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Loans & Credit

You'll be rewarded but the banks will get the bounty

Sue Hayward reports on schemes that allow you to earn up to £125 for introducing a new customer to a financial services company

For many companies, particularly in the finance industry, incentives for introducing a friend have proved a successful marketing tool. Banks get to pull in lucrative new business, and all for the price of a relatively small reward.

Some deals pay more than others: if you're a Royal Bank of Scotland One Account customer and get a friend to sign up, you'll both receive £125 in cash; First Direct offers £50 to existing customers, with £100 for the new one; and Alliance & Leicester pays £50 for persuading a friend to take out its Premier current account.

Health clubs and gyms recognise the potential of these schemes too. "It's our most powerful form of marketing," says LA Fitness spokeswoman Elaine Murray. "We regularly offer incentives including mountain bikes and iPods to widen our member base." The current deal is a two-for-one offer for people joining with a friend. If you're already a member, you'll get £60 cash back for every new friend or relative signing up.

Banks, though, generally stand to gain the most from successful refer-a-friend schemes. All in all, the payouts are nothing compared to the amount of business generated. "Fifty pounds is a small price to pay for a new customer," says Sean Gardner from financial- comparison site MoneyExpert.com. "It's estimated to cost around 10 times that amount in advertising to acquire each new customer."

First Direct has been offering incentives since it launched in 1989. "Over one-third of customers come through recommendation," says First Direct's Rob Skinner. "Research shows that people are more likely to take note of a friend's recommendation than an expensive TV advert."

It seems that once someone has been reeled in, the hard sell can then start in earnest. "With each new customer, the banking industry is looking for an opportunity to cross-sell products like mortgages, loans or credit cards, which can bring in more revenue," says Esther James from the financial-comparison group Moneyfacts.co.uk.

But some deals can backfire. HSBC offered £50 to customers who referred a friend to its Premier current account. But according to Tim Pie, spokesman for the bank, the incentive was withdrawn when people who were introduced didn't have the kind of salary or savings needed to make the offer economic. "We were looking for people with a £75,000 salary or £50,000 in savings."

There are even debt-management firms that offer rewards for new business, leading some to question whether the schemes are getting out of hand. Liberty Debt Solutions advertises a £50 refer-a-friend incentive on its website, stating: "If you know several people in debt then it could be quite profitable". People making the referrals don't even need to be an existing client to pocket the cash.

Simonne Gnessen, an independent financial adviser, is worried by offers like this: "A £30 voucher for suggesting a friend joins your bank is one thing, but taking on a debt-management scheme or an individual voluntary arrangement isn't something to be approached lightly. And a cash incentive to recommend a company you know nothing about, to a friend in serious debt, is very worrying."

Overall, the advice is to champion only those deals you would accept yourself. "If a recommendation backfires and your friend is unhappy," warns Mr Gardner, "the ultimate cost could be your friendship."