Tag: Banking

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Customer Experience: How to close the gap in retail banking

white and gray building

According to leading research and advisory firm, focused on technology for financial institutions globally, Celent.

Most US adults trust that their money is safe at their primary financial institution, but far fewer believe that their bank is actually helping them improve their financial lives. This sizable trust gap is a problem for banks — and closing the gap will not be easy.

A number of banks are doing so, however.

In a previous Celent report, Platform Banking in the US: Positioning to Be at the Center in Retail Banking, November 2018, Celent described the market forces that will bring a variety of platform banking business models into the US market, foundations for building a successful platform model, and the compelling first-mover advantages doing so creates.

The report addresses a remaining prerequisite for successful platform banking, high levels of advisory trust. Compared to transactional trust (e.g., “My money is safe.”), advisory trust is lacking among customers of most US financial institutions.

Developing high levels of advisory trust is imperative for any successful customer-focused platform, but it is also good business practice for retail banks with or without their own platform ambitions.

This Celent report explains how to develop it by embracing a new paradigm of customer experience.

Low advisory trust is considered the underlying cause for 5% of bank retail revenues being at risk as regulators and digital competitors act to help consumers avoid the cost of bad decisions. According to Alan McIntyre, Senior Managing Director – Banking Accenture, based on an Accenture feature article. To address this, banks need to build customer trust and create win-win relationships that endure over time by demonstrating understanding, empathy, speed and agility, particularly in times like the current COV-19 pandemic.

“Quick action to provide payment holidays for consumers, liquidity for SMEs and other relief efforts are helping customers deal with challenging economics—and should be built into their operations going forward”

This is a perfect time for banks to do a reset and “rediscover their original purpose” That purpose is rooted in responsible financial management advice with a focus on the long term, something which may have no immediate benefits. Things like cutting bank fees, interest rates and gouging of prospectively “bad revenue”.

Commercial banks have a good understanding of how data, advanced analytics and artificial intelligence (AI) are potentially powerful instruments for navigating the market.

Despite compressed margins, high costs to serve and disruptive competition in key segments such as small and medium businesses (SMBs) and from challenger banks and non-traditional finance players. In the UK alone, twenty million customers have opened accounts with digital neo-banks and only 14% of consumers turn to their bank when they have a major life event affecting their finances, according to Accenture’s Purpose-Driven Banking study.

There has to be a recognition that a good understanding of the customer through perfect master data is essential for harvesting the full value of customer data. This harvesting can be slower and more difficult than anticipated and requires bankers to overcome the common barriers to effective data use, namely organizational silos, incremental progressive improvements in data curation vs. wholesale broad-based initiatives, overcoming the fatigue of “digital” everything and assignment of business ownership and elevated profile for customer data in the banking C Suite.

At Pretectum we view Customer Master Data Management and customer data syndication flowing from a centralized MDM as a pivotal technology in this quest. Learn more by contacting us on this topic today!

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Factors to consider in relation to Customer Master Data and being compliant

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The growing number of quality standards and regulations (industry-specific or not) mean companies must meet certain compliance criteria directly or indirectly impacted by the quality of data in the systems.

Businesses face many regulatory frameworks and potential risks that require the maintenance of extensive reporting mechanisms and specific processing and handling activities around critical customer master data such as details related to bank accounts, contracts, and contract conditions. In the finance, Insurance, retail, health and pharma segments, regulations vary from country to country but the message is largely the same – you need to know what data you have and you need to be looking after it properly.

Failure to take necessary steps to protect the data can lead to a variety of punitive measures being imposed by the authorities. This is separate from any personal liability claims that might be brought by individual members of the public in relation to incorrect or inappropriately handled customer master data. Appropriate management of customer master data is therefore essential not just to ensure that there are no negative financial implications but also to ensure the preservation of the organization’s reputation.

How a CMDM helps with compliance

A customer master data management system gives businesses a single reference point or single customer view. This can be of help when trying to meet compliance expectations by describing the records held, the content of the records and enumerating the evolution of those records over time from origin to current state.

A well-designed master data management platform makes it easier for businesses to audit and standardize their view and understanding of the customer across the many data repositories that they might have including data warehouses, transactional systems and other data sources that might use different technologies in different business units and geographies.

A centralized customer master data management platform offered under a PaaS or SaaS model is a continuous duty system by nature and backed up in alignment with best practices and all necessary regulatory requirements. Features that you can expect include the identification and optional removal of duplicate records, the maintenance of strict standards in relation to data quality and the presence of a user permissions hierarchy to ensure that only those who should have access, do.

Right to Erasure

Under European GDPR policy, the ‘Right to Erasure’ gives users the right to have their records erased from databases to meet privacy requirements. When you have the customer master stored in many places this is a difficult requirement to meet.

It is also amongst the key components under California’s CCPA framework and other frameworks of a similar nature exist in other geographies globally.

Removing customer information from your records, or even correcting it, is more straightforward when you have a centralized customer master data management system. In some cases, people want to remove only publicly recognizable information from the available channels, but this can become tedious if such information is expressed differently in a different system with no interconnected golden thread that forms a unified reference point.

