Daniel Knight

Unlocking the Customer Code for Banking

Blog Post created by Daniel Knight Employee on Feb 19, 2018

In my previous blog post, I discussed a number of challenges banks face when it comes to retaining customers. Now that we’ve outlined the challenges, I’d like to discuss ways banks can leverage data to retain banking customers.


When we look at all the money banks have invested in their customer retention approaches, we find four basic states: How banks attract customers, how they service customers, how they develop relationships with customers, and how they can retain customers and prevent churn. Asking questions around these prime four targets for banking analytics can lead to a more effective banking data strategy.


Let’s take a detailed look at each of these states individually and propose some questions that every bank and financial institution should keep in mind when working towards improving their relationships with customers.


I would also suggest banking customer teams consider how Amazon and similar retailers use data and promote via a single “online” channel versus the banking “omni-channel” that includes physical location, online, mail, statements, ATM, etc. Keep in mind, this omni-channel approach is a customer centric view versus promoting through a single channel, which is more transaction-focused. 


1. Obtaining a New Customer


Hindsight to real-time insights: Instead of looking at a customer as a new customer every time you engage with them, how can you look at that customer’s banking history for real-time insights you can use to inform your next customer transaction? Banks have a running history of every banking customer, but that data isn’t always used effectively.


What works in general vs. what works for this customer: What are the intelligent attributes and observations—attitude, personality, preferences—when we look at customer actions, so we can predict next action, proximity and location, and alerts from transactions, etc.? For instance, we need to look at what works for this customer, not just any customer. Does the bank understand how to improve and make an acquisition offer, or is the bank hoping the customer will magically return when they need financial services? 


Fixed pricing models: One of the most effective offers available to bank customers is to set effective lending terms using scoring and segmentation tools. Some of the questions banks should be asking in this situation include: What is this particular customer’s financial situation? What is their price elasticity? What is the most effective offer available to this customer?


Financial potential of this prospect based on their history: Based on a customer’s banking history, how can a bank identify profitable customer identification with the least risk through agile analysis?


Segmenting prospects: Has the bank identified groups of prospects that are internally similar and externally different from other groups of prospects? What can banks do to market to them most effectively?


Measure prospect campaign effectiveness: Has the bank evaluated the effectiveness of actual prospect marketing campaigns relative to expectations? How are the marketing campaigns implemented performing relative to the expectations? Where did those programs fall short and why?


Estimate prospect price sensitivity: Has the bank estimated the prospect price elasticity?


Estimate prospect offer response rate: Has the bank estimated the likelihood of prospect response based on offer characteristics? 



2. Servicing the Customer


A common banking scenario: A bank has a new customer. Service consumption and customer satisfaction are two sides of the same coin, so the more a customer uses this bank’s services, the more the bank wants to work with them.


How often should a bank contact a particular customer? How should that bank make contact? Would a bank know if they’ve contacted a customer too many times?

That bank might have a customer who has a business account, a private account, and maybe even other types of accounts, but do bank employees have access to all of the customer’s information for each account? Are those customers waiting for the bank to notify them about services offered, or will customers proactively seek them?


Service channel preference: Has the bank determined the preferred service channel by activity for each customer? Through which channel or channels should that bank service this customer (e.g., ATM, mobile, etc.)? Does the bank ask customers about their communication preferences?


Loss mitigation effectiveness: Has the bank determined the historical effectiveness of tactics and variation by types of accounts/customers?


3. Developing the Customer Relationship


Now that a bank has attracted and is working with a customer, an important and natural step is to move from a solely transactional interaction to a true relationship-based approach. Many banks are trying to do this using methods such as global banking advisory services, private wealth offerings, and customized approaches that might provide more applicable services based on a customer’s age, yearly income, and more.


Estimated wallet share: Has the bank estimated its share of the customer’s estimated total financial services wallet?


Customer campaign effectiveness: Has the bank evaluated the effectiveness of actual relationship development marketing campaigns relative to expectations?


Cross-sell win/loss analytics: Has the bank analyzed the effectiveness of cross-sell campaigns based on win/loss data to project acceptance rates for future cross-selling initiatives?


Customer lifetime value: Has the bank estimated the lifetime value of a customer over a defined time period and the relative importance of factors driving value (e.g., balances, products, attrition, risk)?


4.     Keeping the Customer


After attracting, engaging, and building a deeper relationship with a banking customer, the goal should now be to retain that customer as a valued client. This means banks have to ensure they become a valued financial partner, and they reinforce their value as a place that their customers trust with their financial data. Thanks to data insights and analytics, banks can strengthen their relationships with customers not just for individual transactions, but for the entire lifecycle of a customer’s banking needs. 


Improve customer retention tactics: Has the bank identified customers for action and determine the most appropriate offers—including pricing action, outbound contact, new service offer, or simply doing nothing—for each customer?


Analyze customer retention campaign effectiveness: Has the bank evaluated the effectiveness of customer retention campaigns relative to expectations?


What Next?

To keep up with rapid technology cycles and improve their multiplatform marketing efforts, banks need to take a different approach to managing the consumer decision journey. Using analytics across all these customer states, banks can see which products are really of interest to each group of customers and target them with directed messaging to increase conversion.

Once banks have optimized their approaches to the four stages I outlined above, there are three primary areas I believe they can best focus their efforts: conduct customer discovery, design a compelling customer experience, and deliver optimizing marketing approaches guided by data analytics.


1.     Customer Discovery

Banks should apply advanced analytics to the large amount of structured and unstructured data at their disposal to gain a 360-degree view of their customers. Their engagement strategies should be based on an empirical analysis of customer behavior and past experiences with the bank, as well as signals embedded in customer mobile or social-media data.


2.     Customer Experience Design

Banks need to craft a compelling customer experience where all the interactions are expressly tailored to a customer’s stage in the decision journey. The bank should always be able to recommend an optimal next action for a customer based on sound data analysis and good customer engagement approaches.


3.     Delivery: Data-Driven Marketing Approaches 

Periodic marketing campaigns are shifting towards “always-on” marketing programs, in which banks engage with customers in exactly the right way at any contact point along the journey.


I’ll end with another banking statistic that should set off alarm bells for banks to take action now:  An Accenture survey found that 72% of millennials would be likely to bank with non-financial services companies with which they do business.


A CFRA bank analyst also recently suggested that Amazon may buy a small or mid-sized bank to get a foothold in the banking industry, a move that would echo Amazon’s recent entry into the grocery business with its acquisition of Whole Foods.


To use a fishing analogy, the hook is set and today and tomorrow’s banking customers are ready to jump into the FinTech waters now. What is your bank doing to make sure it is proactively attracting new customers and retaining old ones?