Getting Big Value out of Big Data


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If my bank calls me, I brace for bad news. It shouldn’t be that way.

Banks are considered leaders in data analytics-most have been at it a long time, have a lot of data and know a lot about their customers. But some banks aren’t actually doing a great job of translating data analytics into better customer service and smarter relationship development, or even taking advantage of opportunities to monetize data.

My bank has more data about me-salary, mortgage, purchases, FICO score, family birthdays, how much I spend and save, where I vacation, live and work-than any other single entity, and certainly enough to make some great proactive suggestions. But I never get that call offering special services for my kid who’s going off to college.

A great banking relationship should be about delighting the customer. More and more, that means using analytics to anticipate customer needs, flag (and fix) patterns that precede complaints, and deliver experiences that exceed customer expectations. Banks should consider watching and learning from my social, location and digital interactions: As the wheels of my plane touch down in Hawaii, a coupon for my favorite local restaurant should pop up in my mobile wallet app. Many customers now expect this level of anticipation of their interests–enabled by data analytics-and if you can’t deliver it, loyalty may not keep them with you. Banks that up the ante on data analytics will be able to attract and keep customers. Banks that don’t step up likely won’t be able to compete with innovators and retailers that consistently deliver personalization.

Many banks are also missing a huge opportunity to monetize data. No one likes receiving unsolicited offers that miss the mark, but when information is targeted and presented appropriately, it can be something customers actually appreciate knowing about. Banks have the opportunity to deliver a privacy-compliant data feed to retailers, to enable targeted marketing and higher customer satisfaction.

The great news is that analytics technology is good and getting better. Advances in distributed data architecture, in-memory processing, machine learning, visualization, natural language processing and cognitive analytics can help banks gain and deliver personalized, granular insights.

Cognitive computing-training computers with machine learning and process automation techniques to enhance human decision making-can analyze massive datasets in a variety of data types, including numbers, text, images and speech. Tasks traditionally performed only by humans can now be accomplished with less direct involvement, such as evaluating credit risks, fraud detection, loan application processing, collateral lien search or making real-time recommendations. For example, the CFPB, OCC, Fed, and FRBNY have required larger institutions to data mine complaints to check for any high-risk incidents that were not escalated properly. Using advanced machine learning techniques, including speech and text analytics, banks can now search for regulatory terms and consumer protection requirements to identify regulatory risks and look for patterns in complaint escalation. Cognitive solutions can also help customers develop sound financial habits through their bank’s mobile app. Clinc’s Finie is a voice-enabled digital assistant that can check spending against budgets and habits, transfer money between accounts and retrieve historical statements.

Advanced analytics also enable more engaging customer experiences that reflect each customer’s profile, habits and situation in that moment, so when a client reviews investing forums for impacts of geopolitical events, a wealth manager can deliver a personalized scenario risk analysis from the investment office. The message could also include an option to request a meeting with a financial advisor. For banks, it’s time to make the crucial shift from insight into action, using cross-channel analytics to drive new messaging and behavioral analytics to deliver targeted offers and in-bank personalization. Luckily, the technology is there to help you take it to the next level.

To harness the full potential of data and analytics at scale, banks will likely have to invest in sustained programs that are truly embedded in business processes and culture-industrialized analytics that are woven into the DNA of the organization. It requires a serious commitment to the vision of insight-driven customer service, business strategy and risk management, as well as a serious investment in talent, data management, analytics and infrastructure for repeatable results and scale. Executing well has the potential to achieve remarkable gains in customer satisfaction, cross selling, complaint reduction and efficiency, all key levers for becoming a more efficient, nimble and profitable bank.

On Your Mark….Loans Approved!


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Scene 1: Adam approaches a reputed bank in his city to get a quick loan to expand his restaurant. A month later, he is still waiting for a green light.

Adam tries his luck with a marketplace lender, and his application is cleared in minutes. The money is wired to his account in no time at all.

Scene 2: Stacy approaches her bank to get a loan to expand her digital marketing firm. She needs cash quickly. Although she is currently a customer of the bank, her loan application review process takes time.

She instead applies for a loan online with an alternative lender. Her application is processed and approved, and the money is wired to her account in the shortest possible time.

Here’s a wakeup call for the banking industry: Customer loyalty, which banks have relied on for so long, is now decidedly elusive.

