Friday April 18, 2025 | J. Paul Leavell, Strategic Advisor
I like to ponder things when I drive. On a recent trip, I pondered the role that direct deposit used to play, and may still play, in identifying engaged retail customers for a community bank or credit union. I started thinking critically about my own situation with a researcher’s eye. I realized that my direct deposit has nothing to do with where my primary institution is. I think it relates to the never-ending, very slow decline of cash and checks. I do want my paycheck to directly deposit to an institution near me. I have this sense that my paycheck goes there – I can point to a building. However, I pay every bill by credit card and almost never carry cash.
My credit card is not connected to the institution where my direct deposit goes. I actually split my direct deposit between institutions: my pay-the-bills-money institution (PTB) and my party-money institution (PM). They are different because the PM place is the part of my paycheck that I use to bounce from institution to institution, trying to capture “new customer” bonuses. The PM portion of my direct deposit is not sticky at all. I have moved it four times in the last 14 months (most “new customer” promotions are 90-days-to-bonus programs). The PTB portion of my direct deposit has been at the same institution for 20 years. The PTB money is sticky because I have my primary credit card set up on bill pay there.
The credit card I use to pay almost all my bills has been my card for a decade and is not provided by the institution that receives my direct deposit. If I moved my PTB account, I would have to change my direct deposit (which takes 30 seconds on any of the self-service human resources programs that companies offer today) and then move one or two bill payments to wherever my new checking account is located. I would feel some friction in that experience; however, if I change my credit card, wow – I would have to first remember everywhere that credential is used and then change at least 50 embedded payments where that credential is stored (such as Uber, Lyft, Instacart, Netflix, library, tolls app, Amazon – the list would go on for several lines). What makes me sticky to that institution is the volume of instances where my outgoing payment credential is connected, not the one instance of where my incoming deposit is received.
After that drive, I did some research with this idea in mind: Transactional loyalty is a function of the number of instances where I have stored a payment credential, not the direct deposit. It is true that if my debit card credential was stored all over creation, the checking account would be stickier for me. However, it is the credentialing that makes it sticky, not the direct deposit.
So, if I were a financial institution (FI) and wanted to measure how sticky my customers are from a transactional loyalty perspective, I should know how often my customers are embedding my credential with a service provider. Now, tracking the total number of credit- or debit-card transactions is a proxy for that; but if I really wanted to understand my customers, I would want to know where the embedded credentials are located because that is what is truly sticky. In order to develop a score card to understand how well I am doing, I would need a comparative for that analysis. A casual search with your favorite Internet search engine suggests that roughly half of Gen Z-ers use a ride-hailing service.
Figure 1: Gen Z cardholders using a ride-hailing service
Source: Anonymous
One of Raddon’s clients tracks their Gen Z cardholders’ use of ride-share services, and I asked them for a screenshot. Figure 1 shows the number of their card users who have embedded a credential in a ride-share service. They have roughly 1,883 Gen Z accountholders, so they are right on track with 51% of them using the client’s credential for a ride-share service. Cool.
Now imagine I had this analysis across sectors: public transit, retail (namely, Amazon), health care (CVS, pharmacy apps), streaming (Netflix, Disney+), or food delivery, (Instacart, Grubhub, Domino’s). If I were to look at how my customers were embedding my payment credential, I might see sectors where I excel above the average and others where I fall behind. That would make me want to investigate why I was better at attracting one consumer cohort and not another. I might be able to point to policies, pricing, or product designs that attract one type of customer over another. Such an understanding could lead to strategic shifts or emphases, depending on what I find.
I offer a postulate that customers’ engagement with an FI is directly proportional to the number of vendors where they have placed the FI’s credential. If it is engagement with our retail customers we seek, then maybe we should track this. Analyze this. Incent this. Market this.
We should also know how many of our accountholders have placed our credential in one of the more common credential holders, their cell phone for making payments by phone. Figure 2 suggests this is also an important metric to track as part of our pursuit of engaged accountholders: 69% of consumers are using their phone’s payment app. An FI should ask, “How many of my accountholders are doing this with my credential?”
Figure 2: Consumers’ use of cell phone payment applications
Source: Delivery and Payments, Raddon Research Insights, 2024
As part of the account-opening process, especially if we instant issue either debit or credit plastics, we should help the new accountholder place our credential in their phone right then while we hand them the plastic (or follow up with them after plastic delivery). We should also track, analyze, incent, and market this in-phone credential placement.
The competitive edge among FIs is becoming more and more based on data management. And transaction-based data are an enormous part of that management. A side effect of this transaction-based paradigm is that the FI will become more relevant to its customers or members. If an FI knows its credential users better, it might better understand how to be relevant to them.
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