Online Customers Aren't the Only Target for Mobile Banking Services

While attending the 2009 Mobile Financial Services Congress in Miami a little over a month ago, there was a consistent message from almost all of the speakers that a mobile banking customer is less likely to attrite, more likely to use additional engagement services such as bill pay, and less costly to serve.

Interstingly, it was also emphasized that while most banks have promoted the use of mobile banking to their current online banking customers, the real financial benefit is realized when a customer who is not as heavy a user of online banking is converted to the mobile channel. In other words, it makes stronger financial sense to try to segment offline customers and implement a proactive channel migration strategy to convert channel usage.


Some of the presenters at the Mobile Financial Services Congress suggested that offline customers who are quickly purchasing the newest wave of smart phones may actually bypass the online channel in favor of mobile banking services.

M-Com and Fiserv presented the findings from recent research that reinforced this trend. Nearly two-thirds of those surveyed reported contacting their financial institution once a week or more through traditional bank channels. Nearly half of survey respondents use their bank's call center or interactive voice response to help manage their finances. These are among the costliest channels for the bank to support, with each call center transaction costing an average of $3.75 and each automated voice response system transactions costing an average of $1.25. Conversion of even a small percentage of these transactions to the mobile channel would bring high returns. The study also found that the offline customer not only is aware of mobile banking (70%), but also have an interest in these services (60%). The primary area of interest is in checking balances (46%), contacting customer service (37%) or locating a nearby ATM or branch (30%).

It is clear there is a tremendous untapped opportunity for converting offline customers to the mobile channel with enhanced targeting, expanded enrollment opportunities (channels other than online) and improved communication of benefits of this channel. The banks that are the most aggressive in reaching out to these households will reap the greatest rewards

Free Checking Obituary

Seeing that a lot of industry writers seem to be already announcing the death of Free Checking as a likely outcome of Reg E, I thought it would be appropriate to write an obituary for this product that saw such an active and successful life.

While many may claim to be the father of this service, paternity tests will most likely point to Ralph Haberfeld as the individual who most nurtured this service during the formative years and who was the strongest proponent of the benefits of the fee income associated with Free Checking. Ten years ago, when some banks (and consultants) began "pushing" free checking, there was concern about losing the meaningful income of monthly fees associated with traditional checking accounts.


Well, here we are, ten years later, having the same concerns about NSF/OD fees. These fees, that grew faster than the growth of checking accounts, became the prime fee income driver of well over 60% of our industry in this past decade. Ever since the introduction of these fees, banks have found ways to optimize the opportunity with strategies such as 'large to small' check presentment order.

The Fed said it focused on ATM and debit card transactions for Reg E because these have been "a key driver behind the growth in the volume and cost of overdraft fees" (41% of NSF transactions). Finally, consumers and regulators both balked, which is, in part, why we're facing increased scrutiny and regulation.

So, is Free Checking really dead? Free Checking coupled with overdraft protection is a product that is still highly valued by a small but important segment of customers who prefer to use overdrafts as a way to make ends meet at the end of the month. The outgrowth of Reg E will most likely be pseudo Free Checking that includes relationship stipulations (direct deposit), transaction requirements (minimum number of signature debits) and/or channel restrictions (no teller access). There may even be Free Checking as we know it today for those households that decide to opt-in.

In other words, rumors of the death of Free Checking may have been greatly exaggerated.

Be Careful of 'Mental Opt-Out' With Email Marketing

For those who read my Blog, you know that I feel strongly that the email channel is significantly underutilized by the banking industry. Not only do marketers not effectively leverage this channel in conjunction with other direct and mass marketing options, most banks do a terrible job at even collecting email addresses in the first place.

Unfortunately, for those who have begun to use email marketing in support of customer communication efforts, some have gone to the opposite extreme by viewing email as a 'free' marketing tool without giving adequate thought to the importance of relevancy. As many realize in their daily scanning of their email in box, overusing the email channel can have a detrimental effect of the value of this channel and negatively impacting the overall customer experience.


It was with great interest therefore that I read a recent op-ed in DM News written by Mark Smith from Portrait Software discussing the mental opt-out that occurs when a company bombards a customer with too much untargeted email marketing communication, only to have the reader open the email and then quickly hit the "delete' key. The impact of multiple irrelevant emails is to either explicitly receive an opt-out to future email or to implicitly lose the intended reader's trust and attention for future communication that may have been of interest.

As Mark mentions in his op-ed, if you get a reputation for sending irrelevant communications, you are basically asking for mental opt-out. And just because a customer's name doesn't appear on the do-not-contact list, it doesn't mean they are paying attention.

As financial institutions get more comfortable with this channel, it will be important to ensure that adequate targeting is done and that the focus of each email is to positively impact lifetime customer value.

