A common discussion we have with investors concerns our customer acquisition costs (CAC). It’s understandable given this is the largest single contributor to the costs of running a challenger bank and consumers are famously reluctant to move banks — so lots of money being spent and no return is the implicit problem being raised.
There are now so many “challenger banks” (see this article) and so many people have invested or worked at them that there is a lot of data now swishing around the Fintech and Investment community) about CAC and it’s effectiveness in attracting active customers with meaningful levels of use. The picture is not pretty — CAC is incredibly high — market gossip puts some challengers as high as $800 to get an active customer!, on the other side average deposits at some of the largest challenges as less than $10 (ten United States Dollars — not a typo). A strong warning here this is coffee shop gossip so please take it as no more than that.
The question we ask though is why this industry has to buy customers at all? The conventional banks spend an absolute fortune on marketing — the largest US banks spent over $10 billion in marketing last year. With limited differentiation between bank offerings, banks are now having to compete on how big their marketing budget is rather than how well they serve…
