Account Aggregation is Power

The Latin phrase scientia potentia est, meaning “knowledge is power,” has proven true in banking for centuries. Financial institutions strive to know their customers, to predict their wants and needs and to offer services that encourage loyalty. This year, the industry is poised to bring this practice to an entirely new level. Regional and community institutions should know that mega-banks and non-banks (such as Mint.com and Pageonce) are planning to reallocate your customers’ wallet share; they are maturing personal financial management (PFM) and service channels into account aggregation platforms and doing so at a very opportune time.

Today’s customers are analyzing their banking relationships and are often open to making changes. Add to that the fact that the average consumer has active banking relationships with more than three financial institutions, and changing banks is easy. Approaching customers with a timely and on-target offering for exactly what they want and need in their banking relationships may facilitate a great deal of change.

To fend off these competitive threats, regional and community banks need access to the same type of aggregated data to make offers and know what their customers will need in the next three weeks to six months. Imagine if your service representatives could see that your long-time customer was making regular payments on a loan with another bank at a rate several points higher than what you offer. Or, that a customer is continually paying ATM and higher late fees for a checking account with a competing institution. In either case, your bank could be in a position to offer a money saving solution to add more services where the customer already has an account.

Take a loyalty perspective: would you be willing to pay additional basis points to match a competitor’s maturing certificate of deposit or transfer a savings account for a customer that has several existing products within your institution? The key to acquiring and maintaining profitable customers is to increase their wallet share with your institution. You do this because it’s five times more expensive to attract a new customer than cross sell an existing one. Growing existing customers’ share of wallet not only grows the assets in the bank but also represents the most profitable dollars to acquire. Being the first to make a good offer on a product customers need is vital to gaining additional business.

The Stickiness of PFM

Banks that are considering deploying a PFM platform usually do so for the customers’ benefit, as a competitive, or even “sticky” service. This mindset is similar to why investments were made in the past to offer free Internet banking or more recently bill pay and mobile. There is no question that PFM services provide customer stickiness and a better user experience than traditional home banking solutions.. If you already have such a platform, or are in the midst of selecting one, you may be on the verge of a much more beneficial solution than you think. If you have not yet considered PFM, allow me to explain why I think you should – and it’s for much more than customer service.

Let’s begin with defining what makes a good PFM service. For a customer to have a holistic view of finances and receive any benefit from PFM, it is important to aggregate all of a customer’s financial holdings. Aggregated data definitely benefits the consumer, but it should also benefit the bank by providing insights to the external account types, amounts and rates that customers are taking advantage of outside of your institution’s offerings. Ensure that your provider gives you access to this data – after all, you are paying for it.

Ideally, the data garnered should represent a comprehensive sampling of your customer base, including all types of demographics. If leveraged strictly as a budgeting or goal-setting tool, PFM may only experience success with younger generations. The evolution of PFM should be focused on reaching customers in all demographics through a wider variety of services. Several ways to accomplish this include:

  • Alerts and notifications of external accounts delivered through your system;
  • Bill discovery that leads into bank-controlled bill pay (as opposed to Automated Clearning House accounts recevable entries or “pull” transactions), granting consumers the ability to better control payments and manage their cash flow;
  • Enabling goal-setting, such as a new home, automobile or motorcycle. (This also provides an opportunity for your bank to offer assistance with funding such purchases.);
  • A list of transactions across all accounts including detailed merchant information, such as address, phone number and website, are useful tools for all on-the-go consumers; and
  • When evaluating features consider what demographics will use each feature and place the most emphasis on those that are most relevant for everyone.

The ability to aggregate financial information from consumers will also enable promotional efforts that are a key element to the future of bank marketing. Bankers can rely on dashboards that analyze data by demographics, account size, cards, spending category and geography to guide new product offerings and promotions, and to better target customer segments, ultimately increasing the number and profitability of accounts. As an added bonus, increased accounts per customer will result in higher profitability and retention rates.

Unfortunately, most bankers do not consider aggregation one of their top initiatives for 2012; your plans may be maxed out with service and compliance initiatives. However, aggregation should be an integral component to the self-service platforms you build. An aggregated platform can change Internet, mobile banking and PFM services from a necessary cost to a source of knowledge, power and profit.

As they say, “Knowledge is Power.”

Mr. Arnold is CEO of Cedar Falls, Iowa-based T8 Webware. He can be reached at [email protected].