Finacle Whiteboard

Do you remember the time when a few retail-focused banks set up in-branch café lounges to give customers a richer experience? Down the years, banks have borrowed ideas from other industries to innovate various aspects of their business – the patterning of loyalty programs as per the frequent flyer model is probably the best example.

Today, innovation is no longer merely “nice to have”; it’s an absolute necessity for survival. So banks must do everything within their power to innovate, or risk being left behind. And what better place to start than learning from other industries that have already been there, done that?

There are many instances of how different businesses have leveraged new ideas and technology to innovate on processes and ultimately transform customer experience. The retail sector has always been unmatched in product diversity and distribution, but Amazon topped that with their online business model. Now they’re showing the world how to enlist customers as advocates and shape public opinion. Banks, traditionally slow to catch on (owing to size, legacy and regulatory constraints) are waking up to the immense possibilities of using social networking as a marketing platform.

The telecom industry has cultivated pricing innovation almost into an art form – mobile tariffs can vary with the type of customer, age of the user, time or destination of the call and God knows what else! While regulations may not permit banks unlimited freedom to alter pricing structures, they can still optimise it within a context and charge customers based on transaction frequency, channel preference, time of use and risk appetite.

Banks also need to change the way they look at customers. Broad-brush segmentation based on average quarterly balance has proved ineffective in improving banks’ customer insight and consequently, their ability to satisfy increasingly individualised needs. Customers will stick around so long as they’re offered relevant products and services. Realizing this wisdom, some automobile companies have begun to offer prospective customers the option to personalize their vehicles. The faster banks move to a similar “segment of one” strategy, the better their chances of surviving in the long run.

Posted by Chandramouli Kundagrami at 06:20 AM | Permalink | Comments (0) | TrackBacks (0)

What do you call a teenaged customer at a bank branch?
A hallucination.

That just about sums it up. Banking behaviour has undergone such a generational shift that all customers cannot be treated alike. Conventional segmentation by bank balance is no longer enough. It simply does not highlight differentiated individual needs. And the time’s come to think out of the box.

All banking transactions go through a four or five stage life-cycle - information dissemination, prospecting, on-boarding, transacting, and support.  Each is associated with a customer, need, channel and product or service to create a unique “experience”. Clearly, there’s a world of difference between a 65 year old walking into a branch to seek information about retirement plans and a twenty-something opening a demand deposit account online. So, how can they be treated the same just because their bank accounts hold the same amount of money?

Can banks do things differently? With a bit of innovative thinking, they most certainly can. One way is to map every stage of the transaction life-cycle on a multi-dimensional grid comprising customer segment, product and channel and optimise each within its specific context. For instance, since Generation Y would prefer to bank unassisted, all of their activity could be directed to online or mobile banking by designating these as their “primary channels”. Likewise, the call centre and branch could be optimized to serve Gen X and senior customers.

This could potentially create a win-win for all concerned: Banks make better use of their infrastructure and unclog channels by re-routing secondary traffic. To top it all, they can enhance revenue by aligning their pricing structure with the optimized mix, so that every optimal “incident” is offered at the optimal (read cheapest) cost and vice-versa. Thus, a senior customer may be asked to pay extra for mobile banking which is obviously not his primary channel, whereas a teenager could be charged a fee for expecting in-branch service. Putting a different spin on it, this could be described as a price customers must pay to keep their primary channels from becoming overloaded.

Customers benefit from a smoother banking experience since optimized information dissemination improves education processes, optimized prospecting improves empowerment, and optimization of on-boarding and service help banks to embrace and extend customers respectively.

Now that’s a sure way of giving each customer the personalized attention he or she needs!

Posted by Rajashekara V. Maiya at 05:49 AM | Permalink | Comments (0) | TrackBacks (0)

The surge in demand for safe avenues has driven deposits at U.S. commercial banks to over US $7.3 trillion. But there’s room for more as regulatory developments, such as raising of the federal deposit insurance ceiling, restore consumer confidence in bank deposits. Should the 10% limit on deposit holdings per bank be enhanced, it will allow the big boys to go after more.

Early innovators in this space can steal a march over their rivals. Deposit products in the U.S. compare poorly versus those in Asia or Europe, both in terms of options and convenience. Restrictive eligibility criteria disrupt the continuity of accounts, forcing customers to close and re-open new ones whenever there is a change in their civil or professional status. At the same time, U.S. customers pay among the highest charges worldwide – those who prefer branch banking could end up shelling out over US $250 every year in fees! Surely, banks that quickly innovate on their deposit products and surrounding services, without compromising convenience and safety, stand to gain significant long-term business.

While individual banks may drive their innovation agenda from different perspectives of product, service, process or business, their final objective is the same – which is, to arrive at an optimal combination of product and channel for every customer segment. However, it would be wise to not lose sight of customer specificity entailing offerings that envelope the life cycle events of a customer from childhood through adult-hood, extending to explore the family and household relationship, as well. Thus, no approach works in isolation – for instance, product innovation must necessarily take up process or service improvement in tandem.

Process innovation within other industries such as retail, manufacturing or telecom could inspire banks to similarly improve their distribution, supply chain or pricing activities. Likewise, service-led innovation can optimize banks’ channel infrastructure even to the extent of mapping a desirable channel of use for every type of customer, product or transaction.

Once the benefits of innovation start to flow in, banks can pass them on to their customers by way of lowered charges or improved deposit interest rates.

And of course, they must strengthen their human infrastructure, re-skilling and redeploying where necessary, to ensure that the innovation agenda is properly implemented on the ground.

It’s a simple enough plan….but the difficulty lies in bringing in the discipline to drive its implementation, consistently and with commitment. 

Posted by Rajashekara V. Maiya at 05:01 AM | Permalink | Comments (0) | TrackBacks (0)

Did you hear that one about the banker who said, “I know 20% of our customers bring 80% of the profits. I just don’t know which 20%.”. Often, customer segmentation can be like that - too broad based to offer any real insight. For the most part, banks segment their customers along the single dimension of relationship value, as though that one number says it all!

Nothing could be further from the truth. Customers’ needs have specialized to such an extent that each expects to be treated as a “segment of one”. Chances are that customers who share geography, language or ethnicity will have more in common than those who’ve transacted the same amount. Therefore, while relationship value is important to understanding and retaining loyalty, it’s not a stand-alone parameter of customer segmentation.

Banks need to look at new, more effective ways of grouping their customers. Besides nativity, other factors worth considering are social status, generation (Baby Boomer, “X”, “Y”), financial behaviour and sophistication. What’s more, it’s important to recognise the interplay of different factors of segmentation – for instance, do most Hispanic customers have similar income levels or transfer money through the same channels? Upon deeper reflection, it becomes clear that broad segments can be progressively drilled down into finer sub-segments to arrive, at least in theory, at a “segment of one”. Each of these segments must be targeted with innovative offerings relevant to the needs of the constituents. Besides product and service features, pricing, channel and timing issues also determine the relevance of the offering to the target segment. For example, Gen Y needs simple products delivered over sophisticated channels, whereas the Baby Boomer generation wants exactly the opposite.

Banks that are truly serious about making a shift in segmentation strategy must throw their entire weight behind it. They must be prepared to make changes in their policies, processes and people, if necessary. They must also ensure that they have the right technology backbone in place. Only modern core banking systems have the capability to capture and process massive amounts of data needed to draw up customer segments, and the flexibility to enable banks launch innovative products with agility.

Related Read: New Segmentation Approaches to Drive Product Innovation - A Thought Paper

Posted by Jaymalya Palit at 10:56 AM | Permalink | Comments (0) | TrackBacks (0)