Home Banking Building the Customer-Centric Bank of the Future

Building the Customer-Centric Bank of the Future

by internationalbanker

What Banks Must Do Now to Lead the Industry

By Eric Stine, SVP and GM of Financial Services, SAP

How would the customer-centric bank of the future differ from today’s bank? Here’s one possible scenario. A customer of a UK bank calls from New York to say she’s lost her credit card. The customer service representative quickly scans the customer’s complete history with the bank and reviews relevant data pulled from social media channels. He notes that the customer is a frequent traveler. Her Facebook page says she is out of country and she has tweeted about activities in New York.

Armed with this knowledge, the bank representative validates the customer’s identity and suggests a new credit card, this one with travel rewards. The result is positive all around. The customer is happy the bank is so attuned to her needs, and the bank has given the customer one more reason to be loyal and expand her business in the future.

While a handful of banks might have the ability to replicate that scenario, the reality is that the banking industry has been slow to adapt to changing expectations and new ways of serving customers.

This is in contrast to industries such as retail and travel, which are leading the way in customised marketing, loyalty programmes and real-time offers. These industries are also exploring ways to monetise customer data.

Clearly, banks aren’t clothing or hotel chains and it’s challenging to figure out how to leverage the volumes of customer data they have while also working through regulatory, privacy, security and reputational issues. They need to be careful not to spark a backlash or incur expensive fines.

Banks know more than they think

While they have to be sensitive to these issues, banks shouldn’t lose sight of their advantages. They have a much fuller view of customer spending than individual retailers, who know what the customer purchased from them but not what the customer bought from others. They also have a vast trove of transactional information that spans product and service providers. They know how much their customers are spending and saving; what they are saving for, investing in, or purchasing; and the circumstances (paychecks, bonuses, seasonality) that might be driving their investments, savings and spending. This empowers banks to identify trends and patterns, target groups and micro-groups with common profiles, and personalise their products, services, marketing and customer service to their customers.

Some banks and service providers are also overlaying the bank data with information at the SKU (stock-keeping unit) level, enabling them to analyse and predict specific customer preferences and behaviour.

While most banks are not yet collecting or fully exploiting the available data, it is essential in helping them become more customer-centric and to help detect fraud, among other purposes.

For example, a customer may frequent the same businesses, such as dry cleaners, supermarkets or petrol stations, while doing errands on the weekend. But what if the routine charges and a series of small purchases are followed by a very large purchase, which can be an indication of criminal activity?

One possibility is that the customer’s credit or debit card is being used without his knowledge. But a long-term view of the customer’s behaviour tells a different story. For the past five years, this particular customer has bought a lot of high-end clothing, typically in mid-August and early spring. The large transaction in August that was flagged as possible fraud now has another explanation – the customer is buying for his family and new work clothes for himself ahead of the autumn and the new school term.

With this information, the bank doesn’t have to take action to protect the customer and itself, the shopping spree can continue as planned and the customer won’t be inconvenienced in any way.

Use, don’t just collect, data

While that appears to be a simple scenario and one that many banks could achieve, the reality is that very few banks have mastered the tools to be fully customer-centric. They may have a lot of data about customers but very few have become proficient at using it. Many also lack the necessary technology.

To be more customer-centric and fully exploit data, banks must have a comprehensive customer database. Among other uses, the database will allow them to spot trends, identify cohorts, and micro-target discrete populations.

A customer-centric bank also needs advanced mobile, NFC (near-field communications) and real-time capabilities; these are areas where today’s banks are behind the curve. Customer targeting capabilities are key. A truly customer-centric bank would know which customers would be likely to be interested in certain products, the best time of day to approach them and the best channel to use. They would also be able to monitor customers’ behavior through geo-location. A customer using an ATM at a shopping centre, for example, might receive immediate percentage-off offers from shops or restaurants.

A customer-centric bank might also find ways to use its data and other capabilities to benefit its individual and commercial customers at the same time. In one possible scenario, a bank might offer individual customers discounted film tickets from a cinema chain that is also a customer. In addition to the credit card fees, the bank could receive a referral fee (regulations permitting, of course).

Technology as the enabler

Technology is at the heart of providing an improved customer experience and banks therefore need to commit to improving their current and future IT systems. One essential technology is in-memory computing. From a common database, in-memory computing helps banks rapidly process massive amounts of customer-centric and transactional banking data. With in-memory computing, banks get the information they need to make real-time or near-real-time business decisions and communicate with customers.

In-memory computing is also essential as part of the evolving technology infrastructure. Specifically, the next generation of applications is being built on in-memory platforms. This compares to many current apps, which are built on relational databases. While relational databases are good at storing data, they fall short when it comes to high-speed reporting and analytics. An app built on an in-memory platform can query billions of records in a second.

The new generation of apps will also differ significantly in that the information won’t have to be transferred from its origination point, such as a loan or deposit system. Relational platforms require that data be transferred to a reporting system in order to be analysed.

Not only do integrated in-memory systems make it exponentially faster to access and analyse data, the data is also much higher quality because it doesn’t need to be transferred, which could affect its accuracy and completeness.

Lead the industry into the future

While progress has been incremental, banks have no choice but to focus on real-time customer centricity. At bottom, that means building capacity to understand individual customers’ behavior and preferences; anticipate their needs; and create the right strategies to provide them with the customised service and products. Banks need to act now to be sure they’re at the forefront of the new standards in banking.

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