The theme of my blog series is how to win in an intensely competitive, increasingly digital environment. I’ve provided some simple suggestions for how banks can improve the effectiveness of their marketing campaigns and I’ve laid out some key questions for banks to think about as they modernize their origination processes.
Higher response rates in marketing + higher conversion rates in origination = problem solved, right?
Unfortunately, no. In baseball terms, you haven’t hit a homerun. Or even a single. You’ve just gotten to the plate. What determines your long-term success is what you do next.
Will you deliver on the value that you sold your new customers on during marketing and origination? Will you shape their day-to-day behaviors to maximize profitability and minimize risk? Will you retain the right customers and allow your competitors to poach the wrong ones? Will you increase wallet share without decreasing customer satisfaction or employee moral? Most importantly, will you learn from every ‘at-bat’ you have with your customers (positive and negative) and apply what you learn to improve your strategies moving forward?
Every bank engages in account management—facilitating customers’ routine usage of individual products. Few banks engage in what FICO calls customer management—constantly seeking to understand the ‘trajectory’ of your customers (across all products) and using that insight to fine tune each interaction you have with them and offer you make them.
However, with new customer acquisition costs spiraling out of control and nimble competitors trying to pick off profitable portions of your portfolios, there’s never been a more critical time to invest in customer management.
FICO is fortunate to work with some true market leaders in this area. Here are a few of the things we have learned along the way:
- Carry customer ‘trajectory’ over from origination. The origination process is an opportunity to deeply analyze where a prospective customer has been and where they’re going. Too often, that understanding of a customer’s trajectory is lost as soon as the account is opened rather than being used to continually inform how a customer is treated. Was the customer given a low initial credit limit because of concerns about overall risk exposure? Then maybe a series of incremental line increase over time is a better fit than one big increase 6 months in. Was the customer approved despite a moderately high application fraud score? Then maybe no line increases or cross-sell offers until after their first confirmed branch visit or until a true usage pattern of the product is established.
- Seriously consider cannibalizing yourself. Whether it’s offering a segment of your revolving credit card customers a personal loan for debt refinance; or making small dollar loans available to your deposit customers, even though they are paying overdraft fees. A myriad of competitors are looking at the customers in your portfolios right now, trying to find the profitable, unsatisfied ones. The ones who are mildly unhappy with the features or fees of their current products, but who are too busy or lazy to switch (without a little nudge). You know your customers’ lifetime value, you also probably know their likelihood of attrition…but are you using those insights to guide your day-to-day interactions?
- Design for and promote utilization. An engaged customer is generally more profitable and less likely to attrite. Do everything you can to engage customers in using the features and rewards of your products. Related, you also need to ensure that those features and rewards are actually designed to incentivize usage. For example, credit card issuers have historically offered price protection to customers for purchases made on their cards. Find a lower price, jump through a few administrative hoops, and they’d refund the difference. It was sustainable because, while it sounded great, the process was too much hassle for most cardholders to bother with. Then a slew of fintech apps came in and automated the process and suddenly it was easy and instantaneous for customers to take advantage. And issuers eliminated or curtailed that particular perk a short time later.