It's Time for Banks & Credit Unions to Embrace Change

As I travel across the country, visiting financial institutions in the midst of their annual planning cycle, it is like a trip down memory lane. While the technology and distribution channels have changed, banks and credit unions are still faced with the many of the same strategic challenges we talked about 20 years ago.

As a long time banker and friend, Michael Bencic said, "Improving the customer experience, embracing change, deriving value from data, building strategic partnerships, leveraging technology, ensuring privacy and security, cutting costs and generating fees is like deja vu all over again."

I agree. While the details behind these goals have changed, why have the overarching themes stayed the same? Is it because the planning process usually begins with broad financial requirements and many involved in the process simple dust off last year's plan and hit the restart button? Or is it because, despite a lot of talk around embracing change, the industry (and the regulators) frown upon the potential risk associated with innovation and doing things differently?

In a new report just published by KPMG entitled, Reshaping Banking in a Dynamic Business and Regulatory Climate, the author emphasizes the importance of getting out of 'survival mode' and embracing change, creating new strategies, crafting new infrastructures and focusing on the customer. While there is no denying the importance of each of these issues, this report is not much different than similar reports I read in the 1990's. The primary difference is that the risk of ignoring these issues has far greater implications.

Dusting off last year's planning document and making small alterations is not enough. It will take more than simply finding ways to 'do more with less', cost-cutting and operational improvement. According to Brian Stephens, national leader of KPMG's banking and capital markets practice and author of the report, "There must be acceptance among the entire leadership team that the rapid, unpredictable, and profound change we are witnessing is structural -- not cyclical." He continues, "The debate in not about the need for change, but what changes should be made."

As in the past, the issues that must be addressed are many. The difference is that today, while the issues may look similar to the past, the issues are more interconnected than ever before and the environment where these changes need to be made is evolving at breakneck speed.

The KPMG report provides a perspective into the following critical areas as banks and credit unions plan for 2014 and beyond:

• Culture of embracing change – In today's environment, change is constant, so banks must be nimble and innovative. "Banking leaders must choose to adapt and evolve, or risk irrelevance," says KPMG. "In the future, when banks look back on this time of change, an organization's resilience will not be measured by how much adversity it endured throughout the financial crisis and this period of recovery; rather, it will be measured by how well it adapted to it." The challenge is a tradition of rigid internal resistance to change and a consequent inability to execute. The change in culture must come from the top, starting with the board and senior leadership. And it must me more than just words.
   
• Focus on customers, not products – To increase revenue, banks must determine the appropriate customers to target and how best to package the products and services for which they are willing to pay. The challenge, related to the first issue above, is that banks have a legacy of talking to the masses and giving services away for free. Without better segmentation and an understanding of what customers will pay for, the impression of any revenue initiative will be negative. Alternatively, bundling services such as mobile bill pay, alerts, ID protection, payment services, etc. using a customer-centric perspective can results in a win-win.
   
• Deriving value from data – Banks and credit unions that can extract more value from all available data sources to develop a better understanding of customer needs can serve customers more effectively and profitably, while developing a competitive advantage and staving off threats posed by new market entrants. The challenge is that all internal product-centric data silos (retail deposit, credit card, small business, mortgage, commercial, etc.) must be integrated to provide a single customer view. Once data is integrated, the customer insights need to be leveraged for better product development, new cross-sell and revenue opportunities and reduced risk.
   
• M&A/Alliances – Despite many predictions around increased M&A activity in the past that have not come to fruition, the environment today is prime for consolidation due desires for geographic expansion, product enhancement and cost reduction. The immediate issue is that organizations need to strategically evaluate whether they are a buyer, a seller, or neither, while also examining the possibility of developing alliances where strategic fit warrants.
   
• Technology – At a time when costs are being cut, the appetite for investment in technology is usually tainted by the memories of previous IT upgrades that never met expectations. Nonetheless, the ability to effectively support the integration of new delivery channels and a customer-centric view leaves most banks no choice but to upgrade aging infrastructure. "The promise of harnessing technology advances can help banks streamline operations to reduce operating costs, connect future and existing customers across a multitude of new and emerging channels, tap new revenue streams, enhance customer loyalty, and build better defenses against cybercrime and denial-of-service attacks," says KPMG. In the end, ignoring or putting off the inevitable is a risky strategy, especially with the risk of noncompliance, losing market share or not being able to support an ever more important mobile strategy.
   
