Banks and other financial services companies have seen a rise in customer defection and deterioration in customer trust. In fact, 70% of big bank customers don’t trust their banks, according to a study by Forrester Research.
Meanwhile, the percentage of US customers who have switched banks has jumped from 38% in 2011 to 45% this year, according to Ernst & Young.
As customers’ relationships with financial services companies continue to decline, it’s critical for banks to use data analysis and data discovery tools to better understand their customers and prospects.
Such tools can help bankers develop programs aimed at improving customer retention and customer value. Indeed, research by American Banker finds that spending on analytics by banks is on the rise.
Data analysis and data discovery tools offer banks myriad opportunities to learn more about their customers and act on these insights.
For instance, data discovery tools can help bankers determine which products a particular customer is using (e.g., checking, savings) and then determine based on that customer’s income, lifecycle status, and other factors whether she might be a good candidate for a cross-sell or upsell offer (e.g., certificate of deposit).
With customer churn so high in financial services, bankers can also use data analysis and data discovery tools to determine the primary causes of customer defection among certain groups of customers and also to spot the warning signs when a customer is about to jump ship.
Banks can do this, in part, by first assigning common characteristics to customers who have defected. The banks can then identify and map similarities between those customers and others who may be at risk of leaving (e.g., recent slowdown in transaction volumes, large transfers between accounts or out of an account).
A big component of customer retention is demonstrating to customers that a company has its customers’ best interests at heart. Unfortunately, few banks employ these practices now.
With lending activity down and interest rates at all-time lows, many banks are trying to make up the difference by increasing their fees and adding new fees. Many banks are imposing fees on everything from charging customers for ATM replacement cards to charging a fee simply for closing an account.
These aren’t the types of practices that engender customer trust. However, following the hardships that many of their customers are facing in the wake of Hurricane Sandy, banks such as Citigroup and TD Bank have waived check overdraft fees, late fees, and fees for using out-of-network ATMs for customers in storm-hit areas.
Taking a more customer-friendly approach to banking can help banks strengthen long-term customer value, rather than just generating a quick return through a $35 overdraft fee that may lead a profitable customer to defect and never return.
In addition to identifying the triggers for customer defection, banks can also use data analysis and data discovery tools to determine the most effective offers that will bring new customers into the fold.
Bankers can use data analysis tools to determine the characteristics of its most profitable customers to help identify the best prospects to target. Analytics can also help bankers determine the right offers to make to prospects at the right time that offer the best chances for conversion.
