Strategic Insight: Ask the Expert

Customer Experience
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What customer-related areas should banks invest in to position themselves for an economic turnaround?

Question: The current economic situation has taken a harsh toll on the financial services sector. What customer-related areas should banks invest in to position themselves for an economic turnaround?

Cuneyt Dirican

Cuneyt Dirican Ph.D., Manager, Peppers & Rogers Group

As the credit crunch continues to impact global financial markets and economies around the world, financial institutions are seeking new strategies based on operational control, lower costs, and most important, reduced risk.

Risky and outright flagrant behavior by many financial firms helped drive the world financial situation to its current weak state. To avoid any further downward spiral, many banks have placed risk management and early warning mechanisms at the top of their 2009 agenda. Beside, progressive banks are also looking at the customer value chain, the value created by the bank's customers through their activity and financial position among themselves within the same bank will directly impact the bank's liquidity management and profitability by increasing cross-sell ratios.

Four customer strategy-related initiatives stand out as critical for banks preparing for the new economic world are customer analytics, business process reengineering, operational efficiency, and innovation. The following is a roadmap for how to make the most of these investments:

Rethink current customer segments and create new ones
Consumer income is falling, retirement savings have been erased, unemployment is on the rise even in traditionally stable industries, and mergers and acquisitions plague the marketplace. Customer segmentation needs to reflect this changing world. Financial firms need to use predictive analytics to identify changing and new customer value profiles before the markets upturn -- a high net-worth customer now could be a low-value customer later, for example. In addition, banks may need to revise their operating models according to changing customer needs and new segments. Decisions like optimizing branch networks and investing in integrated multi channels management including mobile and online should be based on the new customer reality. Also, banks must update their customer databases in real time to allow their executives to create future data strategies based on today's volatile financial environment.  

Pay close attention to churn, retention, and lifetime value
The impact of this financial crisis will be evident in customer churn and retention figures. Understanding the the total lifetime value of their current customers, as well as their high-potenial prospects, will help banks to determine how long will it take to recover. When it comes to managing liquidity and managing a firm's financial stability, the value predictions and early warning signals that these metrics provide are vital information. Having the answers to red-flag questions like, "which customer types are about to defect to a competitor" and "which segments play an important role in the deposit base," for example, can be itegral to the CEO for strategic planning.

Manage the entire spectrum of B2B client relationships
Corporate clients tend to have complex, multipronged relationships with a bank. Their network of suppliers, distributors, employees, shareholders, government agencies, and other partners contribute to their overall value within the same bank which is called financial supply (value) chain management. Currently most banks do not connect the dots, treating each of these accounts differently and placing them in different customer segments. But banks should look holistically at their B2B value chain customers to evaluate their potentail risk and profitability by accounting for each and every interaction that the corporate client plays a role in, either directly or indirectly. It can be as simple as a flag to denote a relationship within the CRM system.

Calculating the total value hidden in the entire B2B client network will enable banks to see and manage the true relationship corporate customers have with the bank. They will be able to understand the big picture and real value of corporate customers.

Integrate bank functions to get a true picture of customers
Being a customer-centric bank means that all branches and channels must be integrated. This is true at the local level as well as globally, and internally as well as externally to customers and regulators. The traditional approach to gauging a bank's health is to generate account statements (MT 950s or MT 940s) each day. Banks employees then manually reconcile their statements against each day's transactions to determine their cash positions.

Keeping up with today's pace of change, however, requires real-time information. Integrating systems - check processing, Visa and Mastercard clearing systems, ATM and debit card activities, etc. - may require new technology and delivery approaches. Banks need to be more efficient internally, meet customer demand for real-time account information available in numerous channels, and integrate their systems with ERP and other outside systems for B2B clients. Technology and process innovation must keep pace with customer needs.

It is obvious that in this new economic environment there are new rules. Future success depends not on fortune-tellers, but on customers and their relationships with their financial institutions. Banks that keep a keen eye on customer needs and value will be able to make the most of the changing landscape.


About Cuneyt Dirican, Ph.D:

Cuneyt has 13 years experience working in the banking sector, including branches, central operation, marketing, product & channel management, corporate banking, cash management, and transaction banking.

He graduated French College Saint Joseph in Istanbul. He earned his BA degree at the Marmara University in International Marketing and Business Administration section in Istanbul. He later earned his master and Ph.D. degree at the same university in Banking & Insurance and Social Sciences Institutes in 2000 and 2005.


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