Comparing Results to Industry Norms

I am frequently asked about what response rate a client should expect based on 'industry standards' or results from similar programs at other financial institutions. While the DMA does compile statistics and reports on direct marketing response rates with their Response Rate Trends Report, and there are other tools available from alternative sources such as MarketingSherpa, there are significant flaws to using general standards or even the results from another bank's program as a guide for setting expectations.

It is difficult to find comparable benchmark results since you will need to find programs with the same or similar:

• Target audience
• Product features and benefits
• Offer
• Channel mix (were there other marketing channels used to support the program)
• Timing (not only to reflect seasonality, but overall environment conditions at the time of the program)
• Brand strength
• Competition

After more than 30 years of marketing services experience within the banking industry, I have found that the best benchmark against which you can measure the success of a current or future campaign is the results from previous programs at your financial institution. While the timing of the previous program may be different, far more of the variables described above stay the same. Sometimes developing this benchmark may require analyzing a program that had not been previously measured, but this guidepost will be far more accurate than an industry or competitor result.

Banks Can Accelerate Revenue Growth by Managing Digital Experience

According to the March issue of the McKinsey Quarterly, digital channels can assist companies in unifying the customer experience and help move customers from interest to loyalty. In the article, "Four Ways to Get More Value From Digital Marketing", David C. Edelman discusses how companies can increase revenues through a better coordination of the digital end-to-end experience (see exhibit).

By focusing on the capture of a larger amount of Internet traffic through improved mass media key word positioning and SEO, increasing customer engagement through easy to navigate sites and targeted messaging, converting more of the digital leads to sales with strong offers and building digital loyalty through online and offline channels, revenues can be optimized.

The article discusses how marketing investments need to be proportional to the influence they will have on the consumer's purchasing decision. But any shift in investment will only yield results if the channels are integrated and coordinated and if the appropriate metrics are established linking investment to performance. This may require marketers to move out of their comfort zone and to step back from tactical, day-to-day execution and take a more strategic view of where to invest and make changes.

Reg E Opt In Results Better Than Expected

As I travel across the country and talk to bankers about their early Reg E opt-in results, many are experiencing significantly higher than expected acceptance rates. In fact, some banks have indicated that they have achieved opt-in rates of as high as 85% or more from the highest impacted segments (those who have the highest use of overdraft coverage) and more than 95% from new customers who are opening a new account.

This level of acceptance should provide some comfort to financial institutions who have been concerned about a massive outflow of fee income as a result of Reg E beginning on August 15. Alternatively, this level of opt in sets the bar rather high for those organizations who have either not begun their Reg E communication or had thrown in the towel expecting customers to opt out on a massive basis.


In talking to those bankers who have achieved best-in-class results, here are the consistent strategies for success:

• Connect with customers using as many channels as possible - While response to statement inserts, direct mail and ATMs has not been as strong as the outbound telephone, 1:1 branch contact and email channel, the most successful banks have used all channels to provide a clear understanding of the regulation and to generate response.
• Use all outbound phone capabilities available - When a direct connection is made with a customer discussing the option of 'keeping their coverage the same' and 'having the assurance of no surprises', success rates have approached 90+%. Banks are using all of the resources possible to make these calls, including branch call nights, outsourced providers and leveraging inbound call resources.
• Expand communication beyond high opportunity segments - Instead of only connecting with high OD households, the most successful organizations are reaching out to all of their customers regarding opting in. While not having the same immediate financial impact, this communication emphasis will avoid potential negative customer experiences in the future.

As a result of the strong results achieved to date by those banks who started early, most of the financial institutions I have talked to have communication strategies that extend well beyond August 15. While the regulation takes effect on that date, most banks are going to continue mailing and call efforts until they have reached as many households as possible. Obviously, knowing that an 80+% acceptance rate is possible provides the financial incentive to not approach this effort casually.

Effective Onboarding Begins with Good Insight

In 2003, the BAI released a research study entitled, 'The Ninety Day Window of Opportunity', where interviews, deposit statistics and segmentation models revealed that nearly 75% of all cross-sell opportunities and the vast majority of attrition occurred in the first 90 days of a new customer relationship. These findings continue to be verified in the marketplace, with expanded concern recently around the lack of funding, engagement and use of new products by these new customers.

More than ever, financial institutions need to begin the onboarding process by capturing an accurate and robust view of the customer which can be used across the organization to enhance the customer experience and expand the relationship with the bank. In short, to optimize the customer experience during the first critical months and year of the relationship from both the customer's and bank's perspective, you need a 360 degree view of the customer. With online account openings, this process becomes even more critical.


Unfortunately, with so many data entry points and so much emphasis on operation efficiency and regulatory requirements, the capture of many key elements of customer insight gets overlooked or is done inconsistently by the front line. Beyond address, birth date, gender and identification information, financial institutions need to begin to collect insight such as email addresses, primary decision maker on the account (it is often the female in the household even though we usually address correspondences to the male), the preferred channel of communication (which is often email), the reason for coming to the bank (move, dissatisfaction, previously unbanked) and what services they use elsewhere (the holy grail of insight). Of course, with more and more of the collection process occurring online, organizations are under increased pressure to validate this insight (especially the address).

