Banks Using Analytics to Boost Customer Retention

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There has been a sea change in how banks view their customers. For a time banks focused on finding the least expensive methods of conducting banking transactions -- up to and including having folks do it themselves, via Web sites and ATMs. But a funny thing happened on the way to cost efficiency. The opportunities to sell people stuff dwindled, right along with customer loyalty.


In more recent years, banks have aspired to be less like Wal-Mart and more like the high-end retailers that earn repeat business by remembering their customers' birthdays, names of their pets and favorite colors. For commodities like groceries, folks shop on convenience and price. For more personal and higher-ticket items, they want to feel special.


Problem is, banks have struggled to make their customers feel special. According to an IBM survey published in late 2006, financial institutions have largely failed at making "emotive" contacts with customers -- though they've been more successful at "rational" aspects of relationships such as correcting errors and providing multiple banking channels. Two-thirds of U.S. consumers said they didn't feel valued by their banks.


Banks are beginning to look at analytics tools in an effort to improve their customer retention efforts, according to a recent Bank Systems & Technology story. Wachovia, for example, uses such tools to create attrition models to evaluate the risk of customer defections. This way, says the director of Wachovia's statistics and modeling group, the bank can "reach out to (customers) before the need arises."


Alenka Grealish, managing director of the banking group with the Celent consulting firm, says that while financial services companies have traditionally collected piles of customer data, the information is of little use without an infrastructure in place to determine the customer behaviors they want to predict and the appropriate responses to those behaviors.


As banks update their legacy systems, experts insist they must consider collecting the right types of customer data, not just completing basic banking transactions. Says Michael Nicastro, chief marketing officer with core systems provider Open Solutions:

Our bank clients are competing with PayPal now. PayPal analyzes every transaction in real time, and they know exactly what to say the next time they deal with a customer. Their core information is good. Getting this information is the key before a bank can even start to use the analytics.

Cincinnati's Fifth Third Bank is tweaking its infrastructure to centralize its customer data and make it accessible to the different banking channels, a move that is "paying huge dividends," says its director of customer experience. Fifth Third also created a tool that helps target marketing offers for individual customers.


Taking a slightly different approach, First Citizens Bank uses an analytics tool from location intelligence provider MapInfo to help it create marketing strategies at the branch level. The tool has helped the bank's branches streamline their goal-setting processes and to determine whether they should focus more on customer acquisition or customer retention.