The value of customer insight in retail banking

Read our article in the Cayman Financial Review Magazine, eversion


Even though topics such as customer insight, segmentation or
loyalty have been recurrent themes in the financial services industry for the
last ten years, it was not until the credit crisis began that many institutions
in Latin America started to perceive and understand the value of these

The general challenge on how to tackle these topics is not an
easy one. There has not been a time in which clients have had a more direct
contact with banks as they do today, especially through channels still
considered to be non-traditional.

The emergence and proliferation of social networks has
allowed the customer’s voice to be heard. The immediacy of information flow generates
that both good and bad experiences are immediately spread through applications
like Twitter or Facebook and managing this flow of information is a matter in
which banks are still taking their first steps. Knowing the customer is now,
more than ever, the key to unlocking the value of this interaction.

A few years ago, the value of customer insight was directly
related to being able to sell more. The focus was the creation of products and
value propositions that were tailored to specific buying needs. However, the
banks that have been able to get the most benefits from customer insight
strategies have been those whose motivation was not only to sell more, but to
understand their customers to serve them better. This is the case for banks
such as Wells Fargo in the US or Bankinter in Spain.

Bankinter, for example, in addition to storing relevant
transactional and demographic information, has focused on issues such as
customer contact preferences (day and time, channel of contact, level of
financial sophistication, etc). As a result, Bankinter has been able to deliver
a unique experience that not only provides greater customer satisfaction, but
also improves the effectiveness of their sales efforts.

This approach to innovation in customer experience, parting
from the analysis of customers´ behaviour, is the largest emerging field in the
banking industry today. It is based on the premise that those customers, who
are served the best, stay longer in the institution, acquiring more products
and services. In other words, they end up becoming even more profitable. Banks
have realised the need to shift their traditional paradigm towards serving
better to sell more.

We always see in the industry studies about the cost of
acquiring a new customer, but we rarely discuss how difficult, if not
impossible, it is to retain a client that had a bad experience with the bank.
In markets such as Latin America, where the population is not big, each client

Innovation from the perspective of customer experience is no
longer a decision, it is becoming a necessity that financial institutions must
meet. Not surprisingly, leading banks have created world famous roles such as
Chief Innovation Officer, or the Chief Experience Officer, whose role is to
constantly look for improvement opportunities in terms of the overall customer
experience at the institution.

Today more than ever, it is essential to know our customers.
Not only their purchasing habits, but also what they want, what they need and
what they might acquire in the future.

The biggest challenge for bankers 

After telecommunication companies, banks are considered to
be the second industry with the highest amount of information about their
customers. However, due to the complexity of data management and
confidentiality issues, banks have fallen behind in their use of the

The amount of banks in the region that do not go beyond a
simple customer segmentation of their customer base or the creation of simple
services for their most profitable customers is surprisingly low. This is where
it is easier to focus but not where the value really is. Customer insight
follows the rule of the large figures, the more and better information we have,
the better we can predict the needs. In the world of relationship management (CRM),
the volume and quality of information is the key that unlocks the value of the

From our point of view, customer insight has five basic
components and each one plays a key role in creating value: i) collection and
data management, ii) analysis of data, iii) management and optimisation
campaigns, iv) customer loyalty and v) the personalisation of interactions.
Collectively, the five are very powerful, but in isolation they lose the
ability to create a real competitive advantage for an institution.

For most banks the concept of customer relationship
management is not new. Many banks have made significant technology investments
in this area – especially in the areas of customer interaction – providing a
single view or “360 degree” of customers across all channels and
managing the sales process and service. However, many of these efforts have
failed to be accompanied by initiatives such as segmentation, transformation of
the business areas and deployment of analytic capabilities that really transformed
the commercial management of the banks.

Our role as clients 

On the other side of the equation to extract the value of
knowledge, are we as customers. Everyone at some point has complained of poor
service from our banks and yet we prefer not to share with them the most basic
information, for fear or privacy issues. It bothers us, for example, not to
have a higher credit card limit, but when asked for the income we do not feel
comfortable giving higher numbers, trying to avoid attention. We complain that
the bank did not contact us if there was a problem, but when we give the phone
number we put in the office number so we are not bothered by telemarketers.

But surely many of us publish on social networks like
Facebook and Twitter details of our daily lives and basic information that we
refuse to share with the bank, such as phone numbers or email. The paradox of
this is that banks are probably one of the industries with more data security,
but on the other side of the spectrum are social networks and yet we refuse to
give banks the most basic information.

The value of social media in the banking industry 

Malcolm Gladwell in his book The Tipping Point, refers to
people who are super-connected as enablers for all business and interactions.
What we are experiencing today with the penetration of Facebook and Twitter is
that more and more people, previously not considered super-connected, are
becoming enablers.

There is no doubt that these social networks and
developments in information technology and communication are changing the
banking industry. In 2010, for the first time in history, there were days when
more people accessed Facebook than any other page on the internet, including

The most innovative industries are realising that the
information in these networks is not only valuable but also extremely dangerous
if not properly managed. And most innovative banks are not staying behind.
Banks such as Bradesco and Fortis have opened virtual offices in Second Life.

Entities such as HSBC and BNP Paribas have set up special applications for the
iPad and opened Facebook pages to handle claims. Twitter is used by many US
banks to offer promotions regularly. This is not just about the bank to its
customers but also about the customers to the bank.

Banks that still characterise Internet banking and phone
banking as alternative channels are lagging behind. Many customers now avoid
visiting the traditional channels and transact online only.

In Europe, companies like ZOPA have gone even further,
replacing banks and creating a simple network of loan brokers. In the Latin
American region it is necessary to obtain more awareness from top management
regarding these topics. A lot of current presidents, vice presidents and
managers of these major banks do not even participate in social networks, which
makes it very difficult for them not only to understand the trend, but also to
see real value in it.

A study performed last year across Forbes 100 companies,
found that 60 per cent of marketing investment budgets over the next two years
will be for social networks. And up to 35 per cent of these companies are in
the process of setting up whole departments to be responsible for managing the
company’s relationship with customers through these networks.

What to do? 

Constantly managing change, extracting and using customer
information is increasingly indispensable. Banks need to invest in innovation,
bringing technology experts on board and having a closer look at the newest
technologies. The most important step that institutions need to do is to open
as many channels of communication as they can, to listen to their customers and
to capture their information in every single time.