Banks are getting hit by a triple whammy. First, increased regulations have made loan processing more complex, resulting in higher costs and reduced margins to originate loans. Second, banks’ legacy systems and manual processes lead to delays in loan processing and constrain banks from meeting the expectations of today’s connected consumers. Finally, digital disruption by alternative and marketplace lenders is putting pressure on banks, as customers now have other choices.

Coping with Increased Regulations
Regulatory oversight is increasing, be it recent guidance from the Office of the Comptroller of the Currency on prudent risk management for commercial real estate lending, or the upcoming current expected credit loss (CECL) model from the Financial Accounting Standards Board. How can banks cope with this new normal? By automating the loan origination process, banks can ensure that they are fully compliant, and at the same time improve their efficiency in originating the loan by cutting down on paper-intensive and manual steps. Banks should consider investing in loan origination software that not only meets current regulations but is also agile and flexible to incorporate future regulatory changes.

Improving the Origination Process
Legacy systems go by that name for a reason. They are built on old technology. These systems are expensive to maintain and hard to modify. Commercial loans contribute significantly to a bank’s business. Yet, due to outdated legacy technology, the loan origination process is largely manual, requiring duplicate data entry at multiple steps. To solve this, banks should consider investing in loan origination software that seamlessly integrates multiple disparate systems, such as document generation, spreading and credit bureaus. By doing this, banks can significantly cut down the time it takes to originate a loan, and meet the expectations of their customers.

Commercial loan origination software can help a bank streamline its commercial lending business. Here’s how:

  • The software seamlessly integrates with legacy and external systems.
  • It serves as a single application window to cater to multiple business lines, such as CRE loans, commercial & industrial loans, small business loans and leases.
  • It automates the commercial lending lifecycle from origination to disbursement to servicing, making processes paperless in an automated workflow environment with minimal manual intervention.
  • Loan requests are captured from multiple channels.
  • Credit scoring and underwriting of loans is efficient, due to seamless integration with third-party credit bureaus.
  • Automating and centralizing business rules allows quicker lending decisions.
  • Effective tracking and analysis of the loan process means the bank can better comply with regulations.

Imagine loan officers spending significantly less time reviewing loans. The end result is a more efficient process for the bank and, more importantly, happy customers.

What to Do About the 65% of Checking Customers Making You Money


In a previous article, I wrote about the challenge of how to handle unprofitable customers, headlined “What to Do About the 35% of Checking Customers Costing You Money.” The logical follow-up question is what to do with the remaining 65 percent.

Below is the composition of a typical financial institution’s checking portfolio, based on the relationship dollars (both deposits and loans) each of these segments represent, and the revenue generated by household by segment.strategycorps-chart-5-11.png

Super: household produces annual revenue over $5,000. Mass Market: produces $350 to $5,000 in revenue. Small: produces $250 to $350 in revenue. Low: produces less than $250 in revenue. Figures are based on the average bank in StrategyCorps’ proprietary database of more than 4 million accounts.

It is commonly thought that the 80/20 rule applies to relationship dollars and revenue for checking customers, where 80 percent of each is generated by 20 percent of customers. However, if you were to add up the Super and Mass columns for the relationship dollars and revenue segments, the “rule” is closer to 98/2 and 97/3, respectively.

Although they make up just over 10 percent of customers, Super households generate the highest percentage of both, 63 percent of relationship dollars and 57 percent of checking revenue for a typical financial institution. Mass households represent the largest relationship segment at 55 percent of customers, but generate less than their pro-rata share of relationship dollars and revenue.

Clearly these two segments, especially the Super segment, are what other financial institutions are looking to steal away with all kinds of marketing messages and incentives, and even some very targeted, prospective individual sales efforts.

A deeper dive into the profile of each segment reinforces why these customers are so sought after by competitors.

Segments Super > $5,000 Mass $350-$5,000
Distribution 10% 55%
Per Account Averages Averages
Relationship Statistics    
DDA Balances $28,079 $5,746
Relationship Deposits $63,361 $6,323
Relationship Loans $68,250 $4,542
Total Relationships $159,890 $16,611
Revenue Statistics    
Total DDA Income (NII + Fees + NSF) $1,349 $448
Relationship Deposit NII $2,367 $231
Relationship Loan NII $2,654 $171
Total Revenue $6,370 $850
Account Statistics    
Have More Than One DDA 73.2% 52.8%
Have a Debit Card 46.2% 65.1%
Have Online Banking 26.0% 29.6%
Have eStatement 16.0% 17.5%
Debit Card Trans (month) 8.4 15.7
Have a Relationship Deposit 74.3% 52.8%
Have a Relationship Loan 56.3% 25.4%
Have Both a Deposit and Loan 44.4% 15.8%
Average Age of Account 5.4 3.8
Average Age of Account Holder 57.0 51.2

The challenge: What should your financial institution do to retain these Super and Mass relationship segments that make up 65 percent of customers and yet are responsible for nearly 100 percent of relationship dollars and revenue?

