This is a period of cautious growth for banks, and there’s no safer way to extend more credit than to start with your good customers. That’s why we see banks focusing more and more on the customer experience and taking decisions at the customer level.
That means leveraging the deposit relationship, something few banks have mastered. To use just one example, changes in the deposit pattern can serve as an early warning for changes that may be hitting your payment queues for other products.
Customers look very favorably on banks that call them to say, “I notice that your deposit did not process this month.” You may be alerting the customer to a glitch because their company has just changed payroll systems and something went wrong. You’ll have their gratitude that you’ve saved them potential embarrassment, not to mention overdraft and unpaid item fees.
On the other hand, you may be talking to a customer who has just lost their job. You are now in a position to be an adviser and counselor to the customer, and to help them maximize the time available to take care of their other accounts and figure out how they can utilize any settlements or severance packages.
In both cases, this communication is seen as a kindness by the customer, allowing you as a lender to give the customer additional working time to avert glitches and to create longer-term resolutions that may include product modifications or settlements. The advent of social media means that customers who have been treated with kindness will communicate this to others, potentially paving the way for other distressed customers to initiate contact, creating a reputational advantage that no bank can create through marketing alone. You’re in a better position than you are if you just start sending notices in several weeks or months when contractual delinquency arises, saying “Must have your attention. You must call me immediately. I need your payment today. You are contractually in violation of your obligation.”
What is the value of looking across the customer relationship? When we looked at this with North American card issuers, we found that the coincidence loss rates were 14% lower on average for issuers who had a customer view. Banks that have implemented a full customer management adaptive control approach have seen double-digit improvements in loss reduction, profitability of cross-sell programs and profitability from improved credit line allocation. In some instances we have also seen the ability to decrease reserves because of the stability of the loss profile that could be presented to regulators.
Whether these benefits occur because the customer feels some sense of brand loyalty to you, or whether the customer is afraid that if they walk into the local branch the teller will that they are behind in paying their car loan, is a mystery. What is not a mystery is that this is a real phenomenon.