Will the Consumer Be at the Helm of the Smart Bank of the Future?


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During a recent project where a major European bank assessed its separate sources of customer data before integration into a new customer file, it seemed that the only data with sufficient accuracy and currency was provided from profiles maintained by the customers themselves via Internet services. Unfortunately, this was a very small proportion (perhaps less than 1 percent) of total customer data, and it had not previously been available for use when managing customers through other channels.

This is not unusual, as many banks still manage much of their customer data by silo (whether a silo is a channel, product or even geographic-related business division), restricting their abilities to manage and complete customer sales and service processes seamlessly across channels. Most banks now have some form of single customer view but are usually working hard to improve the maturity, integration and use of that view so that it contributes more effectively to revenue growth and customer experience improvements.

Recent research by Gartner confirms that customers who use online channels to maintain their data and to research related product options have more valuable interactions with branch and contact center staff than those consumers who make little use of self-service channels.

The most advanced Internet banks, for example in the Nordics, substantiate this view with statistics that show very little branch interaction for the most valuable customers but relatively high expectations of branch service when these interactions take place. Although a virtual branch environment can now be more successfully offered online, the requirements for development of the physical branch environment may also now be driven by the needs of valuable online clients with limited but important physical branch needs.

These proof-points suggest that there could be a strong case for differentiating the services provided to customers who use the multi-channel environment more effectively, as they are likely to be more valuable to the bank already or through development over time.

Improved data currency
In a recent IBM project experience with a credit card company, it became clear that customers maintaining their own profiles through e-business channels had improved data currency and accuracy of those profiles. The consumers often recognize that the bank can benefit more from this house-keeping effort than they do (for example through knowing when major financial decisions are due to take place), yet rarely is any incentive offered by the bank for the consumer to continue with this effort. However, consumers who prefer to be in control have an automatic preference for this self-service approach and may need little encouragement to continue.

Smart banks recognize that it is very effective to re-focus on meeting the needs of each customer as their needs change through major life events or event stages. In some relationships (for example with an independent or trusted financial advisor), the customer has learned that it is beneficial to share information on expected or planned events, as good advice can be obtained in return.

IBM research with a large financial services sales force demonstrated that the consumer’s perception of brand was of great importance as it placed the provider on the short list when financial product decisions were made. However, if the provider was not aware of the imminent decision and ready to be involved, it was very likely that the outcome would be the cancellation of products, because other providers were there at the right time to provide financial restructuring advice.

As few banks have used information well in the past, very few consumers see the bank as an advisor that is able to add value when they make key life events and decisions known to the bank. Most do not yet trust banks through sharing knowledge of their intentions and plans, as they know that very few banks can store and use this information properly, especially for the benefit of the customer.

Rather than maintain a separate profile with each bank, some commentators foresee the time when the consumer will manage their data in one place and allow access to selected providers to specified subsets of this data—for example, to enable multiple banks to provide quotations or services. However, it is not clear what would cause such a major shift in the way data is managed; who would provide the central storage and access methods required; and whether banks would be sufficiently prepared to work in this way. The banking market changes slowly, at least partially because of relatively good profitability, so such changes are likely to be very slow to arrive unless other effects intervene.

Central storage
In at least one European country, health data is now being stored centrally, and access permissions can be granted to multiple institutions by the patient. Once such a precedent is available, it becomes a far smaller step to enable access to a subset of this health data for your insurer or bank to provide more customized pricing, underwriting or claims services. Perhaps early moves like this in other industries will change the way that consumers expect data to be shared and used within financial services too.

In an associated trend, anti-money laundering regulation, fraud protection and terrorism controls are increasing the focus on identity management, which may evolve fairly quickly to the provision of a central or shared identity validation service in some countries. Not only could this approach address some regulatory issues, but it could also facilitate improved service for consumers.

Alternatively, it may be possible for a financial institution that has already validated the consumers’ identity to verify this identity to other trusted parties, making account opening and other processes far more efficient. Companies that already provide data pooling services and external sourced data to the financial services sector may also have a role to play in identity management, especially as they are already familiar with the need to separate validated data (such as electoral rolls and credit history used for credit scoring and underwriting) from the preference, behavioral and other less well validated data more often used for prospecting. Of course, some of these changes may be supported and encouraged by consumers, while other proposals could be rejected as potentially too intrusive and counter to consumer privacy expectations.

Within the last few weeks I have needed to separately provide photo ID and proof of address documentation to at least four institutions to open a mortgage account, a stock trading account with a broker, engage a closing lawyer and to transfer funds abroad. Typically, it is not only the initiation of new relationships that are made more difficult and costly as a result of these regulations, but also sometimes even new products may require the same identity validation when the banking relationship was initiated before current regulations came into place. As a result, some banks are finding an increased drop-out rate of new business applications through their account opening processes. As the marketing and sales expenses are already spent to recruit the customer, this can dramatically reduce the efficiency and effectiveness of the recruitment process.

Other associated industries are affected by the same regulations and may also benefit from a well-defined joint approach with banks. For example, in some countries it is now not possible to purchase a new car with cash, to reduce the opportunity of laundering money (whether terrorism or tax avoidance related) through the consumer economy. Payments from recognized banks that have validated identity are acceptable, instead.

While some consumers may be using additional self-service channels to take more control of the banking relationship, the best banks have already understood that the effectiveness of outbound marketing is waning, especially where the bank has been able to prepare itself to be more effective in the management and response to inbound contacts and opportunities. If the consumer is provided with the opportunity, incentive and confidence to maintain and share current preferences information, then the balance for the bank moves even further toward maximizing the value of inbound contact opportunities, especially when we know that specific consumers stand out as more valuable when we analyze their use of the multi-channel mix. While this inbound consumer contact is often in real time and the initial response may be, as well, additional follow-on contacts could also be at the “right time” for best effect, combining outbound and inbound capabilities to optimize both value and customer experience.

As consumers emphasize their ability to manage the level of relationship that they desire, increasingly they will also manage the data they share with their chosen financial services providers. Probably the effects and initiatives described here will start to combine, enabling the Smart Bank to transform its customer management operations to open up “clear blue water” from competitors.

Bryan Foss
IBM Global Financial Services
Bryan Foss, banking solutions executive for IBM Global Financial Services, leads an IBM business that provides and integrates application-based customer insight and customer management solutions for retail banks and other financial services companies across Europe. He cowrote of Successful Customer Relationship Marketing and other books.


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