With this insight, you are in a much better position to communicate with the new customer in a personalized and relevant manner, using the right channels to the best person in the household offering a service or solution that is geared to their needs. These communications should begin on day one and continue throughout the early stages of the customer relationship enhancing the customer experience and increasing loyalty and retention. Multiple channels should be utilized to improve effectiveness and measurement of all touches should occur to gauge the ROI of the process.

Mobile Banking Summit Illustrates Topic is Hot

You don't need to look any further than the attendee list to realize the importance of mobile banking to our industry. Not only is almost every major institution in attendance at this year's Mobile Banking and Emerging Applications Summit, but the number of participants has increased by more than 50% according to officials from SourceMedia.

The program kicked off Sunday with a workshop by David Eads, Founder & CEO of Mobile Strategy Partners LLC where he discussed the basics of getting a Mobile Banking strategy off the ground. He also shared the first of a wave of industry statistics that made it clear to the SRO attendees that this year and next will be pivotal to the mobile banking industry. He also shared keys to developing a business case for introducing mobile banking. He emphasized that while cost reduction (mainly from offloaded balance inquiry calls) could many time justify the investment in mobile banking by itself. a drop in attrition and an increase in revenue from increased interchange and cross-sales will also improve the ROI.


A parade of speakers including Pam Joseph and other players from U. S. Bank, Bob Hedges from Mercatus, several panel discussions, and Jeff Dennes from USAA provided an amazing array of customer research, case studies and predictions for the future of this channel. During the U.S. Bank presentation, there was discussion of a new Mobile Shopping Concierge application where coupons, offers and even store layouts may be provided and the discussion of upcoming introductions of both a Remote Deposit Capture application as well as a P2P application (probably the most discussed new application of the day from many organizations including Bank of the West).

The best line of the day came from Bob Hedges, who began his presentation of a ton of industry research by saying, "Making a business case for mobile banking is like making a business case for oxygen"! One of the more unusual moments came from 10-11 AM PT, when it was obvious many in attendance were using their phones (and a surprising number of iPads) to get immediate updates on today's speech by Steve Jobs. Another helpful use of phones came throughout the day when pictures were taken of the slides in the presentations  by many since SourceMedia does not include the presentations in the conference materials, and then only partially share presentations 2-3 weeks after the event.

I will be digging much deeper into my notes over the next couple days to share insights from this great conference that ends tomorrow. In addition to key research, I will be sharing marketing ideas that were discussed as well as significant trends that we will probably see in 2010 and 2011.

By the way, for those unable to attend, the location of the conference was at the M Resort which was beautiful, but seemed like it was in LA due to the distance from the strip and the temperatures today approached 110 degrees. So yes, the conference was HOT!

What is the Future of the Branch?

When was the last time you went into a branch to do any banking outside of opening a new account, closing an account, getting a mortgage or doing a mystery shop? Better yet, did you even go into the branch to establish your last financial services relationship? For me, I most recently opened a Virtual Wallet Relationship and never saw a banker in person. What was amazing about the experience is that I was 'cross-sold' a savings account, debit card, online banking, auto save and bill pay without ever feeling like I was sold or talking to a banker. I did it myself . . . all online.

So, what is the future of the bank branch? According to a channel preference survey conducted by the American Bankers Association (ABA) last August, 25 percent of consumers preferred to bank online as opposed to any other channel.
For the first time, this channel preference exceeded the desire to bank in a branch office. And, while consumers over 55 clearly preferred to use a branch, every other demographic group preferred the speed and convenience of the Internet.

It is interesting to note that even though the mobile channel is definitely a area of significant investment and interest in our industry (as noted by my blog on June 7), the adoption rate was only 1% in the survey, with much of the activity still being transactional in nature. Despite this, Bank of America has opened more than 4 million mobile banking relationships.

In a recent set of blogs by industry pundit Brett King entitled, Branch Networks: Where Do We Go From Here? (Part 1 and Part 2), he makes a very strong case for banks reorganizing to make their organization structure channel agnostic. In much the same way that most industry experts believe product silos should be torn down in favor of customer segment management, King makes the case for having channel managers all as equal peers with the focus on the customer and an eye on how money is actually transferred among the channels, how the channels are used and how revenue is generated.

King also indicates that the branches as we know them today need to change in both form and function. With a core function of the daily branch operation concentrating on check processing, and with the number of checks written dropping while technology such as business and personal Remote Deposit Capture is increasing, something needs to change. We are already seeing the architecture of new branches change, with more specialized sales/service offices surrounding a smaller transactional lobby. But even these sales and service offices could be remote, and most of the transactions done today are too costly to be handled using expensive real estate.

