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Big Data and Payments Drive Loyalty in Consumer Banking

With less than 3 weeks left to Sibos I am eagerly awaiting the start of the conference. One of my favorite events within the event is Innotribe - a forum for forward thinking debate, discussion on innovative technologies, learning about new solutions, and collaboration through exchange of ideas. This year I am intrigued by the intersection of big data (and large amounts of little data) with the payments business, and will follow the conversation at Innotribe. Specifically, my interest is this: can the payments business become the foundation for growth across the bank - to both retail and business segments? Today I'll address the retail banking customer segment, and address the business segment in a subsequent post.

The Customer Loyalty Conundrum

Banks face a customer loyalty challenge. Research from Capgemini and the European Financial Marketing Association (EFMA) indicates that consumer customer loyalty risk averages 40% globally. Four out of ten customers are unsure if they will remain with their bank for greater than one year. Furthermore, 53% of customers at risk cited ‘quality of service’ and 49% stated ‘ease of use’ as the primary reasons they would switch banks. This counters the traditional wisdom which places a lack of trust in banks (following the financial crisis) and fees as the dominant issues driving customer churn. The Capgemini/EFMA study correlates closely to unrelated research from Celent into the uses of Big Data in financial services. Fully 75% of bank respondents identified marketing and customer experience as areas where Big Data projects would be deployed. With the cost of new customer acquisition being higher than customer retention, banks clearly have the need to increase customer satisfaction and loyalty. Interesting. Does the payments business connect the two trends? 

Big Data and Payments to the Rescue?

Earlier this year I surfaced the idea that banks need to move their payments business to an information business in order to remain competitive. The premise was that banks are missing out on an opportunity to become more influential in influencing where people shop and what they buy, rather than just how they pay. Of course we have seen several major banks dive into the world of card-linked offers. Some solutions I've looked at appear to develop better offers than others, and the key to success with this is the depth and reliability of the purchase data and the data analysis to drive and targeting the offers. By analyzing spending habits of customers, comparing to a broader universe of payments data, demographic information, social media connections and location information, it is possible to drive valuable and desired offers to customers that might change shopping behaviors.

But card-linked offers are just one step. By extending such a program to digital wallets and mobile devices, bank customers can now search for bank-offers in the mall they are visiting by using the geo-location positioning integrated to a wallet app on the phone. Offer redemption can either be through cash back, or instant rebate/reward - whether customers pay by card or by phone. This is an example of what it will take to approach the value of that plastic rectangle in leather wallets and elevate the bank's payments brand. To achieve this, a multi-channel and device digital wallet strategy is essential for long term success.  But such a strategy requires more than an offers solution, or a mobile banking app. It requires a platform strategy for building and integrating enterprise grade payment solutions with data analytics, an offers platform, and a host of mobile devices. Such a platform must be built from the inside out rather than from the device back, thereby enabling the support of new payment devices and channels in the future. Oh - and by the way - this just might also increase the value customers see in their banking relationship.

 

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Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 30 August, 2013, 14:24Be the first to give this comment the thumbs up 0 likes

For a year or more, there has been a lot of noise about targeted offers based on account transaction history. Wannabe disrupters (e.g. Offermatic) have entered and exited this space during this period. Not sure whether this idea has legs. In any case, in the light of the recent patent secured by Cardlytics in this space, can anyone else even offer a competing solution?

A Finextra member
A Finextra member 04 September, 2013, 15:35Be the first to give this comment the thumbs up 0 likes

Ketharaman - many thanks for your comment. There have indeed been several forays into this space - particularly by some of the major US, Canadian and UK banks. If the intent is merely to drive offers, I agree with you the long term success is probably quite limited. Furthermore, if the offers aren't very well targeted; their fate is sealed.

However, if the offers are part of a commerce vehicle connecting a bank's retail customers to its business and merchant customers - the bank will have created a new value cycle across its customer base. Business customers create their own offers on the bank's white-labelled portal, then the bank can drive those offers to its retail customer base based on spending behaviors. The appeal further increases when customers are able to redeem such offers instantly online or at POS rather than waiting for a future statement credit from typical card-linked offers.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 04 September, 2013, 17:35Be the first to give this comment the thumbs up 0 likes

@ColinK: TY for your response but Cardlytics has secured a patent for exactly such a platform that can be accessed by merchants on a whitelabeled mode to create highly targeted offers and distribute them to a bank's retail consumers. Ditto with Offermatic but in the past tense.