• Cybersecurity – The increasing scope, frequency, and sophistication of cyberattacks on banks means institutions need to be better prepared to address a risk with implications that both enormous and unknown. With the public's trust in banks finally recovering from the impact of the financial crisis, this trust can be shattered if life savings (or even access to funds) are at risk. In addition, there are some who believe that we are at the tipping point in the acceptance of mobile banking (and mobile payments) without greater ID protection and mobile security in place. 2014 will be a year when most of these issues need to be addressed (if not sooner).
   
• Capital & Compliance – Banks will continue to need to prepare for stress testing, while also monitoring various capital adequacy and liquidity requirements and associated staffing and compliance costs. For many banks, the issue of capital adequacy may be secondary to the ongoing costs and internal 'friction' that is associated with the added staffing associated with meeting regulations
   
• Accounting for Credit Losses – Banks will need to understand revisions to accounting for credit losses on financial assets and other rules. These changes could not only have a significant impact on an institution's reported earnings, but also on its capital ratios due to the need to carry larger loan loss reserves.

While the list of issues may not be new to any banker who has been in the business more than 6 months or more than 20 years, the risk of not proactively addressing these issues has never been greater. So, if you are in the midst of planning for 2014, make sure your team is just not listing these in a SWOT analysis without building strategies to address the risks and opportunities. If you are 'done' with the formal strategic planning process, it may make sense to review the strategies and tactics planned for 2014 to make sure some version of 'status quo' is not your plan.

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Using Big Data To Predict Online & Mobile Banking Needs

Investing in online and mobile channels was not intended to simply provide additional channels for customers to access their accounts. The promise of reduced costs, increased cross-sales and enhanced service was the objective for most banks.

The good news is that online and mobile channel adoption is very high, meaning that customers are downloading mobile banking apps to their phones and creating online access points at a high rate. Unfortunately, that’s where the momentum has stopped.

Third in a Series on Big Data in Banking

Instead of migrating more expensive interactions to less costly channels, consumers have actually increased their total interactions. “In talking to all types of banks across the globe, we’re hearing a similar story – customers are signing-up for online and mobile banking, but calls into the call centers are not decreasing at any noticeable rate,” says Ido Ophir, head of products at Personetics. “People are still calling with transaction-related questions and even account-level questions.”  

A recent industry report revealed that more than 30 percent of customer service calls were preceded by an online visit. That’s a large percentage, especially when the vast majority of these questions can easily be answered in the digital self-services channels.

Based on the numbers being reported by large banks, while they have several million signed up for digital banking services, less than 10% are using mobile banking in any real capacity each month. So, while banks have done a great job of signing up consumers for online and mobile banking, customers are not fully leveraging what these self-service channels have to offer. The utilization problem actually goes even further - most customers log in to check balances or look at individual transaction details, but only a very small percent use in-depth or multiple features like funds transfers and check image deposits on a regular basis.

Source: Board of Governors of the Federal Reserve System  - Consumers and Mobile Financial Services (March 2013) 

The question is, what’s stopping them?  Is it that:

• They don’t want anything else? . . . Show me the balance and I’m done.
• They can’t find what they’re looking for? . . . They get frustrated and leave.
• The service they want isn’t offered? . . . Only high-level transaction inquiry; no detailed information.
• They aren’t sure what they’re looking for? . . . Expecting better personal guidance.
• They don’t know what to do or where to go? . . . Poor user interface.

Ophir from Personetics added, “Whatever the reason, or combination of reasons, it’s costing banks money because customers are still picking up the phone to call customer service. To realize the full benefit of digital self-service channels, and save money, financial institutions need to personalize the digital experience by immediately presenting the customer with the most relevant insights, issues and services they need to know about at that moment in time and offer the right tools and information to resolve problems quickly or walk them down an intuitive path to answer their own questions.”

Here are five top tips for simplifying the customer journey and increasing digital self-service channel utilization:

1. Make your mobile and online channels SIMPLE to use. Make the navigation intuitive for your users.
2. Bring relevant issues, features and services to the forefront. Don’t make customers search for answers or information. The experience should be effortless.
3. Make smart recommendations before a problem arises. As soon as the customer logs in, alert them to a potential problem (i.e., low balance, unusual transactions, spending patterns trending differently than previous months, etc.).
4. Let your customers be in control. They want to control the time, place, channel and information that they share with their bank. Give them that power.
5. Make the experience seamless across all your self-service channels. Your customers use various channels when contacting you depending on their preferences and circumstances. Make sure they have the same experience every time.