Eventually, we will probably see different channel strategies such as Huntington Bank's strategy of expanding branch hours on weekdays and opening on Sundays or possibly branches that resemble an Apple retail store where the focus is on customer engagement and specialized service and where transactions are more of a by-product. The focus on new strategies is even part of this Fall's BAI Retail Delivery Conference where there will be a Multi-Channel Strategy Summit led by representatives from Novantis and M&T Bank.

Whatever strategies are selected, it appears the days of expanding branch networks are gone and we will see an emphasis on consolidation, optimization and the leveraging of new technology to integrate the branch as part of a broader and improved customer experience. As Brett King said in his recent blog, " . . . it's time to start to think out of the box".

How is your bank changing their delivery channel emphasis?

Bank 2.0 is a Bank Marketer Must Read

There are not many books (or anything else for that matter) that I find compelling enough to pre-order. Sure, there may have been a Cleveland Indians or Cavaliers championship jersey I jumped the gun on, but I have never stood in line for an Apple product or pre-ordered a movie to be the first on my block to own it.

I made an exception a few weeks back with the book Bank 2.0 - How Customer Behavior and Technology Will Change the Future of Financial Services by Brett King not only because I was intrigued by the title, but because I have been following Brett's Banking4Tomorrow blog for a couple months and I find his take on the changes in our industry both enlightening and spot on. King is also an international speaker and is an industry advisor on Huffington Post (Business News).

This evening, Brett King’s book Bank 2.0 begins US distribution with a NYC launch (I actually ordered one from overseas a couple weeks ago and several more for some of my colleagues and clients from a U.S. distributor). While I am definitely not done with the close to 400 page book, it is a great business read for anyone involved in marketing, channels, distribution, innovation or the product area in a financial institution.

The book begins by discussing the significant changes that have occurred and will occur in customer behavior as a result of the advent of the Internet and smart phone and the expectations associated with these channel shifts. King discusses the impact of the shift in control from the bank to the customer and the choices that have resulted and will result in the future. These changes are illustrated in his book's video presentation.

While there is a bit of an international bias in the book due to Brett's background, his observations are all valid and well documented with statistics even though the banks and consumers in the states may be a bit behind their counterparts overseas. He illustrates the three stages of consumer behavioral disruption as shown below.

Part 2 of the book is all about the channels that customers use and the ways banks will need to reconfigure these channels in the future to win. Individual chapters focus on the branches, call centers, online banking/web, mobile and even ATMs. What I found both surprising and different about this section compared to many business books is that King is not shy about providing both opinions on how to address the changes that are occurring (with facts to support his recommendations) as well as a vast number of real life examples of both the good and bad in the industry. There is definitely a continuous ROI focus on all of his thoughts based on his vast experience in the industry. 

In the third section of the book, there is a look into the future of banking. Brett digs much deeper into the customer experience and channel impact of the changes that have already taken place and what bankers can expect in the future. As can be expected, there are discussions around social networking, new technologies, the future of payments and what the banks role may be in the P2P world as well as a good analysis of the impact on bank sales, marketing and advertising.

Throughout the book, King challenges banks with regard to their response to the massive customer changes in the past decade. In fact, he has even developed an inforgraphic around the lack of true innovation banks have done and whether the innovation has been done in the areas that matter.

This book is both thought provoking and fact-based, and is definitely a must-read for any banker (or industry supplier) who wants to stay current with the massive changes in our industry and wants a glimpse as to what is right around the corner.

Banks Transforming Branch Networks to Improve Efficiencies

A lot has been written lately around the desire for banks to transform their branch networks given the consumer acceptance of alternative channels and the need to reduce distribution costs. In the past week, there has been coverage in both the American Banker as well as in BAI's Banking Strategies publication (see links to recent articles and white papers below).

One such report, published by the financial market research firm Fitch Ratings entitled, U.S. Banks: Rationalizing the Branch Network, expects that both fewer numbers of branches and different types of branches will be serving customers in the future. According to the report, the continuously increasing cost structure of banking, accompanied by a challenging revenue environment and higher capital requirements is prompting banks to evaluate all expense categories — especially their branch distribution system, which is one of the most significant expenses.

Past Branch Growth

For the past 30 years, branch growth continued unabated while the number of financial institutions declined by more than 50%. The growth occurred largely through consolidation and de-novo expansion, with the objective being to expand a bank's footprint and customer base and therefore low cost deposits and loans.

Expanding a bank's footprint was viewed by consumers as being synonymous with 'strength', and provided a bank the ability to market more cost efficiently. In the past, branches were also the primary form of distribution. The result was that markets with stronger economic activity became overbanked (similar to the growth of gas stations and car dealers in the past and drug stores today).

Branch Profitability

While in the past fees have subsidized branch networks, recent regulations (Reg. E and interchange regulations) have significantly reduced the ability to generate fee income (especially in lower income areas where branches were built to satisfy Community Reinvestment Act (CRA) requirements. Additional regulatory, human resource, real estate and compliance costs combined with the impact of a lower interest rate environment with lower spreads have further impacted the ability to support an expensive branch network.

