Graham McDaniel, senior managing consultant at Xceed Group, explains why punitive data regulations may be just what the doctor ordered for the banking industry.
December 17, 2013: The UK retail banking landscape has changed rapidly over the past few years. The traditional banking establishment has been rocked by miss-selling scandals, financial crisis, changing customer needs, weakening loyalty and challenging regulatory changes.
The introduction of Basel III, the BCBS Principles for Effective Risk Data Aggregation and Risk Reporting and punitive fines for miss-selling has resulted in an increased regulatory focus on the volume of customer data gathered and the ways in which this is managed. Due to fines, risk and compliance issues data management, storage and analysis has been transformed from a back office concern to a board level issue, commanding billions in investment.
However, whilst this investment is driven by stick, rather than carrot there is significant opportunity for banks to turn this new data focus to their advantage. Whilst regulation may be the impetus, the investment creates huge opportunities for banks to use customer data to increase sales, differentiate services and retain customers.
Up close and personal
The general public is not as loyal as it used to be and legislation and regulation such as the seven-day switch guarantee has resulted in unparalleled consumer power. With the rise of the ubiquitous comparison engine, banks need to find new ways to differentiate their services in order to ensure margins don’t suffer from a race to the bottom on rates.
In this new environment a new breed of customer centric banks is emerging. To ensure they stay ahead, retain customers and further develop existing relationships –- all banks must adapt to the changing needs of their customers.
A key differentiator in retail banking is to provide a personal customer experience, and at the forefront are the new entrants to the market such as Metro Bank and Virgin Money. However, supervisors are forcing all banks to invest in customer data management, from a risk reporting perspective. Establishing a single customer view, improving the quality of customer data, and defining an accurate client hierarchy have all become a major focus.
These systems and data improvements can be used to drive a better customer experience. By establishing a consistent and complete view of the customer and their products across the organisation, banks can maintain a deeper understanding of the customer. Capitalising on this single view of customer data and providing real-time access, banks can provide a personalised and consistent customer experience, increasing customer satisfaction. With satisfaction comes loyalty and with loyalty comes increased opportunities to up and cross sell financial products.
Sticky services
The relationship that individuals have with banks often spans huge changes in their lifestyle. If banks can retain a customer from ‘cradle to grave’ each stage of their life will create opportunities for different kinds of financial support. Often banks, with a wealth of data around spending and the ability to forecast average ages or wages when mortgages, loans and insurance products are taken out, will be able to pin point the ideal time to begin marketing new products to their customers.
A consolidated view of customer data from across multiple channels, alongside a deeper insight into customer preferences and characteristics brings significant opportunities for cross and up selling. Marketing departments are better equipped to develop targeted product offerings and promotional offers based on a detailed customer insight. This provides real opportunity to differentiate and increase revenue within an increasingly competitive environment.
The insights and methodologies of the retail industry is a superb example for banks industry to emulate. In particular the use of loyalty schemes, giving the customer something back or providing an upgraded service in recognition of loyalty to the brand. Within the UK banking sector a few banks are beginning to cotton on to this opportunity (notably Natwest) however, for the vast majority this is almost unheard of.
When switching has never been easier and the cost of acquiring new customers remains high, rewarding loyalty is essential. Retail-esque loyalty schemes could help increase customer retention, and ultimately customer advocacy,within an increasingly competitive market. Providing a higher interest rate on current accounts or an enhanced service level for the most loyal and profitable customers could be a key differentiator for retention.
Reduced operational costs
Whilst the bonuses we’ve talked about so far are ways to improve the top-line growth, data management provides huge opportunities to reduce operational costs. Implementation of a centrally managed master data service will help provide accurate and reliable data to downstream systems. This provides cost reduction through process efficiencies, reduction in data errors that require re-work, and a decrease in the IT support effort required with simplified data architecture.
The big picture
Better data quality leads to an enhanced customer experience and satisfaction. Simplifying the data landscape and reducing manual processes lowers operational costs. Effective master data management provides greater customer insight and new opportunities for marketing and revenue generation.
To achieve these benefits banks need to take a strategic approach to data management. Focusing only on a specific division or regulatory requirement will at best create pockets of good practice without providing the broader business benefits. Banking organisations looking to maximise the return on investment must keep one eye trained on the broader benefits that can be gained from improved data management.