The information revolution isn't just changing consumers' preferences and behaviors. It's also changing industries by enabling new information-driven solutions that match consumer needs better than traditional offerings do. In short, the old way is not working anymore because consumers expect more.
This new reality is impacting all industries, but particularly financial services, which is not known for its revolutionary thinking. According to the Oliver Wyman report "A Money and Information Business: The State of the Financial Services Industry 2013," the "source of value in financial services has shifted from balance sheets and physical distribution networks to data." This means that understanding how someone banks is more important than the assets he or she brings, a concept that is becoming increasingly significant in today's competitive market.
Financial institutions are being pressured to find new ways to strengthen customer relationships and generate revenue. The banking data they hold about their customers is incredibly valuable, and understanding what motivates customers is key to designing and delivering products that improve loyalty and drive incremental revenues. By using analytics software to mine the treasure trove of customer relationship and banking data they already possess, institutions can gain actionable insights that will empower them to devise new offerings, including dynamically priced relationship banking products, based on what motivates their customers.
How might this look in practice? Here are some examples:
At-Risk Customer Analytics
Every financial institution covets the primary financial relationship, but few analyze their customer base to identify their percentage of single-service customers. By focusing on those customers, institutions can further analyze their transaction histories to identify incoming deposits or outgoing payments to other financial institutions. At a minimum, this customer is at least tempted by the relationship with another institution. At worst, the exit transition is already under way. Analytics helps identify the problem and the severity of potential attrition. It also creates an opportunity.
By identifying these potential ex-customers, financial institutions can develop targeted programs to retain—and potentially expand—these relationships. The solution is not necessarily to offer a loan or a savings product. Instead, banks can use the data to determine the right products for customers' specific life stages and develop a communications program to make sure the institution is at the forefront when customers are looking for new products to fulfill their needs. While an institution can't create the need for a product, it can identify when the need may be present—and position the organization to be the first choice when the customer seeks to satisfy it.
Build Banking Products That Motivate a Profitable Relationship
From analyzing our banking customers' data, we've seen a direct correlation between high levels of electronic transaction usage and long-term relationship retention and profitability. With information such as this on hand, an institution can develop and implement relationship product and pricing programs, allowing customers to have select fees waived or rebated in exchange for performing a desired type or number of electronic transactions each month.
As an example, an institution may waive account fees if a customer makes three deposits into his checking account each month. The institution can also waive fees and offer cash back for three checking account deposits AND five debit card transactions each month, for instance. Interest rate incentives can be layered on for automatically transferring funds from account to account to motivate new products. These dynamically priced offerings are designed to encourage sustained customer activity that benefits both parties and deepens the customer relationship. With the pricing automated to adjust accordingly, it holds each party accountable to live up to the terms of the relationship.
In conclusion, one of the most effective opportunities a financial institution has to create additional value comes from using analytics tools to "monetize" the data it has available at its fingertips. By leveraging analytics solutions to analyze their untapped wealth of customer information, institutions can gain powerful insights into their customers' behaviors and needs to create programs and dynamically priced relationship banking products that their customers want. These will not only provide customers with solutions they desire and engender loyalty, but also drive valuable revenue opportunities for the institutions themselves.
Tyson Nargassans is the CEO and cofounder of Saylent Technologies, which offers data analytics software that helps financial institutions understand how customers use and spend their money. For more information, visit www.saylent.com.