As shown below, while non-interest income per branch has fallen off recently, non-interest costs continue to rise.

Changing Consumer Transaction Behaviors

As noted in my previous post, The Changing Definition of Convenience in Banking, a large percentage of consumers no longer equate branch distribution with convenience. While there are still some demographic segments who put a premium on the ability to transact at a local bricks and mortar facility (older demographics and small businesses), more and more consumers are banking from their desktop, ATM and mobile phone. 

While many consumers still prefer to perform account opening and more involved financial transactions at a branch, the Fitch Ratings report references Fiserv's 2011 Consumer Trends Survey that indicated that the vast majority of households with internet access (80% or 79M) use online banking, and that the growth rate of using this channel is increasing rapidly. The study also showed a substantial increase in the use of the mobile channel.

In short, changing consumer transacting behaviors combined with continued technological advances and the lower costs to the customer and bank associated with online and mobile banking, will continue to support a shift from traditional branches to digital channels.

In fact, Fitch expects increased technology spending over the near to intermediate term by the banks to continue to improve efficiency and streamline operations. While over the near term these additional technology expenses may offset cost savings from culling bank branches, longer term it should improve earnings and, therefore, returns to shareholders.

Impact of Reducing Branch Networks

Fitch views the reductions in costs, and therefore improvement in earnings, as the biggest near-term positive to the reduction (or at least the reconfiguration) of branches. Fitch also believes that larger banks with more resources are in a better position to benefit from both a technology spending and cost-savings perspective.

In the study, Fitch notes that financial institutions unable to transform their branch models in the near term may actually suffer declining market share and customer attrition since consumers are demanding new ways of transacting with their bank. Alternatively, the increased use of technology could have the impact of making it easier for customers to move funds from one bank to another, which could have the unintended impact of increasing customer attrition rates and decreasing the stickiness of deposits as banks encourage channel shift.

Branch Transformation Alternatives

With the increased cost structure of branches, changing consumer transaction behaviors and potentially negative impact of simply closing branch offices, what might be the new banking distribution model? Fitch and Infosys both believe that technology, innovation and channel integration will play a major role in the transformation of bank distribution.

While new banking entities such as Simple and Movenbank can build a truly branchless bank, traditional financial organizations will need to find the right balance of branches and alternative channels to maintain a physical presence while still moving to a more feasible cost structure for the future. And while the announcements of branch closings are becoming more commonplace (BofA, KeyBank, PNC, HSBC, Capital One) to various degrees of controversy, the decision to close or modify a branch location will not be an easy one.

Digitally Enabled Branches

Some banks, like ABN AMRO have introduced a high tech teleportal that utilizes interactive technology without the presence of any staff. The branch can conduct the majority of the functions of a traditional branch through the interaction with a 3D screen that provides an effective, albeit different, branch experience.

Banks wanting to maintain a reduced staffing model without eliminating all direct human interaction have integrated digital and video technology to supplement a reduced staff in a smaller facility. Phone banking, self-service teller stations, online banking stations (using iPad style devices) and video web conferencing are being used in some banks for loan processing and even cross-selling.

ATM Modernization

With ATM capabilities expanding rapidly, some banks are increasing the presence and utilization of ATMs to handle more customer needs. We have already ATMs that can accept checks, make bill payments, provide change and even issue stamps and movie tickets. Future advances will include the potential for live video interaction and customer support and new ways to access cash utilizing mobile devices. These expanded capabilities will allow banks to reduce (or replace) a traditional bricks and mortar branch.

Enhanced Branch Value Proposition

For those branches that remain, banks must extract a higher value from the existing real estate through improved cross-selling, expanded services (brokerage, advisory, insurance, community outreach, etc.) and an overall enhanced customer experience. Citibank has gone as far as developing branches inspired from the Apple store, integrating modern design with technology and high customer service to improve engagement and sales (see Citi Rolls Out Its Version of the Apple Store in The Financial Brand).

With banks needing to reduce and reconfigure their distribution networks due to cost and revenue implications, disruption in bank distribution will continue. In an environment where customer fees have recently increased and dissatisfaction with the banking industry is still at high levels, any perceived cutback in service levels will be met with quick and widespread negative publicity and potential for further regulatory push back. This will leave banks with having to balance their need to change their distribution strategies with potential negative public sentiment.

It will eventually fall on the shoulders of bank marketers to soften the impact of any negative response through effective (and proactive) communication using all available traditional and digital/social media channels.

What do you think will be the best near and long term distribution strategy for banking? What will be the impact of the new banking entities that will enter the marketplace without branches? I would love to know.

