Companies in every industry face the challenge of retaining and keeping customers, particularly in this economy where loyalty is tested as consumers seek the most cost-effective options for their needs. The financial industry in particular has been struggling with this. The costs for financial institutions to acquire customers and manage their demand deposit accounts (DDA) are increasing, while 40 percent of DDA owners are looking for a change, according to the 2008 Nielsen Claritas study, "Consumer Reaction to the Banking Crisis."
Lured by interest-bearing accounts from non-banks and new "reward checking" accounts from competitors, customers are moving their cash assets away from traditional banks and credit unions. How can financial institutions stop the flow of dollars out the door and create more loyal, profitable customer relationships?
The answer: Know your customers. Where do they shop? What do they buy? How do they pay? What motivates those behaviors?
It seems simple, but for financial institutions, which often have disparate, disconnected information systems, the ability to mine data to gain a clear picture of individual customers and their behavior patterns is elusive. As a result, they often employ a shotgun approach to marketing efforts that aren't based on true customer insight, and these campaigns may not provide customers with the right incentives to maintain their business. In addition, the campaigns may not be targeting the appropriate customers-those who are at risk or those who may be most profitable to the financial institution.
The relatively new concept of leveraging "payment intelligence"-which provides financial institutions with an understanding of customers' purchasing patterns-is now being put into practice. Through the use of tools that enable analytics and segmentation to determine customer buying and payment behaviors, including unique attributes and inflexion points, these organizations are able to develop a deeper understanding of customers and DDAs. Are customers funneling dollars from their DDA to fund another financial institution's money market account? Which customers use a debit card to pay at retail locations but not at restaurants? Which customers are not using their debit cards at all? With this knowledge, financial institutions can determine which customers to target with relevant and meaningful campaigns.
Segmentation and analytics
By effectively analyzing and segmenting customers, financial institutions are able to understand a wealth of customer information. Following are examples of how segmentation and analytics can be employed in the financial institution environment.
Financial institutions can segment and analyze by activity (PIN vs. signature vs. ATM use, Wal-Mart vs. Target shoppers, etc.), by customer-specific demographics (age, geography, gender) or by profitability (top revenue-generating customers, underperforming or "at-risk" segments, etc.).
By understanding the above, a financial institution can then create targeted strategies for these different kinds of customer groups within a portfolio, and offer tailored incentives that provide customers value as well as influence decisions that are most advantageous to the bank or credit union. Those initiatives may include promotions with specific retailers, offerings by merchant categories, holiday promotions, or activation-specific incentives. The institutions can also measure campaign results by tracking payment behaviors over time, to determine the success of these initiatives.
For example, a financial institution in Starkville, Mississippi offered a "spend and get" campaign with a retail business partner. It first analyzed and segmented its customer base to determine the appropriate target list of customers-those who used their debit card but were not using it frequently at this retail partner's store and also lived within a specific geographic area. With this group identified, the institution then initiated a very targeted promotion-use your debit card for transactions at this retail location over a six-week period, and receive a $7.50 retailer gift card. This campaign not only increased customer spend more than 118 percent at this retail partner, but it also increased debit card use for this group more than 40 percent during the promotion period, and over 90 percent sustained usage of the debit card six months post-campaign. In addition, the group opened additional debit cards as a result of cross-sell efforts with the retail partner.
By understanding customer payment behavior patterns, this financial institution was able to deliver an incentive that provided customers with something of interest to them, while encouraging them to make decisions that benefitted the organization as well-helping to develop "stickier" relationships.
The biggest value financial institutions will ever create is the value that comes from customers-the ones they have now and the ones they will have in the future. To remain competitive, banks and credit unions need to employ analytics and segmentation strategies to develop a deeper understanding of customer payment behaviors so they can then create, implement and manage personalized and cost-effective marketing strategies and loyalty programs that address both customers' and the financial institution's needs. By doing this, these businesses will be able to keep account holders longer, grow them into bigger account relationships, and make those relationships more profitable.
About the Author
Tyson Nargassans (firstname.lastname@example.org) is founder, president, and CEO of Saylent Technologies, a vendor of payment intelligence suites. For more information, visit www.saylent.com.
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