The banking landscape has shifted. The bar has been raised. To compete in today’s environment, financial institutions must offer lucrative incentives and provide seamless services across all channels. Industry leaders rely on new datasets and analytic approaches to better acquire, grow and retain customer relationships.
Indeed, it’s a new world—and the FIs that most effectively adapt to these six trends will be best set up to stay ahead of the pack.
Friendly with fintechs
In many cases, fintechs lack straightforward paths to sustainable profitability. The previously popular narrative—that fintechs would replace traditional banks—seems increasingly unlikely today. In 2018, we expect more collaboration and partnerships between the two parties.
To adapt quickly to changing consumer preferences, traditional FIs innovate through a combination of build, buy or “borrow” relationships. Citigroup, for example, has chosen to build fintech capabilities internally. Others have chosen to compete by acquiring or partnering with start-ups. Given that the build-and-buy approaches can prove costly, risky or slow to market, more traditional players will increasingly “borrow” from fintech in 2018.
As organizations continue to collaborate, experimentation will prove crucial in understanding which investments will yield returns and strengthen customer relationships. Testing new strategies with a subset of customers, financial advisors or markets before investing in broad rollouts will inform critical decisions.
Complex analytics for complex customer journeys
Banks have invested massive resources in developing great online and mobile experiences. Consequently, customer journeys have become more complex than ever: It is increasingly rare for a customer to open an account or shift balances without research and interactions across multiple channels.
Analytics, meanwhile, struggle to keep pace with the speed of this omnichannel shift. While 65 percent of marketing leaders plan to increase digital spend next year, most organizations report no reliable measurement for online campaigns. Optimal ad deployment and digital outreach requires the ability to measure the quality of responses and effects across channels.Many banks have taken the first critical step in the optimization journey by building “data lakes” to aggregate disparate data sets. Simply aggregating data, though, will not generate value. In 2018, we expect to see returns for those FIs that develop a disciplined, omnichannel analytics function on top of those data lakes.
Revolutionary inputs to risk assessment
Banks and others have access to richer customer data than ever before. Incorporating non-traditional behavioral data into acquisition targeting and risk modeling has already demonstrated value—and will only continue to grow in popularity in 2018. These alternative data sources—which draw from social network activity, mobile app usage, and even clickstreams—have presented opportunities to better understand and reach previously under-banked customer segments. For example, some FIs now explore mobile behavior attributes such as the number of contacts in an individual’s phone as new indicators for credit risk.
Long-term perspectives on big bets
Promotions have grown tremendously in recent years amidst a heated customer acquisition arms race. With cost per acquisition reaching new heights, banks have adopted a laser focus on tracking the behavior of recently acquired customers to understand the long-term impacts of different offers on portfolios. Accurate forecasts at scale can inform critical investment decisions today.
Given high acquisition costs and enticing offers from competitors, many banks direct more resources towards customer retention and relationship growth. To make the most of such large-scale investments, leading FIs are focusing more on targeting the right customers—with the optimal messages and projecting the long-term performance of those bets.
An actionable AI emphasis
With Artificial Intelligence (AI) at the peak of the hype cycle, banks are allocating significant resources towards AI technologies and tools. UBS, for example, recently introduced an innovative “roboadvisor” tool that uses machine learning to offer personalized investment advice and customer service. In many instances, though, the immediate value from AI investments is less obvious. In particular, the “Black Box” nature of AI solutions can pose problems. Due to regulations that require transparency in risk assessment and customer targeting decisions, banks often cannot act on AI-driven recommendations, which could have baked-in biases.
In 2018, more banks will focus on actionable, transparent applications powered by “machine experimentation.” By using algorithms to intentionally introduce variation a bank could, for example, understand which script suggestions are most effective for different types of calls and reps in the contact center.
A wealth of new wealth management tech
Given wealth management’s traditional focus on personal relationships, it has been a slower mover in adopting new technology. Shifting consumer preferences, though, are causing the tide to turn.
Most established players have, to at least some degree, begun to embrace roboadvisors. While such innovations can make customer acquisition dramatically cheaper, they also apply downward pressure on advisory fees and reduce switching costs for the customer. To maintain strong relationships in this new environment, banks must experiment with different engagement models to understand which frequency, cadence and channels of communication best fit each customer. For example, a more centralized, automated approach may suffice for many mass affluent customers. But retaining others could require more high-touch personal interaction.
Putting it all together: How competition calls for innovation
As financial institutions continue to enhance their capabilities in 2018—with eye on the competition and the other on quality internal analytics—they will open the door to successful innovation. By prioritizing the speed, scale, and granularity of cross-channel analytics, and approaching technology introductions through experimentation, leading banks can adapt to an increasingly dynamic industry with confidence. And with such competitive edges in hand, those leaders can take charge of raising of the bar.
Grayson Clarke is a Senior Vice President and Head of the North America Financial Services practice for APT, a Mastercard company. He is based in Washington D.C. and holds a Master of Business Administration from Harvard Business School, along with a Bachelor of Science in Mechanical Engineering from Virginia Tech.
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