Recent Related Articles on Bank Branch Transformation
Riding the Innovation Curve for Branch Transformation
Boiling the Frog: Time to Re-think Branches?
Branch Consolidations: Handle with Care
Bankers Talk Bluntly About Closing, Streamlining Branches
The Branch Killers Have It Backwards in Eyes of BB&Ts King
Bank Branches Are Dead

Recent Related White Papers
Infosys - Branch Bank of the Future: Transforming to Stay Relevant
Fitch Ratings - U.S. Banks: Rationalizing the Branch Network

Customer Analytics Is Key To Growth In Banking

Understanding customers is the foundation to a sustainable competitive advantage in banking. Therefore, financial marketers can no longer wait to embrace the power of advanced analytics to gain insights and evaluate opportunities that will improve cross-selling, up-selling and enhance share of wallet.

Financial marketers also need to extract more value from internal and external data sources, guiding product development, customer communication, innovation and growth.

First in a Series on Big Data and Banking

In a recent report from Celent entitled, "Customer Analytics in Banking: Why Here, Why Now?", senior analyst, Bob Meara writes that now is the time for banks and credit unions to leverage the advances in processing, memory, database design and analytic methods to improve performance and reduce costs. While the Celent analyst notes that some institutions are already on the path of using advanced analytics for decisioning and optimization, other organizations have only limited experience (this correlates with several other studies).

The following are the primary reasons why banks need to step up their customer analytics game:

• The New Normal: The banking industry is expected to remain revenue challenged for the foreseeable future as a result of low interest rates, moderate fee revenue, onerous regulation and a less than robust economy. As a result, it will be more important than ever for banks and credit unions to focus on all possible strategies to reduce costs and increase revenues. Some of these strategies, enabled by customer analytics include:
• Improved targeting of customer segments
• Moving from a product focus to a customer focus
• Better management (and measurement) of sales leads across channels
• Inclusion of custom customer incentives/rewards to influence behavior
   
• The Imperative for Customer Centricity: With customer delivery and communication channels expanding, and more customers interacting with their financial provider using online and mobile channels, always-on, real-time sales and service become imperative. Analytics can respond to the migration to digital channels by:
• Improving branch efficiency and effectiveness
• Integrating sales and service tools within a new digital environment
• Helping to drive high value, high touch traffic back to branches
• Technology Advancement: Customer analytic applications are no longer the sole domain of highly skilled specialists. Today's solutions can be accessed and used by marketers and other business users to answer complex inquiries. Improvements include:
• Collapsing of product silos and ability to process increased data sources
• Increased number of specialized vendor solutions and expanded talent
• Cloud-based solutions

For readers interested in an excellent understanding of big data, data analytics, predictive modeling options, and the data analytics process, I suggest purchasing the Celent report here.

Customer Analytic Applications

As the Celent study makes clear, there is no shortage of analytic applications for banks and credit unions. While some are more general in nature, some are highly specific outsourced solutions, supporting a buy vs. build decision. Obviously, with a focus on containing costs, the ability to utilize outsourced solutions is good news.

"Key retail banking priorities - specifically, using self-service channels to drive branch foot traffic, improving branch channel efficiency and effectiveness, and learning how to sell and service through digital channels - all require customer analytics," says Meara from Celent. "The good news is that there has never been such a variety of specialized customer analytics solutions."

According to the Celent report, there are six key well-established business drivers for predictive analytics in financial services. Each of these are important as a bank or credit union builds an analytic strategy for the future.

Source: IBM and Celent

Customer Insight

Of special interest to most financial marketers is the ability to gain a better insight on current customers. While demographics and current product ownership are at the foundation of customer insight, behavioral and attitudinal insights are gaining in importance as channel selection and product use become more differentiated. Sentiment analysis and social media analysis are two additional examples. 

Another predictive analytic model is the FICO score. Scoring models such as FICO analyze consumers’ credit history, loan or credit applications, and other data to assess whether the consumer will make their payments on time in the future.

Business Strategy

The foundation of traditional banking business intelligence (BI), customer analytics are often used for product and channel development as well as economic forecasting, business improvements, risk analysis, and financial modeling.

Customer Experience Management

According to the Celent study, the key to using customer analytics for customer experience management (CEM) is about delivering personalized, contextual interactions that will assist customers with their daily financial needs. In addition, if done correctly, customer analytics in the context of CEM enables the real-time delivery of product or service offerings at the right time. It can also allow for highly sophisticated relationship pricing never before available.

Risk Management

One of the more common uses of 'big data' today is in the area of risk and fraud management. Data mining today has expanded well beyond internal purchase and balance insights to include transaction patterns and even social media interactions that can provide a leading indicator to potential losses or fraud.

This type of integration of structured and unstructured data can also be leveraged for traditional risk management uses such as for pricing decisions. 

Channel Execution

BI tools have helped banks understand channel effectiveness for some time. More recently, analytics capabilities have boosted the usefulness of these tools. Capabilities include providing comprehensive views of channel performance based on both customer behavior and transaction mix. Solutions help banks understand channel profitability and customer satisfaction and tailor retail operating models to improve retail delivery.

As more banks and credit unions work harder at migrating customers to digital channels, analysis of engagement and shifts in channel use become important indicators of satisfaction and re-pricing opportunities.