A common response from bankers when asked this question is their stated belief that people in these Super and Mass segments are long-term customers who are already well-known. However, the data in the next to last row of the chart shows that the average age of the accounts in these two segments is only about five and a half and nearly four years, respectively, so they really aren’t long-term customers on average.

Another popular view is that these customers are already being taken care of. When asked to clarify, the response is typically something general about customer service. Rarely is the response that these customers are being provided with the best products and top level service at the financial institution, or that investments are being made in these customers that are above and beyond what is invested in overall retention efforts. And in too many cases, many community financial institutions don’t have the information organized to even identify which customers are in what segment.

It’s understandable that with today’s tight interest rate margins, compressing fee income and rising operating costs, it’s difficult to make a business case for above average investment in customer retention. However, with an overcrowded competitive marketplace and the commoditization that’s occurring from digitizing retail banking, taking for granted that Super segment customers won’t move is riskier than making the incremental financial investment to do something extra to retain them.

The math on this is straightforward—losing one average Super segment household that generates revenue of nearly $6,400 would require investing in the acquisition of 7.5 average Mass segment households, 29 Small segment households or 88 Low segment households.

The biggest banks know this and are, on a relative basis, out-investing community financial institutions through better mobile and online products, more attractive acquisition incentives and aggressive pricing campaigns in the Super and Mass segments.

While it may feel nearly impossible to invest more in existing Super customers, the cost of not doing so will be much more.

For consumer checking financial performance on all the relationship segments (Super, Mass, Small and Low), a more detailed executive report is available if you’d like more information.

A New Challenge for CMOs: How to Spend All That Money


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According to the consulting firm Gartner, by 2017 chief marketing officers will spend more on technology than their chief information officer counterparts. That money will be spent on customer relationship management (CRM) systems, digital marketing, database marketing, marketing automation, customer analytics, mobile marketing and e-commerce. That seismic shift has led to a Cambrian explosion in marketing technology companies from 150 in 2011 to 3,800 in 2016.

This puts the bank CMO in a tricky spot given a two to three year purchase and integration cycle. How does the CMO know if the technology he or she adopts today won’t be facing extinction three years from now? Moreover, the stakes are high with billions of dollars in venture capital money being invested into disaggregating the banking business—making the need to leverage technologies to preserve and deepen bank customer relationships an almost existential requirement.

What’s a CMO to do? Let’s start by asking the right questions:

  1. What’s the biggest problem I need to solve right now—revenue growth, retention, engagement?
  2. How will I know that I’ve solved it?
  3. Am I likely to solve it by using internal resources given the organization’s past history? And can I do it in the market time allotted?
  4. Do I have time to wait for other banks to solve the problem so I can copy their solution?
  5. How do I select a solution, given the thousands of companies operating in the space?

Here’s my take on the answers:

First, the biggest problem in banking is customer retention; once solved — you get a bank like Wells Fargo, the world’s largest bank by market capitalization. You’ll know if you’ve solved it when your level of customer churn drops to the low single digits.

Second, it’s difficult to bring innovative solutions to life from inside the bank, which means it’s going to be slow going–if it ever happens. The fintech start-ups and their respective investors are placing big bets that innovation won’t come from within so it’s a fair bet that it won’t.

Third, waiting for someone else to solve the problem historically has been a good, low-risk strategy, but it’s incompatible with the rate at which money is being poured into fintech, which aims to disaggregate banking. Banks don’t want to be like taxi companies waiting around to see if another taxi company solves the Uber problem.

And lastly, selecting solutions among thousands of companies begs for some criteria, so here’s my list:

“Plan to kiss a lot of frogs.” Ah, the virtues of lightweight integration. It’ll be difficult to test a bunch of solutions that each take several years and a lot of resources to implement. Look for solutions that can be tested with minimal integration effort and cost. You’ll likely have a long list of candidates to get through. If you think a particular solution will work, you can go ahead and spend the money to do a full integration.

