The Open Banking Era – Only Smart Marketers Will Prevail
Customers loss of trust paired with new regulations– ordering on customer data sharing – are serious problems for traditional financial establishments. It’s time for banks to turn their efforts into data-based marketing
It’s almost the ten year mark for what is considered the biggest financial catastrophe since the big depression of the 1930’s. The crisis in the subprime mortgage market in the US shocked the entire global financial environment. Top financial houses, like investment firm Lehman Brothers or UK bank Northern Rock, collapsed. And the shockwaves, almost a decade after, are still being felt in the banking sector. Customer confidence in banks and bankers is still shaken from the effects of the crisis, and a survey has found that only 39% of consumers say they have complete trust in banks with branches, compared to 44% who put their trust in the relatively new model – the internet-only banks. Armed with this information, traditional banks need to find new marketing strategies to keep these indecisive customers happy, before they are lapped up by these new, online challengers.
New Regulations Ahead
In the past, consumers tended to stick to a bank or even a specific branch, even if they were dissatisfied. This inertia in the industry left room for banks to not focus on sustaining close customer relationship. But this is quickly changing. Since last April, a record number of customers switched to a different provider. These new digital banks – offering tailored services such as retail discounts and financial advice to help customers save –found a new generation of brand-agnostic customers happy to switch providers if necessary. In fact, marketing services company Kasasa found that eight out of ten millennials would switch banks if a different bank offered better rewards. The emergence of these new, agile alternatives means that older banks are now having to compete on a more open field. And after many years of failing to invest their attention into marketing and maintaining customer relationship, it’s not going to be an easy task.
This is likely to worsen in the wake of the new looming regulations. The Open Banking Initiative and the second Payment Services Directive (PSD2), which goes into effect January 2018, will force banks to share customer account data with third parties (with the customer’s consent) and open up the back end of their programs to other external developers. Customers will be able to compare the value that each financial services company offers, without having to shop around. It also means that third parties will be able to carry out money transfers without having to go through the bank, so electronically moving currency around will be even easier. In simpler terms, competition will be democratized and made extremely fluid.
Traditional banks will have to respond to this new, more consumer-focused market, and develop successful marketing strategies to make sure they do not lose customers. The main advantage that online banking providers offer is a tailored, personalized approach. No longer able to rely on quality or brand loyalty to retain customers, old-school banks need to offer real value in a personalized way that appeals to each customer as an individual.
Data is Key
But how can banks tell which offers and strategies are the most effective for each customer? The best way to effectively implement personalization is to make the most of the available customer-data, which will soon also be available to their competitors. Marketers can parse the customer base into distinct categories, such as account size or time spent as an account holder using information about their customers. Once a category with key common purchasing and/or demographic traits is identified and isolated, marketers can develop a variety of different, personalized marketing strategies that fit their customers by trying different strategies, such as promotions, personalized offers or reduced charges after temporarily dividing this segment into a few sample groups. Banks can measure the revenue from each strategy through customer transactions, which can inform marketers on the approach for particular types of customers.
AI programs can make smart observations about the results of these trials, isolating not only the most successful strategies, but also the types of customers who respond best to each strategy. Relatively large starting segments can be further narrowed down, at the same time as marketing strategies are perfected.
The way established Financial Services firms respond to marketing and customer engagement is key for survival. Fintech companies have focused on the value they demonstrably add to customers. Traditional players must improve at articulating their proposition to customers – personally, emotionally, and intelligently. With large amounts of customer data available, traditional banks have the resources to do this too. By applying AI and data analytics to their marketing strategies, banks can gain deep insight into what is most useful for clients. They must develop their own personalized services and use this insight to create meaningful relationships with their customers.