How customers and potential customers of the Financial Services Providers (FSP’s) will be served is a continuing debate. Multiple channels are here, and new ones will change and grow as technology makes new ones feasible. The electronic highways have, for some become the only means by which customers can and should be served. They quote the uptake of Internet banking and the low cost to help for call-center based services. Yet in the last few years, we have seen more street-level activity than before. Yes, branches are closing, but new kiosks, one-person outlets, supermarket outlets, and other self-service systems have become complementary to the changing branch/brokers office.
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Yes, full-service bank type branches will decline in numbers, but there will be increases in productivity and changes in their use. There is also the cry that interactive financial services are the only way to go for mass-customization, a segment of one, and one-to-one marketing. Yet the traditional FSP’s still hold much of the transactional data that drives the integrated vision that is being referred to as Customer Relationship Management (CRM). A problem exists whether to believe the hype or to try to understand what is happening and how an FSP can benefit from the changes without suffering irreparable financial loss.
I have written about the uses of data/information in FSP’s. It is about how transaction-based customer information can be transformed and used in an integrated Customer Relationship Management (CRM). CRM solution is based on a Scaleable Data Warehouse (SDW) to create value for the customer and the FSP. Viable customer relationships if that is what you want is based on data that has been transformed into actionable information that in turn becomes customer insight (customer knowledge). This customer insight is to be used to create predictive models for active customer interaction and actual dialogue if desired. The concept of pulling together all the information you have about a customer to produce, differentiated, added-value services to retain your valuable customers and enhance your brand image is being driven by:
- Increasing competition for the customers business, from both traditional and non-traditional FSP’s;
- Growing and different channels to/from the market and hence increasing systems integration problems and complexity;
- Increasing specialized needs for customer-centric (one-to-one marketing) and tactical/strategic decision-support information.
- Increasing speed and need to meet changes both technological and societal.
Distribution Channels
Historically the so-called distribution channels were seen as a means of pushing products/services at the customer and potential customer. Today being a financial services provider, it is really about knowing the customer. The who, what, where, and when of it and of course the why of it. Who are they, what do they actually want, where do they want it, when do they want it and why do they want it, whatever the ‘it’ is? There is also the need to understand the value the customers (potential "LTV" - long term value) and potential customers can bring the FSP. Failure to take note of the needs of customers and that all customers cannot be treated in the same way (not all customers are created equal), or can only lead to costly investment mistakes.
Category killers (often international) such as MBNA, Capital one in cards, Fidelity, Schwab in investment and broking and others like Direct Line insurance are taking bites out of other FSP’s. Others by offering prescribed ranges of services or access facilities provide a bewildering array of different services/products at lower prices, potentially better levels of specialized service and or better rates of interest. Often the vendors of these services/products are using marketing techniques and channels that their competitors have been slow to adopt or failed fully utilize. Some of the problems the existing FSP’s suffer from is the sheer size, and historic baggage while the new competitors have the advantage of:
- They are niche players that focus on particular activities or segments of customers and replicate this model wherever they go;
- They specialize in contained business areas, developing levels of expertise and levels of service that easily beat the incumbent generalist organizations;
- They often go cherry-picking the most potentially valuable customers, leaving the mass of lesser customers to established FSP’s.
With new channels being implemented even in the most sclerotic of FSP’s, there is room for conflict regarding who actually owns the customer is the branch/brokers office or is the channel used. In many banks, the branch is used as the central point of reference. Well, the accounts are held there, and payments come and go from those accounts. This initially sounds sensible, as there has to be a single point for accountability, problem resolution, physical accessibility, and a sane way of handling overall relationships form a whole bank perspective. Well, this approach sounds to be customer-centric anyway, doesn’t it? However, customers are fickle. Some customers may never visit a branch and conduct all of their interactions with the bank through remote channels. Should the office then get the profits from that customer or should they be assigned to the channels? Does the customer belong to the branch, the alternative channels, or really and more likely the FSP as a whole? Therefore we have internal dissension over just who the customer belongs, which leads to problems that influence the ways customers are treated. Will they have access to all services available, or will they be channel limited by internal wrangles rather than a well thought out set of CRM treatments?
A significant reason why the wrangles over customer ownership have not gone away rests on the need for some form of "customer anchor" in the FSP. Just who is the FSP, it’s brand, it’s a differentiated channel or the relationship manager newly assigned to retain that valuable customer. Another major problem has been the way the channels have grown. As each new channel was added to the FSP a new system was created, so increasing the number of islands of data the IT function now had to pull together to create "one version of the truth." To be able to identify the most dominant channel, there is a need to understand the flows of transactions and the preferred customer interaction models. To get to this point requires the FSP to create an integrated channel approach to their business. This also requires an understanding of their channel capacities to handle the different volume requirements as the channels mature and marketing starts to use the channels in a proactive customer-focused way.
Channel costs
A basic tenet of CRM is that you can treat different customers differently with a positive value exchange for both parties (each profit from the relationship). Most FSP’s know implicitly that some customers are more profitable than others, yet many FSP’s goes on treating all customers in the same way as if one size fits all. As a step towards a full-blown CRM solution, some FSP’s have implemented profitability measurement systems with varying degrees of sophistication. They have found that Pareto’s Law does not apply: Craig J. Kelly, senior vice president and director of marketing at Banc One stated that they have found that the old 80/20 rule does not apply. "We used to think that 80% of our profits came from 20% of our households. We suggest it is far worse than that. In fact, our higher-profit households may represent more than 100% of our profits because the unprofitable ones subtract so much".
The costs associated with supporting the different channels make for some easy decisions. Studies in the US have shown that it costs $1 to process a simple transaction at a branch counter, while a deal on the telephone is 54 cents and over the Internet 13 cents (source Financial Times – 22/5/99). These costs may be further skewed towards alternative channels around the globe. When you consider that all analytical work so far has shown that the most expensive channel for an FSP tends to be the branch and the cheapest is the Internet, it follows that many believe that branches will wither and die. As FSP’s merge both branches and broker's offices are closed yet, the numbers still seem to grow. The branches are not what they were, but there is still a need for face-to-face interaction, especially when it comes to the more complex products and services an FSP offers.
As FSP’s merge, they all attempt to reduce their costs, and one of the first actions many decide upon is the reduction in duplicated operational systems and their branch networks. Only a few years ago many would simply close branches based on incomplete information. They would not really know the worth of the customers that used that branch nor their LTV, propensity to defect or any real data on channel usage. With the introduction of the SDW and a more customer-centric view even if only expressed by trying to better understand how to retain, up-sell, cross-sell and acquire customers there now attempts to understand the impact of closing and or merging branches.
In the UK is of a significant high-street bank that merged with another significant high-street bank actually made full use of its SDW when deciding which branches to close. Even before the merger, they would use their SDW to profile the customers of a branch being viewed for closure to help plan as to how different segments would be migrated to other delivery channels. They would then ensure that all customers of a closing branch were contacted appropriately.
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