“Don’t try to sweet talk your soon to be ex-customer.” In short, plan to measure customer satisfaction if you aren’t already doing so before you try to test or implement marketing technology solutions. Customer retention is dependent upon delighted customers, the attractiveness of alternatives and the cost of switching. In the bank space, switching costs and happy customers drive retention because the products themselves are difficult to differentiate. Delighted customers can be measured using Bain’s Net Promoter scores, while switching costs can be measured by the number of products and services per customer. These two metrics–NPS and products per customer–enable both problem and success definition. Moreover, you can’t deepen relationships with customers who don’t like the bank no matter how cool the marketing technology may be.

“Get Engaged!” Place a premium on solutions that customers really engage with– and that’s not going to be a better-targeted banner ad. Much more engaging solutions are available today, so find and test them.

“Channel Surf!” All solutions must operate in a coordinated manner across multiple digital channels including: mobile apps, online banking and SMS, and also off the bank’s digital property like Facebook, Twitter and any other website where customers go, for that matter. And solutions must produce actionable feedback out of the channels.

“High IQ!” Machine learning is no longer optional–it’s required because humans just can’t process the amount of data produced through the digital channels in any relevant time frame. Machines have to perform that function in a systematic and additive fashion.

The stakes couldn’t be higher for CMOs but they also have both an unprecedented budget and variety of weapons to choose from to win the war–so choose wisely.

What to Do About the 35% of Checking Customers Costing You Money


Consumer checking, while the simple hub product for most retail deposit and loan relationships, produces some not so simple challenges related to financial performance.

Here’s the composition of a typical financial institution’s checking portfolio, based on the revenue generated by a household relationship. “Super” customers generate the highest percentage of a typical bank’s revenues although they make up only about 10 percent of its customers. Super customers also make up the highest percentage of overall relationship dollars, meaning they have more combined deposit and loan balances with the bank.strategycorps-chart-5-11.png

Super: household produces annual revenue over $5,000. Mass Market: produces $350 to $5,000 in revenue. Small: produces $250 to $350 in revenue. Low: produces less than $250 in revenue. Figures are based on the average bank in StrategyCorps’ proprietary database of more than 4 million accounts.

The challenge: What to do with the Small and Low relationships that make up 35 percent of customers yet represent only 1.6 percent of all relationship dollars and 2.9 percent of revenue?

A deeper dive into the profile of these segments is enlightening.

Segments Small $250-$350 Low <$250
Distribution 9% 26%
Per Account Averages Averages
Relationship Statistics    
DDA Balances $1,561 $682
Relationship Deposits $444 $117
Relationship Loans $161 $32
Total Relationships $2,166 $831
Revenue Statistics    
Total DDA Income (NII + Fees + NSF) $160 $62
Relationship Deposit NII $16 $4
Relationship Loan NII $6 $1
Total Revenue $182 $67
Account Statistics    
Have More Than One DDA 28.9% 14.5%
Have a Debit Card 71.4% 57.1%
Have Online Banking 27.3% 22.0%
Have eStatement 17.1% 13.9%
Debit Card Trans (month) 13.3 5.0
Have a Relationship Deposit 31.5% 17.9%
Have a Relationship Loan 7.1% 2.7%
Have Both a Deposit and Loan 2.5% 0.7%
Average Age of Account 3.1 3.4
Average Age of Account Holder 48.9 48.8

Obvious is the lack of revenue generation from these segments given average demand deposit account (DDA) balances and relationship deposit and loan balances on an absolute dollar basis and a comparative basis to the Mass and Super segments.

Less obvious is that the other revenue-generating (debit cards) or cost-saving activities (online banking, e-statements) of the average customer in the Small and Low segments is not materially different from the Mass and Super relationship segments. For some products, like a debit card, the percentage of customers in the Small and Low segments who have one is higher than Mass and Super segments.

The natural response from bankers when confronted with this information is, “let’s cross-sell these Small and Low relationships into more financial productivity.” This is well-intentioned, but elusive and arguably impractical.

First, for many consumers in these relationship segments, your FI isn’t their primary FI, so they are most likely Mass or Super segment customers at another institution. Second, if you are the primary FI, these segments simply don’t have financial resources or the need for additional financial products beyond what they already have today. At their best, these are effectively single service, low balance and low or no fee customers. Therefore, traditional cross-selling efforts either compete unsuccessfully with the primary FI’s cross-selling efforts or don’t matter because there aren’t available financial resources to be placed in other products.