Marketing

Another traditional use of customer analytics is the ability to increase the effectiveness and efficiency of sales and marketing in financial services. The ability to derive the likelihood of purchase based on available information about individual customers has ushered in a seismic shift in marketing from product centricity to customer centricity. 

Rather than offering products and services based on what the financial institution would like to sell (campaigns), banks and credit unions are now able to make unique, timely, and relevant offers based on available customer insight. Doing this form of analysis across multiple channels allows financial marketers to significantly improve the efficiency of marketing spending and the close rate of sales leads.

For each of the applications shown above, the power is not just in the analytics themselves, but in the ability to do so in real time. With more challenges than ever in banking, analytics is at the center of it all as tweeted by the author of the report recently.

Banks have lots to do: grow sales, reduce costs, add digital engagement. Customer #analytics is central to it all: celent.com/reports/custom…

— Bob Meara (@Mearaman) May 28, 2013

Implementing a Successful Data Analytics Process

The Celent research emphasizes that while there are a growing array of use cases for data analytics, the process is definitely not a 'one and done' proposition. The move from a product/campaign based approach to a customer centric approach is huge and involves many moving parts.

Successful implementations always involve a series of steps and a test and learn process as shown below with a different amount of time and effort applied to each step based on the specific project being undertaken.

According to Bob Meara from Celent, "Most organizations (banks included) get good at specific analytics use cases and broaden their use once parts of the organization gain confidence and prove the business case. Only then is the approach used more broadly and extensively."  He recommended that  banks:

• Start small. Invest a little and wear out the application. See what it can do.
• Experiment – early and often. This requires a willingness to fail (in small and low-risk ways).
• Embrace analytics as a journey, not a destination. Keep learning and keep looking for ways to apply analytics for fun and profit.

In response to a question from me around whether banks should 'boil an ocean' in their analytics endeavors, Meara stated, "Of course, banks should walk before they run. By that, I mean banks should fully leverage in-house transactional data before investing heavily in external sources of information and insight."

He adds, "Social data is particularly compelling, but runs a big risk of being unrepresentative. SAS, for example, does a great job integrating social media data with internal data to arrive at more well informed models and more highly predictive outcomes. Either way, start with the treasure trove of data already onboard."

The reality is that, in the digital banking model of the future, data is a financial institution's most important asset. Banks and credit unions that are able to combine their internal and external data sources to create value will find themselves well placed to thrive in what some have called 'Banking 3.0'.

Those who are unable or unwilling do so at their own peril.

For readers interested in a thorough data analytics vendor analysis and a number of excellent financial institution customer analytics case studies from around the world, I suggest purchasing the Celent report here.

Additional Resources

Customer Analytics in Retail Banking: Why Here, Why Now? - Celent (May 2013) 

Time To Grow Up: Perspectives on Customer Insight and Analytics in Retail Banking - KPMG (2012)

Tap Into The True Value of Analytics - Infosys (2010)

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Rethinking the Multichannel Banking Experience

In response to customer demands, banks continue to invest in increased multichannel functionality and set a goal of delivering a consistent customer experience across all channels. The result is an environment where consumers have little incentive to choose one channel over another and where banks have are faced with increasing complexity and costs.

A better solution may be for banks and credit unions to limit the functionality of all channels and to instead simplify the process of moving a customer from their preferred channel to the 'best' channel for different needs, thereby improving the overall customer experience.

As I visit banks across the country, the majority are seeking to stem attrition and maintain customer satisfaction by providing consistent, integrated services across all channels and encouraging customers to self-select channels according to personal preference. In fact, nearly two-thirds of executives interviewed by CEB TowerGroup agreed that delivering a functionally consistent customer experience across all channels was a priority.

With over 60 percent of multichannel experience customers reporting that both web and branch service offerings were consistent, it seems early efforts are paying off. However, this accomplishment has come at a price: trying to develop an 'omnichannel' experience is causing customer preferences to converge and overall transactions to increase, further increasing the complexity of channel maintenance, resulting in higher costs and amplified risks without the customer experience benefits desired.

Growing revenue, reducing costs, and improving customer loyalty demands that retail bank executives consider a more strategic and nuanced approach to multichannel development according to recent research from CEB TowerGroup, entitled "Rethinking Multichannel Strategy: Improve the Customer Experience Through Channel Differentiation and Proactive Guidance'. The research recommends three steps that bank and credit union executives should take to improve their multichannel strategy:

1. Differentiate channel functionality
2. Proactively guide consumer's choice of channels
3. Formalize the process of evaluating channel performance

The Omnichannel Dilemma

Consumer interest in online and mobile banking has gone unabated for several years now, with digital channel use increasing significantly. As consumers manage their finances in the context of new technology such as smartphones and tablets in conjunction with online banking, branch and ATMs expectations have also increased, requiring banks to provide custom applications and improved service through all channels.

