Who knows your customer?
The banks and financial institutions that know more about their customers will stay one step ahead of their rivals.
The Inherent advantage
This article was first published in Australian Banking & Finance June 2013.
Through their transaction data, financial services institutions collect more comprehensive information on the wants, needs and preferences of their customers, more often than their peer consumer orientated organisations.
The combination, frequency and access to key customer information includes daily choices on how and with whom customers spend their discretionary income through various touch points including Point of Sale, alliances and social media as well as the standard:
- Identity of the customer - their name, address and contact details
- Income and assets of the customer - typically for most financial services relationships this information has to be provided
- Stage of the customer lifecycle - whether single, married, family or moving towards retirement.
Although financial services institutions have invested heavily in technology, systems, processes and people to collect, manage and exploit this expanse of information to better serve their customers for longer than most consumer organisations, the trick is how to use it well across the organisation.
The sheer volume, variety and speed of the data being collected on these multiple systems, is driven by competition from within financial services – from the other Tier 1 and Tier 2 banks –and is now exacerbated by well resourced, international competitors, that can focus on specific niches in the bank’s value chain. Often with simpler business models, digital disruptors like Google, Samsung, Apple, PayPal, Amazon and the credit card companies, are able to challenge the traditional FS domain.
The new challenge
These digital players often with access to faster, better and cheaper technology, can access similar information to that which was primarily dominated by financial services organisations. Digitisation provides new information on how the post digital consumer wants to be engaged and serviced. By leveraging social media for instance, and detailed data on customer sensitivities and values, organisations are able to make more informed fact-based decisions about difference and preference.
Similar to the open source technology trends of the digital age, where peer production and collaboration openly shared with the community is the norm – the consumer now navigates in an environment with more flexibility and agility to navigate choice of service providers. The result is a whole new category of “open source” information that can be accessed to understand and know the customer beyond the walls of any one organisation, market or geography.
Digital connectivity and technology innovation is facilitating this gathering, sharing and interpreting information across organisations, industry sectors and jurisdictions through alliances, joint ventures, mergers and strategic acquisitions.
Many financial institutions are already in this new playing field and are very aware of the different competitors. But their inherent advantage could fast disappear. The new entrants in the battle to know your customer, continue to shift the playing field.
The new competitive landscape
Tesco - the third largest retailer in the world after Wal-Mart and Carrefour – takes its customer loyalty data to make fact-based decisions to segment customers and determine promotions. Tesco sends out 13 million individual offers every quarter from this information and has expanded its relationship with its customers to the retail banking and insurance sectors. Amazon.com, the largest online retailer in the U.S., powers its recommendation engine - ‘you might be interested in this’ - from its customer data. The potential of this apparent ‘peer-to-peer’ network as it buys into consumer’s preference for social approval and recommendation, is apparently delivering to a market of one.
The recent strategic acquisition by Woolworths of data analytics firm Quantium adds to its existing alliances with Qantas and Caltex. The result is that Woolworths has created the opportunity to round out its traditional ‘basket of goods’ analysis, expanding the breadth and variety of customer information through its alliances.
Retailers like Tesco, Amazon and Woolworths are able to analyse, interpret and act on insights for competitive advantage as they deal with an often simpler customer business model than the complex customer profiles presenting to financial services organisations.
Knowing more about the customer
The definition of customer is so much more complex in financial services organisations - from retail, through small and medium sized businesses to corporate and institutional customers. With multi-product and multiline needs, the big complex ecosystems that characterise financial services require sophisticated ways of leveraging the big data that is the stuff of each day.
The conditions are ripe for cross sector disruption and it is critical to shorten the time to competitiveness.
To meet the new challenges in customer knowledge it is critical to continue to:
- Change the organisational mindset and pursue new competitive footholds
- Not get distracted by a defensive strategy
- Borrow from the digital age there and leverage open source thinking to address the challenge
- Breakdown the inherent bias of silos that limit decisions to “the structure of the organisation” rather than sharing and embracing the whole relationship of the customer and so traverse the product, channel and service
- Avoid making programs of work that are too big and too complex
- Adopt smaller projects that can be executed quickly, with agility
- Chose smart alliances and make small bets to sure up capability
- Select alliances that quickly advance your analytic capabilities and customer information base to know the customer better
- Create white space opportunities in adjacent and new markets where your new knowledge of the customer has the advantage to be disruptive
- Test and learn - reach out beyond traditional boundaries and explore the expansive relationships that the open source customer prov