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Fighting financial fragmentation is all about relationships

Oct 16, 2019 / Consumer Banking / Technology

On the surface, it looks like good news: Customers’ “primary” banks and credit unions are maintaining that role as very few consumers report that they “switched” financial institutions in 2019, according to BAI Banking Outlook research. Yet primary bank status in this stage of the digital age means something different than it did a decade ago—with consumers, their gadgets and high expectations leading the charge.  

People aren’t quick to uproot and take all their business across town to another provider—but why bother? They can skip that hassle and easily shop for other services—ones they think best meet their needs and that can diminish the value of their primary bank relationship without warning. 

Although most people feel financial institutions are dropping the ball on personalization (and most banks agree), those people aren’t noisily taking those demands to the bank. The rules have changed. According to Cornerstone Advisors, the average household has nearly five financial provider relationships. On top of that, digital providers offer easier access to products and services. No wonder more than 60 percent of those households consider fintech options to meet their needs.

Where could this exodus leave the “primary” provider? The answer is simple: in trouble

Data feeds and customer needs

Banks can avoid the hot seat, though, if they acknowledge this shift and take the right steps to understand, anticipate and act on their existing customers’ needs.

But the fact is many banks miss the mark. Consumers want relevant communications from their banks, but nearly 50 percent of financial institutions don’t understand their customers’ needs, according to recent research from Yes Marketing. This lack of relevance demonstrates that ignorance and every irrelevant communication gives the customer another reason to go online and easily investigate where they might feel more appreciated.

Banks that fixate on new business fail to really seize their key advantage: the existing customer relationships and data-rich story of those customers’ lives. Consumers may not share their wants or complaints directly. But by paying attention to the story their data tells, banks can act on their needs—sometimes before customers recognize them. Then banks can slow the loss of business while they create mutually profitable, lasting relationships that add real value to people’s lives.

Helping customers means helping yourself

Just because customers can shop à la carte for financial services online doesn’t mean they’ll refuse help.

More than 80 percent of U.S. consumers 18–34 years old would be open to budgeting, saving and credit monitoring help from their primary financial institution, according to Mercator Advisory’s 2018 Consumers and Personal Finance Survey. More specifically, 89 percent would discuss setting a household budget to meet their goals with their institution; 88 percent would be interested in budget monitoring services; 87 percent in automatic savings plans to meet their budgeting needs; and 84 percent in a conversation about credit monitoring services. 

Meanwhile, nearly half of all consumers visit a bank branch twice a month: face time that can deliver what it takes to start, grow and cement relationships … provided it’s not neglected.

Fighting fragmentation

To combat the convenience and lower fees that drive many consumers to direct banks, primary institutions must become exactly that—primary. On the cusp of 2020, that means they must play a central role in their customers’ lives: offering advice or anticipating needs online, by phone or in-person at branches.

What’s more, convenience and fees often take a back seat to a trusted advisor when customers plan their financial lives or face critical decisions that will affect them for years to come. They want solid, reliable services at that juncture, not to shop for the best, easiest deal with fragmented offerings.

To assume this role, banks must understand present and future needs, showing up when the customer is ready to tackle these issues. That means processing their data and behavior to determine customer need: a practice where many financial services organizations fall short.

Data lies at the center

But banks can close this gap through customer engagement powered by data. Those that already do this derive meaningful insights from the “data story” of customer lives, then identify opportunities and build more profitable customer relationships through automated, relevant and personalized communications.

Customer counts push too many financial institutions into focusing too much attention on the new-customer hunt to match their sales goals. Instead, banks need to tap into the power of their data and act on it: to pivot from that bank-centric mindset and act fast because consumer expectations keep rising. They must re-define what “primary” means in their customer approach and shape their offerings to deliver more value to existing relationships.

That value can carve out a central role in customers’ lives. It will survive fragmentation by leveraging data that helps banks step up to the informed advisory role consumers want. Put another way, banks that have too long watched the definition of “primary” change before them can now redefine it as something far less fragmented—and far more cemented.

Tyson Nargassans is CEO and founder of Saylent, empowering financial institutions to meet the needs of each customer through data-driven solutions.

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