Why banks need analytics to create relevance with customers

For many financial services leaders, the morass of banking data and systems—too often cut off from each other—is enough to make those proverbial silos look more like sealed vaults.

That’s often the frustrating state of affairs when banks struggle to use data from several systems that don’t talk to each other, then try to customize it to retain and acquire new customers. In a rising-rate environment, you could easily fall behind the curve. With the Federal Reserve raising rates, banking customers are moving “hot money” into deposit accounts with competitive yields. According to BAI research, they are also increasingly going online to open new accounts. Trying to curb inflation as the U.S. economy enters its tenth year of growth, the Fed recently raised its benchmark rate one quarter point and may do so again soon. More rate hikes may come in 2019 if the economy remains robust.

“Rising rates typically trigger outflows of low-cost deposits, increase deposit betas and flatten the yield curve,” writes Deputy Comptroller of the Currency Kevin Walsh. “The higher rates go, experience suggests, the more likely it is that customers will move deposits to secure higher yields.”

How can you retain customers and grow deposits in such a dynamic environment? You need a more precise picture of what customers want and deliver it. That’s why data integration and analytics have never been more important.

Why data integration matters

Building and retaining relationships in the digital era is not getting any easier. According to the BAI Banking Outlook, more than 70 percent of consumers would switch or could be convinced to switch their primary financial services organization for a superior digital or mobile experience. That’s why data integration is crucial.

How do you know what your customers want and what they are doing if your data is scattered across your organization in disparate systems? There may be one system for retail banking and another for commercial customers. Integration can make a big difference in giving you more useful information about your customers’ preferences and experiences. For example, how many of your customers prefer to open an account online versus walking into a bank branch and filling out a paper application?

We’ve found that digital interaction is one of the biggest gaps banks perceive they have with customers. Fortunately, financial services organizations recognize this and plan on investing more in the digital experience within the next two years. Today there are many variations in channels and products. But it’s annoying to customers when organizations repeatedly request the same information across products and divisions.

Seeing the big picture with analytics

Better analytics allow you to slice data a number of ways to improve the customer experience. Let’s say you want to improve your Net Promoter Score (NPS). You not only want new accounts, you want customers to stick with your organization. (The NPS measures customer loyalty and a company’s potential for revenue growth by asking: “On a scale from 0 to 10, how likely are you to recommend this company to your friends and family?”) If you can use data across all channels, you’ll better understand the customer experience to boost your score and improve loyalty.

Competition with online (direct) banks is a real threat because our research shows they have a meaningful advantage in opening accounts online—winning two-thirds of deposit and loan accounts opened online.  This trend cannot be ignored and poses a significant acquisition and retention risk to traditional banks. This is especially true among millennials and Gen Xers, who are more willing to open accounts online. Analytics can help identify what customers prefer and put you in a position to better deliver services.

Customization makes a difference

As noted, customer preferences differ widely between generations. Baby boomers may prefer the bricks-and-mortar experience while millennials and Gen Xers may move to a bank with the best mobile banking app. BAI Banking Outlook findings show that a majority of millennials (51 percent) would switch banks for a better app; 40 percent of Gen Xers would do the same.

Consequently, banks that fail to keep up with market demands are at risk of losing relevance. Again, there’s a growing gap between generations. While nearly 60 percent of baby boomers say they prefer a traditional bank with access to branches, less than half of millennials share this opinion of traditional banking and will keep some or all of their business with an online (direct) bank.

How can you improve your overall customer experience through better data analytics?

1. Innovate to maintain and grow relationships. Again, millennials are just one significantly better app away from switching main banks. Yet most surveyed by BAI say they don’t think their banks are innovative.  Improving the overall omnichannel experience through analytics and technology will help address the demands of 24 percent of consumers who are looking for a better experience across all interactions.
2. Learn from fintechs. Although it’s a smart idea to understand the successes of fintech innovators, few banks say they have learned anything from them that they plan to implement next year. Yet nearly two-thirds say they feel some pressure from fintechs. In addition to studying and adopting agile processes to innovate more quickly, banks can imitate fintechs by using application programming interfaces or APIs. These act as the glue to connect multiple systems to build one efficient platform. Think of a ride sharing app, which uses APIs to synchronize maps, payments and texting in one place. This type of technology enables banks to more quickly and easily integrate with new technology, which helps their marketability and adoption.
3. Leverage your data. Banks are not generally leveraging the customer data they have and that leads to customer frustration. Not only do people want to customize their own solutions; they also seek a better omnichannel experience and the option to utilize expert advice in branches. To do all of this, your organization must ensure that your data resides in one place that’s accessible with the latest analytical tools.

How do you pull all this data together? Those who can combine data across the organization and discover the right insights at the right time will hold the key to coveted competitive advantage. There’s no better time to unlock the treasure in your data vaults.

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Karl Dahlgren is managing director at BAI, leading the Research business. He has worked in the financial services industry for more than 20 years, including roles in banking.

For more insights  like these, check out our recent executive report: Decisions bankers need to make in 2019.