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Managing Economic Uncertainty with a Customer-centric Approach

Managing customers has changed dramatically over the years.  I remember getting my first personal loan at my company’s credit union.  I knew the tellers and the loan officers on a first name basis because I saw them every other week on payday.  When I requested my first personal loan, it was approved quickly because of my long-standing employment at the same company and the fact that my financial relationships were all with my credit union.  We had a relationship and each of us knew what our role was in the relationship.

If you fast-forward to today, financial relationships have changed dramatically.  Although I still have accounts with the credit union in my story, I also have financial relationships with multiple banks, credit card issuers, and investment organizations.   Each one of these organizations knows about a slice of my financial life, but none of them know the entire story.  The management of multiple accounts with multiple financial institutions ranges from being viewed as a valued customer to being closed due to inactivity.  How do these institutions, with limited and often disconnected information about me, take a customer level approach to the relationship?  And how do they do this in a changing environment? 

That is the question of the day.

None of us know when the markets will shift.  Experts have varied opinions but that doesn’t change the fact that households continues to rise according to the Federal Reserve Bank of New York’s Center for Microeconomic Data (https://www.newyorkfed.org/microeconomics/hhdc.html) while the economy slows down (https://www.cnn.com/2019/10/30/economy/federal-reserve-rate-decision-october/index.html). 

Financial institutions are struggling with everything from understanding the full relationship with their customers to knowing how to best communicate in a changing world.  These are basic factors that must be managed to effectively compete in an uncertain economy.  Simply stated, know your customer and use that information to make decisions.

Customer Relationship

Today’s customers expect that their financial institutions know who they are and understand their needs and preferences.  Customers also expect that, no matter how they interact with their financial institution, the experience is consistent.  I have met with financial institutions that struggle with this. The answer, although simple, is not easy – use the data available to you to understand your customer.  There is no shortage of customer data available at financial institutions, the challenge is knowing how to source the data and use it to drive interactions and decisions.   Financial institutions are tracking customer interactions, sometimes in multiple systems that don’t “talk” to each other.  The key to being prepared for the future is knowing how to leverage the data available, both internal and external data, to better understand the customer, their expectations, risk and drivers.  You will then be able to interact with the customer in their preferred manner and to tailor those interactions to meet your customers needs.

Knowing and understanding your customers is also beneficial to your organization because it can help drive revenue through appropriate cross-sell opportunities and can help you understand and mitigate risks.  FICO clients leveraging this approach have achieved excellent results, as shown below.

  • Reduced 90-day delinquency by >90%
  • Reduced loan loss provides by 60%
  • Reduced back office staffing up to 90%
  • Increased response rates and amounts borrowed by 17% on key new product extensions while reducing losses

So how do you get started down the road to knowing the customer?

Here are the first steps.

  1. Identify each data source available for your customer base. Include internal and external sources.
  2. Identify any gaps in information and sources that can be tapped to get that information.
  3. Type each of the data elements. For example, is the data structured or unstructured, financial information or demographic information, internal or external and so on.
  4. Wrangle the data so it can be effectively used for analysis.

In my next blog, I will discuss how to identify the data sources you will need.

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