, offering up to $20 per month in bonuses for sticky services: $10/month for setting up direct deposit, and another $10/month for two qualifying bill pays.

The original marketing materials for the Extra20 account

My (Educated) Speculation

There are three main reasons why Santander was prepared to lose so much on each account:

  1. They expected to profit in a future rate environment: If the interest margin on bank accounts were to get back to “historical levels”, acquiring thousands of customers at a loss may eventually pay off. However, given the bleak outlook for rates back in 2013, it seems unlikely that Santander believed this to be true.
  2. They assumed aggressive cross-sell rates: Checking accounts are often viewed as loss-leaders with the assumption that banks will be able to cross-sell higher margin products (savings accounts, investment products and, in particular, loans) to their customers. However, this logic does not seem to reflect the reality that consumers are unbundling their financial relationships. More than one-third of consumers purchased financial products away from their primary banks in the last year. So unless Santander has some truly amazing lending products, or is willing to further reduce their margins, this also seems unlikely.
  3. They never expected the product to last: The last reason is also the most troubling for customers. Namely, Santander always expected to cancel the product after a short period of time. With historical rates of switching ~10%, it’s not unreasonable to pay to acquire customers and expect customer inertia to carry you into profitability. Whether this is ethical is a completely separate matter.

Lessons for Banks

I argued recently that banks have two choices: embrace being a commoditized service provider, or focus exclusively on the front-end customer relationship. If banks embrace this view, then the front-end relationship owners will focus almost exclusively on customer retention than acquisition.

Lessons for Customers

Customers will need to be increasingly suspicious of offers like Santander’s Extra20 offer. Let’s look again at the offer itself.

Conclusion

I don’t mean to be too critical of Santander; their aggressive strategies may pay off. But don’t expect to see many of these offers and strategies in the future. These will soon be viewed as relics in a world where the economics of banking have completely changed.

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Product Management, pizza, and podcasts.

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Abhi Agrawal

Abhi Agrawal

Product Management, pizza, and podcasts.