How then does your FI competitively and financially engage with these Small and Low relationship segments to improve their financial contribution by increasing the DDA balances, relationship balances or generating more fee income? The answer is to relevantly offer them a product that impacts how they bank with your institution.

More specifically in today’s marketplace, this relevant offering is accomplished by being a bigger part of your customers’ mobile and online lifestyle. Consumers of all types are in a relationship with their smart phone, tablets and computers. A FI’s checking product has to be a bigger part of that relationship. It can’t just be another online or mobile banking product they can get at pretty much any FI. For the unprofitable customers who have a primary FI somewhere else, the mobile and online offerings have to be engaging and rewarding enough to move deposit balances to your bank or buy more products from your bank to generate more revenue.

For those unprofitable customers who simply don’t have the financial resources to aggregate deposits or be cross-sold, the mobile and online banking solutions have to include value worthy enough to willingly pay for. Why? Because generating recurring, customer-friendly fee income based on non-traditional benefits or functionality is the only way you’re going to make them more profitable. Top retailers like Costco, AAA, Amazon and Spotify understand this retailing principle, which is transferable to FIs if they will design and build their checking products like a retailer would instead of a banker.

For consumer checking financial performance on both the Small and Low relationship segments as well as the Super and Mass ones, a more detailed executive report is available if you’d like more information.

Identify Your Customers Based On Need, Not Revenue


segmentation-3-28-16.pngFor banks that don’t specialize in a particular market, it can be difficult to truly know every customer’s changing wants and needs. And while there’s significant customer research available on retail consumers and large corporate clients, there’s less help available when it comes to understanding mid-market corporate customers.

Despite the lack of information readily available, mid-market companies are a fast-growing segment of customers that banks can’t afford to ignore. In fact, a recent Citizens Commercial Banking survey found that a quarter of mid-market companies, defined as having $500 million to $2 billion in annual revenues, are actively engaged in raising capital, while another 40 percent are looking for opportunities to do so. Additionally, more than half of the mid-market companies in the US alone indicated they are actively seeking M&A deals in 2016.

In an effort to capture and better understand commercial customers, banks have historically tried to segment companies based on the value of their annual sales or revenue range (e.g. less than $5 million, $5 million to $20 million, etc.). However, these revenue estimates are extremely unreliable, because typically, mid-market companies aren’t public companies. They have no obligation to report revenue and are not subject to strict audit guidelines. This means that the main metric banks are using to understand their mid-market customers is self-reported, without any independent validation.

But more important than yielding unreliable data, revenue segmentation really doesn’t give banks much insight into a customer’s needs, aside from their credit need or credit worthiness. This is a severely flawed approach to understanding customers because there are so many non-credit products that banks can profit from.

Take payments, for instance. With payments, the needs of a $5 million construction company have little in common with the needs of a $5 million healthcare services company. While technically in the same revenue segment, the two companies have vastly different payment transaction numbers, payment processes and workflow, payables vs. receivables, and enterprise resource planning and accounting systems.

Simply put, revenue is a misguided way for banks to segment their corporate customers, particularly when it comes to the mid-market. Except in rare cases when revenue estimates are actually reliable and indicative of customers’ needs, the knowledge gleaned from a single revenue figure is minimal, and it doesn’t help banks better understand and serve their customers.

The good news is, there are other ways for banks to effectively target customers and strengthen customer relationships. One approach is to use transactional data as a means to develop detailed portraits of customers and their needs. By identifying and segmenting customers by need (rather than revenue), banks can establish stronger relationships and drive new fee income by offering solutions to address those needs. For example, banks could learn a lot about a customer by looking at their outgoing payments. How many payments are they making each month? What methods are they using to make these payments—paper checks, ACH, credit cards, debit cards?

Understanding the volume and value of payments for specific businesses can be extremely valuable for determining how to market and sell existing products more effectively. It can also expose areas where a bank might be failing its customers and losing good grace with otherwise loyal organizations. For example, seeing that a large group of customers is making payments through third-party solutions is an obvious sign that it’s time for a bank to develop a new or better payments solution of its own.

Banks are sitting on literally millions of customer records that can offer invaluable insights into customers’ wants and needs, however this data is often unused or under-leveraged. It’s an unfortunate reality, but one that can be easily addressed.