Personetics has built a packaged solution specifically for the banking industry that predicts customer intent and helps banks convert passive digital adopters into active digital customers. The customer experience is intuitive, convenient and always relevant. Personetics helps its clients reduce overall service costs and increase share of wallet. The solution can be seamlessly embedded in any existing banking digital self-service channels to provide customers with a personalized and consistent user experience.

Using Big Data to Predict Needs

Each time a user log in to one of a bank's or credit union's digital channels, Personetics reviews the customer's information and highlights what’s important to them at that immediate moment such as reminding them of an upcoming bill or that their balance is trending lower than usual. These insights are tightly coupled with personalized and relevant calls-to-action such as establishing automatic bill payment or overdraft protection on a checking account.

Personetics also analyzes individual items such as transactions. It will offer customers robust details regarding an item and provide contextual assistance that guides the customer through the necessary service process whether that’s disputing a charge or simply trying to remember it.

Personetics addresses the information silo challenge that many banks have by leveraging readily available banking data, the context of specific customer interactions, individual customer activity and crowd behavior to accurately predict customer intent. The solution comes pre-loaded with a comprehensive library of banking-specific analytics and solutions – with more being added every day.

The system “learns” from individual customer interactions, as well as crowd behavior, to present customers with a personalized and prioritized list of “need-to-know” topics every time they log on. The fact is, customers don’t always know what to ask, they want someone to take care of them and tell them that everything is ok or alert them to potential problem areas. 

Intelligent assistance provided at the moment of interaction eliminates unnecessary calls into call centers. In fact, some Personetics’ customers have seen more than 90% call deflection when Personetics has been invoked.

Using patent-pending technology, Personetics maps to a bank's existing data and augments that with industry and proprietary databases and crowd sourcing analytics to create a robust view that can help to predict customer intent.:

• Smart Hints & Data Enrichment – includes prior interactions, bank documents, industry databases, and geolocation. All of this data provides a complete picture of a customer and allows Personetics to present the most relevant solutions possible.
• Out-of-the-Box Knowledge Model – Personetics has built a solution that understands financial services – the processes, technology and language of this industry. They’ve already developed a robust model that defines accounts, cards, transaction types, etc. so you don’t have to. This out-of-the-box functionality allows for quick implementation.
• Pre-built Processes and Solutions – Personetics spent nearly two years building the business logic that makes up their comprehensive solutions library. This means that banks and credit unions don’t need to dedicate a team of developers and thousands of hours to creating the vast amount of scripts that make Personetics “intelligent.” They’ve included the most common banking-related topics so that on day one, customers are interacting with an intelligent virtual personal banking assistant who can solve their many of their problems.
• Profile-based Prediction – Predictive algorithms are used to determine the most likely solution to solve the customer's issue or answer a question. The process is repeated until it comes to a successful conclusion – either solving the issue or deciding at what point to hand over the customer to a live agent.
• Search and Aggregate Transaction Data – Many of the questions require customers to look for data, filter specific transactions and calculate results. Personetics does this in real time using their own server.

Using the process above, Personetics can also be used to introduce new products and services to increase a bank’s share of wallet. Using the same predictive engine and available data, the solution can make personalized offers to customers at the moment of truth – when a customer is actively engaged with an institution. 

Data shows that customers are more likely to sign up for a new service or product when they have a live example of how your bank can simplify their life. Shortly after Isracard, a major international card issuer, deployed Personetics to offer up-sell recommendations, they found that nearly half of customers accepted the new product or service – an astounding statistic that is well above the current industry average.

If banks and credit unions don’t step-up their game they’ll lose mind share with their consumers. There are more and more options for digital users outside traditional banks and credit unions to manage their overall finances make payments and save money electronically. Those new entrants are offering state-of-the-art digital experiences, which is enough of an enticement to win over dissatisfied customers.

For a quick video on how the Personetics solution works, click below:

Additional Resources

Israeli Credit Card Issuer Uses Data to Deflect Call Center Calls - American Banker (February 2013)

   

Personetics Predictive Customer Service - The Nilson Report (March 2013)

Mobile Banking Features on B of A’s Drawing Board - American Banker (April 2013)

Consumers and Mobile Financial Services - Board of Governors of the Federal Reserve System (March 2013)

Report: 46% of U.S. Bank Account Holders Will Use Mobile Banking by 2017 - TechCrunch (August 2012)

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