The following is a guest post by Mac Thompson, the founder and president of White Clay
The financial services industry is still trying to catch up as the economy is adjusting to the post-pandemic hangover. Most economic indicators continue to signal a recession: inflation remains high, triggering an unprecedented response from the Federal Reserve and consumer debt is increasing, impacting financial institutions’ liquidity, capital, and earnings.
Meanwhile, consumer behavior is changing, with many expecting a personalized, branch-like experience on digital channels. Financial institutions will need to find a way to increase deposits and revenue without losing sight of their accountholders’ financial needs during these challenging times. The answer to achieving all this is data.
Banks and credit unions sit on a mountain of raw transaction data, which is highly variable and does not inherently provide actionable insights. Building a clean data environment will enable institutions to analyze clients’ banking activities and get a clear understanding of their individual needs.
By leveraging machine learning tools and trend analysis algorithms to ‘smarten up’ the raw data and categorize it by bank channel, vendor, product (e.g., insurance, utilities, payroll, loan payment, merchant sales etc.) and size, financial institutions can build one coherent and easily digestible version of the truth.
From there, financial institutions can have a clear view of their clients’ banking relationships and apply segmentation. They can segment customers by households (e.g., a married couple), personal attributes like demographics (i.e., age, gender, ethnicity, occupation, income etc.), defined geographical boundaries (i.e., region, state, zip code etc.), lifestyles (i.e., personality, interests etc.) and profitability characteristics (i.e., deposit balances, loan balances, estimated revenue, profitability, and cost).
Institutions can also group together clients who behave similarly, using behavioral segmentation (i.e., transaction, product, and service use data). Clients’ behaviors – such as high debit or credit card use, increasing ATM use, low branch deposits, etc. – indicate how they derive value from their banking relationship.
Segmentation will allow financial institutions to find out who their customers really are and calculate the Customer Lifetime Value, noting each account holder’s contribution to the bottom line and identifying the revenue drivers. Institutions will also identify where the majority of their deposits sit and which are most at risk, which is especially important in the current economic environment.
Lastly, banks and credit unions will find out which accounts hold primary, secondary, or unengaged relationships with the institution. Knowing all this information will help institutions determine how their banking relationship impact shareholder value and lead to financial opportunities.
Institutions will then be able to use these insights to design, execute and manage a playbook to optimize bank behavior for each segment, leading to a boost in shareholder and client value, ultimately increasing revenue and profitability.
For example, banks and credit unions could offer temporary discounts to boost engagement and improve customer satisfaction, turning secondary or unengaged relationships into primary ones. White Clay research found that clients with primary operating relationships generate 3.2x revenue and 8x lifetime value. Institutions could also raise interest rates on deposit accounts, making sure clients don’t flee for better offers elsewhere. Moreover, banks and credit unions could use the smart data for regulatory reporting, market planning, marketing targeting and for bankers’ education and coaching.
By cleaning, analyzing, and segmenting the customer data they already have, financial institutions will be able to use this treasure chest of insights to take evidence-based decisions and strategically optimize capital. This will help them navigate the choppy waters ahead, making sure they come out as winners when the economy settles, and will lead to more meaningful conversations with their account holders, resulting in higher levels of customer satisfaction, and increased retention.