In today’s golden age of big data and analytics, banks need to leverage far more than just revenue figures to better understand their customers. By failing to fully understand customers, banks won’t be able to serve customers well, and they’ll run the risk of losing customers to hungrier and more innovative competitors as a result. Luckily, the treasure trove of existing transactional data can provide banks with infinite ways to better segment customers, and the breadth of that data will allow them to serve their customers more precisely and comprehensively.

Identify Your Customers Based On Need, Not Revenue


segmentation-3-28-16.png

For banks that don’t specialize in a particular market, it can be difficult to truly know every customer’s changing wants and needs. And while there’s significant customer research available on retail consumers and large corporate clients, there’s less help available when it comes to understanding mid-market corporate customers.

Despite the lack of information readily available, mid-market companies are a fast-growing segment of customers that banks can’t afford to ignore. In fact, a recent Citizens Commercial Banking survey found that a quarter of mid-market companies, defined as having $500 million to $2 billion in annual revenues, are actively engaged in raising capital, while another 40 percent are looking for opportunities to do so. Additionally, more than half of the mid-market companies in the US alone indicated they are actively seeking M&A deals in 2016.

In an effort to capture and better understand commercial customers, banks have historically tried to segment companies based on the value of their annual sales or revenue range (e.g. less than $5 million, $5 million to $20 million, etc.). However, these revenue estimates are extremely unreliable, because typically, mid-market companies aren’t public companies. They have no obligation to report revenue and are not subject to strict audit guidelines. This means that the main metric banks are using to understand their mid-market customers is self-reported, without any independent validation.

But more important than yielding unreliable data, revenue segmentation really doesn’t give banks much insight into a customer’s needs, aside from their credit need or credit worthiness. This is a severely flawed approach to understanding customers because there are so many non-credit products that banks can profit from.

Take payments, for instance. With payments, the needs of a $5 million construction company have little in common with the needs of a $5 million healthcare services company. While technically in the same revenue segment, the two companies have vastly different payment transaction numbers, payment processes and workflow, payables vs. receivables, and enterprise resource planning and accounting systems.

Simply put, revenue is a misguided way for banks to segment their corporate customers, particularly when it comes to the mid-market. Except in rare cases when revenue estimates are actually reliable and indicative of customers’ needs, the knowledge gleaned from a single revenue figure is minimal, and it doesn’t help banks better understand and serve their customers.

The good news is, there are other ways for banks to effectively target customers and strengthen customer relationships. One approach is to use transactional data as a means to develop detailed portraits of customers and their needs. By identifying and segmenting customers by need (rather than revenue), banks can establish stronger relationships and drive new fee income by offering solutions to address those needs. For example, banks could learn a lot about a customer by looking at their outgoing payments. How many payments are they making each month? What methods are they using to make these payments—paper checks, ACH, credit cards, debit cards?

Understanding the volume and value of payments for specific businesses can be extremely valuable for determining how to market and sell existing products more effectively. It can also expose areas where a bank might be failing its customers and losing good grace with otherwise loyal organizations. For example, seeing that a large group of customers is making payments through third-party solutions is an obvious sign that it’s time for a bank to develop a new or better payments solution of its own.

Banks are sitting on literally millions of customer records that can offer invaluable insights into customers’ wants and needs, however this data is often unused or under-leveraged. It’s an unfortunate reality, but one that can be easily addressed.

In today’s golden age of big data and analytics, banks need to leverage far more than just revenue figures to better understand their customers. By failing to fully understand customers, banks won’t be able to serve customers well, and they’ll run the risk of losing customers to hungrier and more innovative competitors as a result. Luckily, the treasure trove of existing transactional data can provide banks with infinite ways to better segment customers, and the breadth of that data will allow them to serve their customers more precisely and comprehensively.

The Traditional Community Banking Model is Dead


retail-banking-2-12-16.pngConsumer banking needs have not changed all that much over the last decade. However, the way those needs are met are going through transformational change. As such, community banks must find ways to shed the traditional ways of delivering banking services and morph into the new reality. Those banks that embrace the change will win, big. Those that do not will be acquired by those that do.

So what is the transformational change? It basically boils down to two key thoughts. The industry is now all about customers, not products, and it’s all about relationships, not transactions. Although fundamental in concept, these are dramatic changes from the traditional community banking model.

