Dodd-Frank is just the latest in a succession of game-changing regulations that have rocked the financial services industry over the past two years. For banks to be profitable in the new financial landscape, they’ll need to manage customers more holistically. Customer retention is going to be key, and it won’t be well-served by a product-centric, siloed approach. Courtesy overdrafts provide a good example—not all checking customers will want to opt-in to continue the service; many will prefer a transfer of funds from other deposit accounts instead.
If under new regulations, a bank finds that a given product no longer meets profit hurdles by itself, or that a given segment is no longer profitable for a certain product, it will be important to understand the role that product plays in the total customer relationship before taking any action.
For example, falling revenues as a result of reductions in debit interchange should not necessarily be replaced by a collection of other fees on the same account. Pricing across the relationship in such a way as to manage medium-term profitability rather than short-term gain will become much more important. These kinds of priorities demand an enterprise view of customer relationships and a disciplined, analytically driven approach to customer management.
Customer-level scoring models are an important component, but what’s really critical is that the decisions you make be the right decisions for the whole relationship, not just for a given product. FICO has built action-effect models that have proven particularly effective in driving relationship-based product selection and recommendations at client financial institutions.
The new financial environment gives banks even more impetus to proactively leverage customer relationship data to deepen their relationships with customers. Deeper relationships will win and share of wallet will become the name of the game, which will facilitate better insights that will benefit institutions at all points in the customers’ lifecycle.