How Customer Centric Are You?

The need to be more customer-centric in financial services is more important than ever, as banks and insurance companies look for ways to reduce churn as those in the industry know that loyal customers spend more on higher margin products and are likely to refer additional customers. Bankers and insurers who understand this, and get this right, are in a better position to maintain profitable and lasting customer loyalty and reap significant financial rewards. The current market conditions remain significant and will be difficult to overcome without the right information management architecture to help companies be truly customer centric. Here’s why:

• Customer satisfaction with retail banks has decreased for four consecutive years, with particularly low scores in customer service.[1] Thirty-seven percent of customers who switched primary relationships cited in an industry survey showed poor customer service as the main reasons.
• The commoditization of traditional banking and insurance products has rapidly increased client attrition and decreased acquisition rates. Industry reports estimate that banks are losing customers at an average rate of 12.5% per year, while average acquisition rates are at 13.5%, making acquisitions nearly a zero-sum game. Further, the cost of acquiring new customers is estimated at five times the rate of retaining existing ones.
• Switching is easier than ever before. Customer churn is at an all-time high in most European countries. According to an industry survey, 42 percent of German banking customers had been with their main bank for less than a year. As customer acquisition costs running between of €200 to €400, bankers and insurers need to keep their clients at least 5 to 7 years to simply break even.
• Mergers and acquisitions impact even further the complexity and risks of maintaining customer relationships. According to a recent study, 17 percent of respondents who had gone through a merger or acquisition had switched at least one of their accounts to another institution after their bank was acquired, while an additional 31 percent said they were at least somewhat likely to switch over the next year.[2]

Financial services professionals have long recognized the need to manage customer relationships vs. account relationships by shifting away from a product-centric culture toward a customer-centric model, to maintain client loyalty and grow their bottom lines organically. Here are some reasons why:

• A 5% increase in customer retention can increase profitability by 35% in banking, 50% in brokerage, and 125% in the consumer credit card market.[3]
• Banks can add more than $1 million to the profitability of their commercial banking business line by simply extending 16 of these large corporate relationships by one year, or by saving two such clients from defecting. In the insurance sector, a one percent increase in customer retention results in $1M in revenue.
• The average company has between a 60% and 70% probability of success selling more services to a current customer, a 20% to 40% probability of selling to a former customer, and a 5% to 20% probability of making a sale to a prospect.[4]
• Up to 66% of current users of financial institutions’ social media sites engage in receiving information about financial services, 32% use it to retrieve information about offers or promotions and 30% to conduct customer service related activities.[5]

So what does it take to become more Customer-centric?

Companies who have successful customer centric business models share similar cultures of placing the customer first, people who are willing to go that extra mile, business processes designed with the customer’s needs in mind, product and marketing strategy that is designed to meet a customer’s needs, and technology solutions that helps access and deliver trusted, timely, and comprehensive information and intelligence across the business. These technologies include:

•  Enterprise Data Integration
• Data Quality and Data Governance
• Master Data Management

Why is data integration important? Customer centricity begins with the ability to access and integrate your data regardless of format, source system, structure, volume, latency, from any location including the cloud and social media sites. The data business needs originates from many different systems across the organisation and outside including new Software as a Service solutions and cloud based technologies.

Traditional hand coded methods and one off tools and open source data integration tools are not able to scale and perform to effectively and efficiently access, manage, and deliver the right data to the systems and applications in the front line. A the same time, we live in the Big Data era with increasing transaction volumes, new channel adoption including mobile devices and social media combined generating petabytes of data of which to support a capable and sustainable customer centric business model, requires technology that can handle this complexity, scale with the business, while reducing costs and improving productivity.

Data quality issues must be dealt with proactively and managed by both business and technology stakeholders.  Though technology itself cannot prevent all data quality errors from happening, it is a critical part of your customer information management process to ensure any issues that exist are identified and dealt with in an expeditious manner. Specifically, a Data Quality solution that can help detect data quality errors in any source, allow business users to define data quality rules, support seamless consumption of those rules by developers to execute, dashboards and reports for business stakeholders, and ongoing quality monitoring to deal with time and business sensitive exceptions. Data quality management can only scale and deliver value if an organisation believes and manages data as an asset. It also helps to have a data governance framework consisting of processes, policies, standards, and people from business and IT working together in the process.

Lastly, growing your business, improving wallet share, retaining profitable relationships, and lowering the cost of managing customer relationships requires a single, trusted, holistic, and authoritative source of customer information.  Managing customer information has historically been in applications across traditional business silos that lacked any common processes to reconcile duplicate and conflicting information across business systems.  Master Data Management solutions are purposely designed to help breakdown the traditional application and business silos and helps deliver that single view of the truth for all systems to benefit.  Master Data Management allows banks and insurance companies to access, identity unique customer entities, relate accounts to each customer, and extend that relationship view across other customers and employees including relationship bankers, financial advisors, to existing agents and brokers.

The need to attract and retain customers is a continuous journey for the financial industry however that need is greater than ever before. The foundation for successful customer centricity requires technology that can help access and deliver trusted, timely, consistent, and comprehensive customer information and insight across all channels and avoid the mistakes of the past, allow you to stay ahead of your competition, and maximize value for your shareholders.

[1] 2010 UK Retail Banking Satisfaction Study, J.D. Power and Associates, October 2010.

[2] Beyond Day One: Minimizing Customer Attrition During Bank Mergers and Acquisitions.

[3] CRM2Day

[4] “Customer Winback”

[5] Mortgage Servicing News