Historically, banks have focused on products, not customers. This is reflected in the fact that banks organize themselves along a product orientation. This results in numerous employees chasing the same opportunity. Even worse, it results in banks spending resources chasing certain customers with a product basis they will never use or buy. For example, older baby boomers are saving for retirement. As such, they need savings, investment, trust and advisory services. Trying to sell them a 30-year mortgage has a slim chance of success. Trying to sell retirement services to a millennial also will be met with failure. Banks need to focus on customers. We need to learn from our retail brethren and listen to the customers’ needs and then bring forward our products and services that meet the customers’ needs. This greatly enhances the likelihood of success, as we are giving customers what they want and need as opposed to what we want to sell. Selling hot soup in the middle of the summer is not a sustainable business model. It may get some limited sales, but is the wrong product at the wrong time.

Banks have also focused on transactions as opposed to relationships. This made sense when we had a product orientation. However, customers breed relationships and so we need to build and maintain them. Banks need relationship managers to be the primary point of contact with customers. They will act as a traffic cop, directing customers to in-house expertise that meets the customers’ needs. Their job is simple: Know the customers, their needs, their business and their personal situations and then meet and exceed those needs.

To shed the traditional model, banks must embrace a different culture. This means we need to:

  1. Adopt customer segmentation across all silos within the organization
  2. Reorganize into a customer-centric model
  3. Hire relationship managers (call them whatever you want)
  4. Establish strong calling programs 
  5. Create affinity with various customer segments

Integrating these concepts into a bank’s culture requires a commitment from the board and CEO. They will need to accept change and be willing to change the business model accordingly. They will need to break down the traditional silos inside the bank and integrate all departments into a customer-centric mode.

The following list is proven to aid in this endeavor.

  1. Create relationship managers and have them report directly to the CEO. Banks will still have product managers, but they must coordinate through the relationship managers.
  2. Integrate customers into your budgeting and planning process. This means plan on getting customers and their relationships as opposed to various non-related products.
  3. Build product bundles that fit targeted customer segments.
  4. Target and track market share of customer segments.
  5. De-emphasize brick and mortar and emphasize targeted delivery by segment.
  6. Track family, friends, neighbors and acquaintances as sources of new business. Leverage off affinity.
  7. Proactively identify opportunities and chase them. Do not wait for customers to knock on your door or call you.

Banks can continue to whine about falling spreads, lack of core business, high expenses and low fee income, or they can change with the times and shift to a customer-friendly, relationship-oriented culture. Banks who do thrive and become acquirers. Banks who do not will wither and likely become acquired. We have numerous case studies of banks that are shedding the traditional models in favor of the new on and all of them are winning in their markets.

How Technology is Redefining the Customer Relationship


customer-relationship-7-30-15.pngYou can visit a lot of banks and never see one that looks like this.

Located in Portland, Oregon’s trendy Pearl District, Simple is one of the leading firms at the intersection of banking and technology.

The design is consciously industrial. Bike racks crowd every nook and cranny. There’s a piano. A sunroom. A large meeting room stocked with healthy snacks. The atmosphere is casual, yet charged with energy. The employees wear t-shirts and jeans, roughly a third of them work at standing desks, and you can count the number of non-millennials on one hand.

It’s too early to predict how the fintech revolution will play out, but there’s no doubt that this is the front lines of finance. And as in any commercial battle, it’s first and foremost about capturing the hearts and minds of consumers.

A growing cast of companies has emerged to meet millennials where finance and technology converge.

Simple, which teamed up with Spanish banking giant Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) at the beginning of 2014, offers a personal checking account accessible online and through its mobile app that’s designed to help people save. It does so by giving customers the ability to create compartmentalized savings goals.

Let’s say you need $50,000 for a down payment on a house in 24 months. By entering this goal into your Simple account, it will automatically deduct $68.50 ($50,000 divided by 730 days) each day from your “Safe to Spend” figure, which is essentially a person’s checking account balance less previously earmarked money.

Another technology-driven financial firm, Moven, offers a similar service. Described as the “debit account that tracks your money for you,” its home screen shows how much a person has spent during a month compared to previous months. If you typically spend $2,000 by the middle of a month, but are currently at $2,250, Moven’s app lets you know with each successive transaction.

“We create value by helping people build better money habits,” Moven’s president and managing director Alex Sion says.

A third player in the rapidly expanding fintech space, Betterment, builds customer relationships from a different angle. It offers an automated investing service. Give it your money, tell it your goals, and Betterment’s algorithms implement a strategy tailored to your financial objectives.

