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Finance

MASTER YOUR DATA: TACKLING CUSTOMER RETENTION CHALLENGES IN FINANCIAL SERVICES

Helena Schwenk, Market Intelligence Manager at Exasol

 

Customer retention has always been crucial to financial institutions (FSIs), with the majority (80%) of senior FSI decision-makers in our recent survey affirming customer loyalty as a key priority.

However, the truly unprecedented and unforeseen events of 2020 have created a fluctuating backdrop of behavioural shifts and economic constraints that has amplified the value of robust customer relationships. In this increasingly digital-first world, where face-to-face interactions — often the best way of building trust with customers — have been further reduced by the impact of the pandemic, FSIs are left hunting for new avenues and ideas. As McKinsey testifies, nowhere is this more important than in retail banking.

As more customer interactions shift online, the market is flooded with new digital products and services from digital disrupters whose agile and diverse digital sales and marketing strategies, amplify the challenge of digital transformation for more traditional legacy FSIs.

We’ve become used to the new challenger banks disrupting and transforming the retail banking sector but interestingly the pandemic has actually seen a renewed consumer interest in traditional brands. I recently hosted a podcast on the topic of data leadership in financial services. One of the key takeaways from that discussion is the way the pandemic has heightened customer’s focus on trust and confidence, which has seemed to favour traditional banks and created customer loyalty consequences for challenger banks.

To find competitive advantage and move their digital business forward, FSIs of all types must unlock the true potential of their data. Thanks to its large number of customer touchpoints, the financial services industry generates an especially high volume of data. Handled well this data is enormously empowering. But high data intensity and the prevalence of data silos, means that poor attempts to manage and use data often create more problems than they solve.

Mastering financial services data to drive customer loyalty ultimately requires FSIs to focus on data analytics as a means to better connect their data and uncover the valuable insights needed to improve business operations, develop new products and services and, crucially, enhance their customer experience.

 

The challenges of customer loyalty

According to Bain & Co, the value of customer loyalty is exponential. Increasing customer retention by as little as 5% can boost profits by up to 95%. That said, no attempt to reinforce customer relationships is ever easy.

More than half (54%) of respondents in our survey believe customers have higher expectations around their experience when interacting with FSI organisations. This makes loyalty increasingly difficult to earn and maintain. Strict regulations such as PSD2 and GDPR also impact FSIs ability to develop and improve customer loyalty initiatives according to 41% of respondents.

These loyalty challenges if not successfully addressed have consequences: the impact on lost opportunities for customer engagement and advocacy; lost revenue generating opportunities; and higher levels of customer churn are significant. This last point is particularly pertinent considering that, according to Invesp, the cost of acquiring a customer is five times more expensive than selling to an existing one.

Therefore, one of the key areas where data and analytics can benefit customer loyalty initiatives is by giving a deeper understanding of customer lifetime value and allowing organisations to interpret and measure the loyalty of customers and predict customers’ future behaviour. Data analytics also allows FSI to actively identify clients at risk of attrition by using behavioural analytics to generate personalised customer action plans – which they can then choose to implement, tailored to the client’s specific needs.

 

Signs of maturity

Overall, there are encouraging signs of maturity in terms of FSIs adoption of data analytics compared to other industry sectors. Our survey found 97% of FSIs using predictive analytics to help them drive better customer insights and loyalty initiatives, with three fifths (62%) using it as a key part of these programs.

However, the data shows UK FSIs lagging behind their US counterparts. In the US 93% of FSI’s departments have embraced data analytics, with over half of these (51%) encompassing the entire workforce; however, in the UK only 37% of the workforce is fully embracing data analytics.

Clearly there’s much room for improvement when it comes to fostering a data-driven

culture in FSI organisations. Research by McKinsey also supports this trend. It found that despite more than half of the banks it surveyed having analytics is a strategic theme, the majority struggle to connect the high-level analytics strategy to a targeted selection and prioritisation of use cases, and to implement them in an orchestrated way. This is understandable. As FSIs step up their sophistication in data analytics, the skills and demands required mean that some struggle or are challenged to leverage them effectively.

The biggest challenge FSI organizations face when implementing data/analytics into customer loyalty initiatives is most commonly their inability to use advanced analytic methods for their desired analyses and activities and/or a lack of access to external and more detailed customer data. By adopting better analytics tools and a more progressive data strategy and culture FSIs can access data that was previously unattainable.

