Using Analytics for New Product Design
As the financial services industry emerges from the great recession and adapts to the new regulatory and slow-growth environments, financial institutions are being pressured to find new ways to generate revenue. The data that financial institutions hold is incredibly valuable and leveraging it to attract and retain business may be one of the best ways for institutions to succeed in this new climate.
The key is accessing and understanding the data already available within institutions to develop an in-depth knowledge of customers. How do they prefer to interact? Where do they shop? How do they pay? Many organizations can boast expertise in Big Data and analytics in payments but financial institutions have a key asset above all others – they possess the actual payment transactions made by customers. This is where the rubber meets the road. And with respect to product design, the data shows lifestyle trends and needs that can be leveraged for the benefit of everyone.
Unfortunately for banks, which often have disparate, disconnected information systems, the ability to get a complete picture of individual customers and their behavior patterns is elusive. The default approach is often cookie cutter, static product designs that aren’t based on true customer insight. Far too often we see product design driven by competitive pressure or management thinking, rather than intelligence on customer behaviors and strategic goals. This outdated thinking accelerates the commoditization of banking because it provides no differentiation beyond price.
The solution to this problem is analytics. Through the use of tools that enable financial institutions to segment their portfolio and develop insights on customer preferences and spending behaviors, banks can devise dynamic products and programs to better meet the needs of their customers. The static, “one-size-fits-all but meets the needs of none” solutions are replaced with individualized offerings that satisfy specific customer desires as well as drive the business results that the financial institution wants.
How might this look in practice? With sophisticated tools, financial institutions can analyze customers’ payment activity (electronic vs. cash & check; credit vs. debit vs. prepaid, Store X vs. Store Y shoppers), demographics (age, geography and gender) and/or profitability (top revenue-generating customers, underperforming or “at-risk” segments) and create customized and targeted solutions tailored for the specific needs of their customers.
To help make it real, let’s analyze a common issue in financial services: the high percentage of single-service customers. Every financial institution covets the primary financial relationship, but few analyze their single-service customer base to understand the issue. By zeroing in on those customers, institutions can further analyze their transaction history from Automated Clearing House (ACH) and bill pay activity to identify incoming deposits or outgoing payments to other financial institutions. At a minimum, this customer is at least tempted by an existing relationship with another financial institution. And at worst, the exit transition is already underway. Analytics helps you identify the problem and the severity of it. To solve it, banks can now prioritize the solution.
Instead of following the herd and developing another static “Premier Relationship” product that is neither premier nor valued on the relationship, bankers can shift the value from the account to the customer. They can also do so in a way that evolves with the customer’s changing lifestyle. If single-service customers are your issue, the answer is not necessarily to add a loan, a certificate of deposit (CD) or a savings product. It is bringing your institution to the forefront of the consumer’s mind when they are looking for new products to fulfill their financial life. Banks can’t create a need for a loan or a retirement account, but they can identify when the need may be present and then fulfill it. They can use the data they have available to identify the right products for customers’ specific life stages.
Now, think beyond product launches to ongoing customer tracking. Banks need automated tools to “adjust” the pricing once that customer reverts to a single-service customer. As the CD matures or the loan is paid off, the customer may not deserve all of the benefits of the premier relationship. Financial institutions leave a significant amount of revenue on the table by not holding their customers accountable to their commitment. In most cases, this lost revenue is the difference between a profitable institution and one that is struggling. In addition, it sets an expectation that banks are not monitoring their relationship and the customer will not be held accountable to hold up their end of the bargain.
Armed with this kind of data-driven intelligence, organizations can create customized solutions that simultaneously create high customer satisfaction while driving behaviors that are advantageous to the institution.