According to Joe Ziemer, Betterment’s business development and communications lead, it began the year with $1 billion in assets under management and now has $2.1 billion from 85,000 customers.

Finally, a growing number of Internet-based lending marketplaces connect yield-hungry investors with people and businesses in need of funding.

The best known of the group, Lending Club, offers personal loans of up to $35,000 to consolidate debt, pay off credit card balances, and make home improvements. Businesses can borrow up to $300,000 in 1- to 5-year term loans.

Funding Circle does much the same thing, though it focuses solely on small businesses. “There’s a perception out there that everyone is efficiently banked,” says Funding Circle’s Albert Periu, “but that isn’t true.”

Beyond using technology to refine the banking experience, a common set of objectives motivates these companies. The first is their missionary-like zeal for the customer experience. Their vision is to seamlessly integrate financial services into people’s lives, to proactively help them spend less, save more, invest for retirement and acquire financing.

“We created a product that allows customers to take control of their financial lives,” says Simple’s Krista Berlincourt.

This is done using elegantly designed mobile and online products that simplify and reduce friction in the relationship between a financial services provider and its customers.

To this end, a universal obsession in the industry revolves around the onboarding experience. “The onboarding experience is the moment of truth,” says Alan Steinborn, CEO of online personal finance forum Real Money.

Lending Club claims you can “apply in under five minutes” and “get funded in a few days.” Betterment’s Ziemer says that it takes less than half the time to set up an account with Betterment than it does at a traditional brokerage.

Finally, these firms compete vigorously on cost, with many forgoing account and overdraft fees entirely. In this way, they’re not only driving down the price of financial products, they’re also more closely aligning their own incentives with those of their customers.

Fueling the fintech revolution is the fact those millennials—people born between 1981 and 2000—now make up the largest living generation in the United States labor force.

Millennials see things differently. They “use technology, collaboration and entrepreneurship to create, transform and reconstruct entire industries,” explains The Millennial Disruption Index, a survey of over 10,000 members of the generation. “As consumers, their expectations are radically different than any generation before them.”

To millennials, banks come across as inefficient and antiquated. Two years ago, 48 percent of the people surveyed for Accenture’s “North America Consumer Digital Banking Survey” said they would switch banks if their closest branch closed. Today, less than 20 percent of respondents said they would do so.

This doesn’t mean that millennials will render in-person branch banking obsolete. A 2014 survey by TD Bank found that while they bank more frequently online and on their mobile devices, 52 percent still visited a branch as frequently as they did in 2013, mostly to deposit or withdraw money. “Those who do their banking in a branch feel it is more secure and enjoy the in-person service,” the survey concluded.

Wells Fargo’s recently appointed chief data officer, A. Charles Thomas, makes a similar point, citing a Harvard Business Review study that identified “customer intimacy” as one of three “value disciplines” exhibited by long-time industry-leading companies.

The net result is that the personal element of branch banking, while still relevant and necessary to build and maintain customer relationships, is nevertheless taking a back seat to digital channels. For the first time in Accenture’s research, the firm found that “consumers rank good online banking services (38 percent) as the number one reason that they stay with their bank, ahead of branch locations and low fees, both at 28 percent.”

It’s for these reasons that many observers believe the banking industry is prone to disruption. According to The Millennial Disruption Index, in fact, banking is at the highest risk of disruption of the 15 industries examined by Viacom Media Networks for the survey.

Of the millennials queried, it found that:

Sixty-eight percent believe the way we access money will be totally different five years from now.

Nearly half think tech startups will overhaul the way banks work.

And 73 percent would be more excited about a new offering in financial services from companies like Google, Amazon and Apple, among others, than from their own bank.

This isn’t to say that younger Americans don’t trust banks. In fact, just the opposite is true. According to Accenture, “86 percent of consumers trust their bank over all other institutions to securely manage their personal data.”

It boils down instead to the simple reality that millennials are “genuinely digital first,” says Forrester Research Senior Analyst Peter Wannemacher.

More than 85 percent of America’s 77 million millennials own smartphones according to Nielsen. An estimated 72 percent have used mobile banking services within the past year, says Accenture. And, based on the latter’s research, approximately 94 percent of millennials are active users of online banking.

Banks need to think about the customer experience differently. Millennials, and increasingly people in older generations, want more than physical branches to deposit money and get a loan. They want digitally tailored solutions for their financial lives.