If 2020’s pandemic has made one thing clear, it’s that business conditions can flip very quickly, meaning the infrastructure to support fast decision-making needs to be more responsive than ever. Adapting and innovating to provide products and services that customers need during these uncertain times, using insights to de-risk and accelerate offerings helps to secure their loyalty now and beyond.

 

Revolut’s data revolution 

Revolut is a disruptor bank that’s showcasing the growth potential of a truly data-driven organisation. As one of the biggest players in the crowded fintech ecosystem it has approximately 13 million global users, meaning it has large datasets from several sources. In order to achieve incredible granular personalisation for its customers it needed to reduce the time it took to analyse all this data.

In fact, Revolut’s data volumes had increased 20-fold in the space of one year, which coincided with the need to maintain circa. 800 dashboards and 100,000 SQL queries every day across the business. Action needed to be taken to support its need for a flexible, hybrid cloud environment data analytics platform.

With an in-memory data analytics database as a central data repository, time is now saved across multiple business departments with queries and reports completed in seconds rather than hours. As a result, Revolut has experienced query rates that are 100 times faster than its previous solution – greatly improving decision making processes.

Analysing large datasets spanning several sources drives customer experiences and satisfaction. The business can now define tens of thousands of micro-segmentations in its customer base with the ability to explore payments data, debit card statements, customer demographics, mobile transfers and transaction and point of sale. It’s also seeing an increase in sales and customer retention as this has led to ‘next product to purchase’ models being built according to this unique insight.

Importantly, it’s not just data scientists that have access to the central data repository either, but everyone in the organisation. Key performance indicators (KPIs) for each team are constructed on this data too, meaning every employee has an understanding of the company’s goals, performance and progress, and can see industry trends and insights based on the data, which they can act upon.

 

Predictive power

With customers able to choose between tech giants, mobile-only banks and well-known financial institutions that have been around for well over a century, data has an incredibly important role in how all of these organisations can attract and retain customers and strengthen their loyalty through great user experiences, tailored products and innovative services.

Financial services organisations can gain competitive advantage during these challenging times with a progressive data strategy that operationalises and governs data, and empowers users to make fast, informed decisions.

The path to success is the same for challenger or legacy banks – provide services in a clear, timely and satisfying way for customers.

Underpinning this has to be the right analytics database that can support your needs, regardless of whether you store your data in the cloud, on-premise or in a hybrid environment. This is central to knowing your customers better and predicting and detecting customer trends to improve experiences. In turn, this will increase customer loyalty.

 

Finance

FIVE TRENDS THAT WILL IMPACT THE FINANCIAL SERVICES INDUSTRY IN 2021

Ian Johnson, Managing Director Europe at Marqeta

 

Coronavirus has shaken things up across all industries, and financial services is no different. This year, we are likely to see a much more risk averse industry, as fintechs and banks alike move into survival mode. Yet, this will also spur innovation. The shift away from cash will give a shot in the arm to digital payments, while lenders in particular will have to get creative to balance their risk against the need to dispense funds.

It’s likely to be an interesting, albeit bumpy, year. Here are five core trends that I see having a major impact in 2021.

 

Lenders will seek improved visibility to combat delinquency

An economic downturn unfortunately means higher delinquency rates for lenders. But businesses – in particular, SMEs – need liquidity to survive, now more than ever. To balance risk with need, more lenders will focus on enabling visibility and control after a loan is dispensed. Instead of issuing funds to a bank account, loans will be dispensed to virtual cards or wallets, allowing lenders to track exactly how and where money is spent. This way, lenders only release funds as they are needed – rather than in one lump sum.

Ian Johnson

They also have the power to approve or reject payments in real-time, based on whether the request is aligned with the terms of the loan agreement. For instance, if a company has secured a loan for IT equipment, but attempts to spend it on office refreshments, the lender can make an instant decision to permit or deny the transaction based on geolocation and other transactional data. So, borrowers should ready themselves to be much more transparent if they want to secure loans in the future.

 

Embedded payments to become more commonplace

Embedded payments has been around a long time – just look at pioneers like Uber, where payments are so integral to the customer experience that it doesn’t even feel like you’re paying anymore. In the next year, we will see this expand, with a wider variety of organisations making payments a core element of their customer experience strategies. This trend will be coupled with a shift towards transparency and privacy, where people willingly exchange their data for an improved, personalised experience.

This is something consumers do readily in many areas of online life already – shopping, social media, and so on. In 2021, we will see more banking and payment services operating off the back of this same exchange. In return for data, customers will be given smoother, more tailored payment experiences.

