BOSTON-Aite Group has developed what it says is a better metric for calculating consumer likelihood to buy products and services from a bank or credit union than a broader business metric developed about a decade ago.

Aite Group's senior analyst Ron Shevlin has created something he calls the Referral Performance Score, which he says he'd like to see replace the Net Promoter Score.

It's based on this simple premise: those who actually take the time to refer their financial institution to others, or who expand their relationship with more products or services, are better indicators of potential new business than those who express only an intention to refer the institution or to deepen the relationship.

The Net Promoter Score was invented by Fred Reichheld, a consultant for Bain & Co., who introduced it in a Harvard Business Review story in 2003. It uses a 10-point scale to calculate consumer likelihood to refer a company to family and friends.

By contrast, Aite Group's Referral Performance Score is geared specifically toward financial institutions and calculates its score by multiplying the percentage of actual referrers by the percentage of those who grew their relationship.

Neither Reichheld nor his representative were available to comment to American Banker, an affiliate of Credit Union Journal.

One Problem With Net Promoter

"One problem with the Net Promoter Score is that marketers have little understanding of why someone intends to refer, let alone goes ahead and makes that referral," Shevlin wrote in an e-mail to American Banker.

For example, people may be immediately influenced by a positive or negative experience with a company, or companies can often attempt to game the system by offering things like cash rebates in exchange for positive feedback, Shevlin says.

In the second quarter of 2012, Aite Group surveyed 1,115 U.S. consumers online. The results confirm Shevlin's theory about the importance of finding the most actively engaged customers.

In rounded terms, the study found 36% of respondents had referred friends to their primary financial institutions in the last 12 months.

Only about 10% actually grew their balances or number of accounts, giving the industry a referral performance score of 353, out of a possible 10,000 points.

Credit unions fared better for referrals, with nearly half of members saying they referred other people in the last 12 months. By contrast, just under one-third of large bank customers did.

But there's an important crossover relative to growing the relationship during the course of the year: 12% of large bank customers said they increased balances or number or accounts, while just 7.5% of credit union customers did. Ironically enough, large banks actually fared better with a Referral Performance Score of 381, versus 353 for credit unions.

 

What Drives Decisions

Consumer decisions to either refer or deepen their relationships with financial institutions depended heavily on what products and services they used, which is where large banks often have an advantage.

Fifty-five percent of customers who grew and referred their banks also used personal financial management tools, the report said. Seventy-one percent of those who did both also owned a smartphone, and 52% owned a tablet. More than one-third said they were mobile bankers.

Sixty-seven percent also followed their financial institution on Facebook, Twitter or YouTube.

 

Potential Future Trends

This group may also represent future trends in banking: about 40% indicated they want to use their mobile phones to replace cards to make payments, and about the same amount wants to use mobile phones to make payments.

But attitudes and actions weren't shaped by technology alone. Customers with debit cards also tended to more actively refer their financial institutions and to buy more products.

Nearly 90% of the most active referrers had a debit card account, and about a third said it was associated with a rewards program that most liked.

"Engagement with one's financial life, satisfaction with debit card rewards program, mobile channel affinity and activity, and social media connections all contribute to driving referral and relationship growth behavior among consumers," Shevlin said.

Subscribe Now

Authoritative analysis and perspective for every segment of the credit union industry

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.