Lazy Money

Announcing his firm’s new high-yield checking account, Charles Schwab said:

The financial world lives off lazy money. There is inertia, and in some respects that’s exactly why we decided we had to make this a very powerful offering.”

Chuck’s right on. (If the firm is going to run ads that say “Talk to Chuck”, then I can call him Chuck). Nearly 80% of consumers are rate-insensitive — they won’t move their money for less than two percentage points better than what they get today or aren’t interested in moving money to get higher rates at all.

This implies that once you’ve got a customer putting money into an account, it’s unlikely that they’ll pull it out for higher rates across the street.

But financial firms can’t survive in the long-term on lazy money. Renegades (like Schwab and BECU with its high-yield offering) will succeed — not just with the rate-sensitive minority of today, but with the rate-insensitive majority in the long-run — by:

  • Educating consumers. Renegades are raising awareness of their superior rates with offline, as well as online, advertising. This is changing the rate-insensitive’s perceptions that “it’s not worth moving my money”, “it’s too hard for me to move money”, and “I’ll have to pay more fees if I move money.”
  • Being easy to do business with. Most banks make it easy for customers to move money in — but expensive to move it out. Not so with the renegades. They’re showing consumers how easy it is to do business with them — an important driver of choice of firms with Gen X and Gen Y consumers.
  • Impugning other firms’ customer advocacy. Renegades alert consumers when rates reach a certain level — firms relying on lazy money would never do this. This opens the door for renegades to claim that the other firms don’t have their customers’ best interests in mind.

For many consumers, passive decision making drives their choices. They don’t want to think about who has the best rates, whose service is better, etc. So they make the easy choice — the bank on the nearest corner.

Lazy money — or financial apathy — is one of the biggest enemies of many financial firms. Smart marketers will help create this new breed of financial activist — and not simply try to compete on rates and fees.

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