Big-name banks are gaining new customers by offering them the one thing they need more than anything else.

Offering cash as an incentive isn’t exactly revolutionary, but several well-known banks have latched onto it recently because customers are just now receiving their holiday shopping bills and they’re eager for a slight monetary boost to start the new year.

Among the cash incentives banks are currently promoting:

• Capital One is offering a $200 bonus to any customer who opens a Rewards Checking account through Feburary 28th
• J.P. Morgan Chase is offering $125 to anyone who opens a checking account by January 15th, and
• Bank of America is offering $100 to anyone who opens a checking account before February 28th.

Offering cash as an incentive is usually a bait-and-switch tactic used to lock buyers into a long-term deal that maximizes the company’s potential for making money. The incentives banks are currently offering are no exception:

• To qualify for the Capital One and Chase promotions, customers need to set up direct deposit.
• To qualify for the Bank of America promotion, customers need to maintain a minimum checking account balance of $500.

Both of these terms were put in place to maximize the amount of money the banks hope to make by keeping these customers (e.g., direct deposit increases the chances a customer will stay with a bank for a prolonged period of time, etc.).

In fact, banks are so careful about protecting their investment that cash-incentive applicants have to pass an entire screening process, which includes credit and background checks. Only then can they be “approved” for an account (and the incentive that comes with it).

The takeaway: Cash incentives have tremendous potential for drawing new customers. But they could end up causing a major backlash if sales and service reps aren’t completely upfront about the terms and conditions attached to the deal. More importantly, companies need to take precautions to ensure they’re offering cash rewards to reliable customers who are sure to provide the company with a substantial return on investment long term. In other words, the odds need to be set up so that the house always wins in the end.

Can you think of any arguments for cash incentives? Against? Do you have any personal experience with receiving cash incentives as a customer? Feel free to share your feedback in the comments section below.

Source: “Banks Try to Lure New Customers with Cash,” by Aleksandra Todorova, Smartmoney.com, 1/8/2010