Unfortunately, the increased volume of digital transactions has not resulted in comparable reductions in use of traditional channels or the promised cost savings. Instead, banks and credit unions are adding layers of complexity and costs while trying to maintain a high level of customer service.

Source: CEB TowerGroup

Interestingly, according to the research from CEB TowerGroup, while the transaction volumes continue to increase for digital channels, consumers still say they prefer a human touch to their banking which could lead to an even distribution of channel use, making it difficult to please everyone. In addition, as financial organizations monitor customer preferences, consumers tend to 'want it all' since there is little financial incentive to differentiate what they 'want' from they 'need'.

Providing more choice and total functionality across channels increases both cost and complexity as shown below.

Despite functionally consistent offerings across channels, the CEB TowerGroup research also found that technology-focused customers gave lower marks for communication and service, indicating possible confusion on the part of the customer due to this underlying complexity.

Differentiating Channel Functionality

Instead of trying to make all channels consistent in their capabilities and functionality, CEB TowerGroup recommends building a differentiated functionality for each channel that is consistent with the customer experience strength of the channel. This is required as an interim step towards a process that helps guide the consumer to the best channel for any interaction with the institution as shown below.

Differentiating the channels requires assessing the customer's channel preferences and aligning these preferences against the best capabilities of a channel, the incremental costs to deliver, usage patterns and the potential for a positive customer experience.

Contrary to what many bankers may think, customers don’t demand a wide range of choice of channel according to the research. Rather, customers are often confused by the increased choice and prefer whichever channel requires the least amount of effort. In other words, customers who demand the ability to do any banking function in the channel of their choice are in the minority.

According to Nicole Surgill, research director of retail banking at CEB TowerGroup, "You have to define what the customer cares about and realize that isn’t the same as what we care about. 'I want to deposit a check when I want' or 'I want to get a loan for a house when I want' or 'what is the easiest and most understandable way for me to do that?'"

Implementing a new, simpler process for the customer doesn’t always equate to cost savings for the bank. But we still need to make this experience better or the process better. The challenge is defining what makes the customer experience better and then tying it to reducing attrition and increasing the customer’s willingness to buy more.

Internal capabilities and development costs of different channels are invisible to the customer, so banks and credit unions should determine best-fit channel functionality for each customer need. By simplifying service offerings and tailoring each channel to serve specific customer needs, organizations can limit and specialize channel functionality, reducing costs and complexity and improving the overall customer experience.

We also need consistency in the channels where customers are most likely to CROSS channels. For example, Sturgill emphasizes, "Opening a new account or seeking advice on a product or service or trying to resolve a problem – that’s where a customer may start in one channel and finish in another. We need to focus on where customers will cross channels and simplify the transition from those channels, instead of focusing on doing it all in every channel."

Proactively Guiding Choice of Channels

As stated above, customers don’t demand choice of channel. Rather than encouraging customers to select the channel of their choice, the CEB TowerGroup research recommends that retail banks should proactively guide customers to the channel(s) that will enable them to accomplish each task with minimum effort. Done well, the process will guide the customer to the lowest effort channel while still satisfying the customer's desire for choice.

However, there are two main obstacles to effective guidance – the first is a lack of experience with non-branch channels. This prevents many customers from choosing the best-fit channel for their needs. Secondly, when customers have chosen a channel, they are reluctant to switch even if another channel promises easier resolution. In other words, old habits may be hard to break.

In order to overcome these obstacles, banks should identify common service triggers and step in at these points to preemptively guide customers to the best-fit channel. The goal is to provide a better path for the customer to follow and to avoid customer disengagement as they are served through different, more effective and efficient channels.

One of the most effective ways to preempt channel use that is not best for the customer (or the bank) is through either an immediate event-based email or an SMS message that provides links to the appropriate channel. During this communication, FAQs are very effective at proactively answering the potential questions a customer may have.

Evaluate Channel Performance

Following the first two steps of channel differentiation and customer guidance, banks and credit unions should create a formalized process to evaluate the results. To motivate channel migration, institutions could employ branch interactions to drive selection of online channels, proactively guiding the customer to the best fit channel. An exit survey would then be a good assessment of customer satisfaction with new channel experiences.

The purpose of this measurement process is to continually reassess and improve channel functionality that will lead to reduced costs and duplication of efforts as well as a better customer experience. This will also reduce process abandonment which is one of the 'silent killers' of new account opening, cross-sell, increased engagement and retention.

Overall, the goal is to create a multichannel experience that optimizes both the efficiency and effectiveness of each individual channel or group of channels for any specific purpose as opposed to trying to be all things to all people. This reduces redundancy and improves the ability for each bank and credit union to provide the level of service desired by the customer at any touchpoint.

A discussion with Nicole Sturgill, Research Director, Retail Banking at CEB TowerGroup on improving the customer experience in a multichannel banking environment. 

Additional Resources

Rethinking Multichannel Strategy: Improve the Customer Experience Through Channel Differentiation and Proactive Guidance - CEB TowerGroup (April 2013)

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