How Consumer Fintechs can get smarter about acquiring customers

• Consumer fintechs’ customer acquisition strategy is a hotly debated topic.
• Balancing customer acquisition cost and lifetime value is difficult.
• Despite the market slowdown, experts say startups need to be more savvy about going after new users.

Fintechs must take a quality over quantity approach when it comes to attracting new customers in a tighter market.

Fintech startups have faced a bill in the past year after unprecedented growth during the pandemic years. Inflated start-up values ​​were cut and the industry faced waves of layoffs amid rising interest rates and reduced funding.

But despite the difficult market, experts say fintechs shouldn’t just be looking to increase market share by any means necessary. Instead, they need to be more selective with the types of customers they target and the methods they use to acquire them.

Fintech executives, venture capital partners and consultants suggested at a recent conference that startups target customers who want to offer greater lifetime value, choose fewer but more credible touchpoints, and explore new acquisition channels such as ChatGPT and TikTok.

Less churn and more credibility

Traditionally, direct-to-consumer fintechs have little appetite for customers who don’t pay back their customer acquisition costs (CAC) within three to six months, Stephanie Choo, a general partner at Portage Ventures, said on a panel at the Empire Startups Fintech Conference in New York on Wednesday.

This results in startups targeting more customers, but those who are less “valuable” in the long run.

And churn — or the rate at which a customer stops doing business with a company — compounds the problem.

“You can fill the top of the funnel as much as you can,” Choo said. “But if you have a very leaky bucket of churn, so anything more than 50% annual churn, it’s going to be very difficult to keep finding new leads to fill the top of the funnel.”

One solution is to target customers who will offer greater lifetime value, Ron Shevlin, head of research at Cornerstone Advisors, said at the conference. Lifetime value is the amount of income a business will generate from a single customer.

“It’s really about the cost of acquiring the right customer, not just any customer. I always like to give the example of JPMorgan Chase,” Shevlin said. “There has to be a reason why they put a $500-$600 incentive on opening a checking account — because they know they’re going to make money on that customer.”

Fintechs can also choose fewer, more credible touchpoints, Christie Horvath, founder and CEO of Wagmo, said at the conference. For example, a startup can work with a potential customer’s employer to build trust.

“Instead of spending money on 15 different touchpoints to convert these people, we actually went and said, ‘Okay, let’s find trusted referral sources. Let’s go to the places where these consumers are already looking for financial advice for other insurance products and let’s see if we can use those pockets as distribution agents for us,” Horvath said.

Startups should also consider new acquisition channels, such as ChatGPT, Cynthia Kleinbaum Milner, chief marketing officer at MoneyLion, said at the conference. An acquisition channel is any place a customer is exposed to a company’s brand – including social media, paid ads and organic search.

“Search volume is moving from Google to AI-powered platforms like ChatGPT,” Milner said. “So think about how your product will be what ChatGPT is going to recommend.”

TikTok has also morphed into a “search engine” of sorts, Horvath added, but with the caveat that “fintech doesn’t necessarily lend itself well to TikTok advertising, and it’s a lot harder than it looks.”