For either removal, correction or suppression of data, having a master data management reference point is operationally more efficient and better supports the ability to be compliant. The CMDM platform offers that unique point of reference for each database. This means that compliance activities can quickly identify data quality issues, make the necessary changes and get those corrections syndicated across departmental and downstream systems in the organization.

KYC compliance (Know Your Customer)

All financial sector organizations must submit customer information to regulatory authorities, often before providing the person or organization with financial services. Regulators are quite strict on the importance of customer record quality; incorrect measures in an organization can risk exposure to compliance penalties, places assets at risk and also introduces reputational risks. The Dodd-Frank act overhauled the US financial regulation system and while some of the act’s regulations were rolled back by the Trump administration the new regulations being implemented at the individual state level and in Europe provide sweeping new protections for citizens that organizations need to subscribe to. 

Financial institutions and Fintech companies that build secure systems and processes to collect and submit KYC data to authorities enjoy benefits over their competitors not only in terms of the quality of the data that they hold, but also the costs associated with maintaining their compliance, and of course the risks associated with specific accounts. A CMDM platform can help businesses centralize KYC information and make it easier for them to meet regulator screening requirements. According to Deloitte’s 2020 banking and capital markets outlook, “wealth managers are grappling with the rising cost of compliance and increasing focus on KYC/AML and data protection” something which a CMDM can surely help with controlling.

Meeting the requirements of compliance rules is also often time-consuming for businesses. For businesses that have been in the business for decades, this is particularly hard when they have ageing infrastructure and long-established customer data management practices.

Enterprise-level master data systems prioritize security and industry compliance, admittedly at a cost, but this cost is often more transparent than the many hidden costs associated with ad hoc and unstructured, even perhaps uncoordinated data management practices. CMDM helps businesses implement and comply with data quality standards and implement policies on demand.

If you’re challenged by compliance worries around your customer master data management, why not reach out to Pretectum today and find out how we can help.

RJ

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Calculating the value of customers

shopping cart next to a laptop

The monetary value of a customer relationship is important in understanding how much you might choose to spend on acquiring a customer or how much you might choose to invest in a customer acquisition strategy over time.

82% of companies agree that retention is cheaper than acquisition and some three-quarters of consumers say they prefer brands that offer them rewards for their loyalty.

Just over half of customers claim that they stay loyal to those brands that relate most closely to them and 65% of most brands’ business comes from existing customers so it comes as no surprise that working out what those customers cost you to acquire and what it takes to retain them should be an important focus of what your organization does. All of this is encapsulated in the Customer Lifetime Value or CLV concept.

Focus on the two segments in orange and blue for your ‘best’ customers

What is the average customer retention rate?

Customer Retention Rate (CRR) by Industry is variable, in Retail this tends to be around 63%, in Banking, 75% and in Telecom 78%.

However, churn (customer switching) is becoming increasingly commonplace in the telecom and banking sectors due to the more open approaches to doing business and the advocacy for consumers through initiatives like “open banking” and “number portability”.

In the perfect world, you would see 100% customer retention, where the products and services that you offer are uniquely distinguishable from those of others, such that they are considered indispensable and non-displaceable by competing brands. Where monopolies exist or where the difference between your brand and the next best competitor is massive, you may find that close to 100% retention is achievable. Retention above 90% is exceptional and retention above 75% is considered very good. Retention below 25% is not very good verging on bad or terrible.

It is important to measure retention nonetheless because the longer you can retain the customer the cheaper the acquisition costs and the higher the customer’s lifetime value.

Retention translates to customer loyalty and should be a Key Performance Indicator that determines whether your products and customer loyalty strategies are effective.

So just how would you calculate your customer retention rate?

Start with counting the total number of customers you have at the end of a time period (month, quarter, or year) – the Pretectum CMDM can be an aide in doing this. Next, subtract the number of new customers you acquired in the same period, here too, you could use the Pretectum CMDM to do this. Next, divide the remaining number by the number of customers you had at the start of the period.

Customer Loyalty

Customer loyalty is influenced by many factors, it has been found that the most loyal customers associate positive experiences they have with the brand or company with sustained and recurrent purchases. They may also be observed to have higher conversions (visits that result in a sale) and higher overall spending (higher event value).

Keeping customers happy and inducing them to return for more is vital to the success of any business. So, higher profitability often begins with existing customers. Repeat customers not only spend more money on a more frequent basis, but they also assist to increase the number of new consumers that come through your doors through recommendations and brand promotion. As a result, it is critical to maintaining a high customer retention rate (CRR).

Pretectum believes that one of the best ways to promote a high CRR and establish the highest possible CLV is through interaction personalization and a closely curated relationship with the customer.

This means knowing who your customers are, what their preferences are and conveying to them a disposition of caring and genuine knowledge about them and their circumstances and relationship with your brand or business. This relationship-building is best achieved through appropriately comprehensive and correct customer master data.

Contact Pretectum today to find out how you can make your customer master data the best it possibly can be.