Bank of America (NYSE: BAC ) has been trying to improve its ability to cross-sell its products for some time now. Wells Fargo, which is generally thought of as the best in the business at the art of getting existing customers to sign up for more products has done so by creating an extremely diverse line of products and pushing those products on targeted groups of customers.
Now, Bank of America seems to be going in a different direction: targeting customers by offering VIP perks to more customers than its competitors.
While it remains to be seen whether or not the new efforts will pay off, it is a welcome demonstration of innovative and unique efforts by the bank to appeal to a large group of the banking population.
Targeting the "mass affluent"
Bank of America already has a solid base of wealthy clients, particularly through its U.S. Trust Private Wealth Management division.
Now, Bank of America is targeting the "mass affluent", which describes the upper end of the mass banking market. Mass affluent customers have either $100,000 to $1 million in liquid assets or have incomes greater than $75,000 per year.
In order to target this group, Bank of America is opening its VIP-type benefits to a wider range of customers. Formerly targeted more toward the wealthier customers with more than $50,000 in B of A accounts, the threshold has been lowered to $20,000, including assets in both deposit and investment accounts.
There are three tiers of benefits in the new Preferred Rewards program, gold ($20,000), platinum ($50,000), and platinum honors ($100,000). As would be expected, the benefits get sweeter in the higher tiers. For example, the gold level gives customers a 25% bonus on the credit card rewards earned. In the platinum honors level, the bonus shoots up to 75%. A full interactive list of the assorted benefits can be found here.
Why does it matter?
The extra benefits were always nice for those customers who qualified, but they didn't necessarily help the bank win any new business. Customers with over $50,000 in accounts have had the ability to get VIP services at many banks.
For example, Citigroup's Citigold program offers similar benefits to Bank of America to customers with $50,000 or more.
The benefits and who will care
Customers who qualify receive such benefits as higher interest rates on savings and CD accounts, as well as pretty substantial discounts on home loans, like a $200-600 credit on a new mortgage and a 0.25% rate reduction on a home equity loan. The benefits also include no fees on select banking services like overdraft protection transfers and a small safe deposit box.
Perhaps most appealing, customers who meet the requirements and have a Merrill Edge brokerage account with over $50,000 in accounts can qualify for free trades, depending on their tier, a substantial benefit that can save hundreds of dollars per month in brokerage commissions.
Will it pay off?
This move is significant for the bank because instead of using the same methods as their peers to cross-sell products, Bank of America is starting to think outside the box.
Think of the rewards program like achieving elite status with an airline's frequent flyer program. Customers who attain elite status tend to fly on the same airline as much as possible in order to take full advantage of the benefits.
If you were a customer with between $20,000 and $50,000 in your accounts, ask yourself the following questions. Why would you keep your investing accounts with another discount brokerage when you could trade commission-free with Bank of America? Why use another bank for your home equity loan if Bank of America will discount your interest rate? And finally, why would you pay another bank for wire transfers, cashier's checks, and standard check orders when Bank of America offers the same service for free?
Bank of America is counting on mass affluent customers asking themselves the same questions. This is a move that could pay off big-time, but most importantly it represents "outside the box" thinking by CEO Brian Moynihan and Bank of America's management, and investors should embrace the new effort.
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