 

Use of cash to drop below 15%, falling from 23% of all payments in 2019

The UK and Europe’s departure from cash will continue to evolve into next year. Physical cards will begin to give way to a rise in digital payment methods – virtual cards, digital wallets, and the likes of Apple Pay and Google Pay. Banks will need to prepare for this shift; hopefully learning their lesson from the early months of the pandemic, where 88% were overwhelmed by demand for online and mobile banking. This means modernising behind the scenes, using technology to improve and streamline payment processing. Time and money also need to be invested into educating and supporting businesses and individuals that going cashless could leave vulnerable, such as small merchants and elderly people. Until this has been addressed, going cashless risks leaving the most vulnerable in our society behind.

 

Back-end bank modernisation set to continue

Traditional banks recognise that they need to be able to innovate faster, particularly on the front-end, to compete with the new waves of digital banks and fintech entering the market. While we will see continued modernisation on the back-end, as they try to unpick the complex web of legacy systems they sit upon, I would not expect this issue to be fixed in a year. Instead of taking on the risk of full migration, many banks will ‘hollow out’ certain services – leaving core services in place that are too risky to move, whilst shifting newer services onto more modern platforms to avoid coding them into legacy systems.

This will create the building blocks to build a standalone digital bank within a bank, allowing them to modernise the entire stack and then incentivising customers to make the switch. An example of this approach is Goldman Sachs’ digital bank Marcus, which has debuted to strong demand – it’ll be interesting to see if others follow suit.

 

Alternative lenders will open up the market to support post-COVID-19 recovery

The process of securing a loan has always been quite painful – involving lots of self-reporting, paper statements and credit reports. And it could take days to find out if you were successful and then even longer to access the funds. Thankfully, it is looking like those days might be coming to an end with the emergence of a new breed of alternative lender focused on transforming specific niches of lending. Take SME lending, which has traditionally been regarded as high risk/low rewards and neglected by traditional lenders.

New alternative lenders, such as Capital on Tap, are changing the stakes. Using data and modern payment platforms, they are able to make loan decisions in minutes, not months. We are seeing the same in Point of Sale lending with companies like Klarna – now, you can apply for a POS loan and get approved in seconds. These companies will set the standard in terms of expectations around lending, forcing bigger lenders to follow suit and helping to transform the loan experience.

 

Fintechs to continue leading front-end innovation

Fintechs hold the monopoly on defining what ‘good’ looks like in terms of features. From money management tools, to saving incentives, fintechs have the agility to create new, attractive products with a speed and creativity that traditional banks simply cannot match. However, true success stories of fintechs paving the way to long term profitability are rare. Established, traditional banks still hold all the capital and most of the main checking accounts, making it harder for fintechs to really get ahead. This is likely to continue into 2021, but we are seeing signs of convergence, with fintechs acting as the front-end for customers while banks provide capital in the background.

 

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Finance

2021 IS THE YEAR FOR DIGITAL WORKFORCE MANAGEMENT IN FINANCIAL SERVICES

By Tyler Suss, Product Marketing Director at Kofax

 

Even before the pandemic, the UK financial services sector viewed digital transformation as a high priority. Though adoption of robotic process automation (RPA) technologies was already underway, the pandemic truly upended operations.

When health mandates closed offices, the ability to manage operations became more challenging and complex. Many processes still aren’t fully integrated or automated, leaving remote workers with the challenge of having to bridge the gaps in fragmented and often labour-intensive processes. More than ever, they need a digital environment in which back-office processes are automated end-to-end to be productive.

Consumers, too, are learning new ways to manage financial transactions in a COVID-19 world. They’re becoming more comfortable with mobile banking and cashless payments, behaviours likely to stick once the pandemic ends. As KPMG notes, improving productivity and meeting new customer expectations for engagement are the sector’s top priorities for the coming year.

That means firms will need to move even more quickly to digitally transform their operations if they want to remain competitive. In 2021, intelligent automation and digital workflow transformation will become the main vehicles for driving employee productivity and customer experience.

 

Tyler Suss

The Next Priority: Digital Workforce Management

There are many reasons why an intelligent automation program combined with digital workforce management will accelerate digital transformation, but the four that follow build a strong case for adopting this approach in 2021.

 

  1. Workforce Orchestration

RPA caught on like wildfire because it made automating routine, mundane tasks simple and fast. Motivation-killing work like monotonous, cut-and-paste data entry is now a drudgery of the past. What’s next? For savvy financial firms, 2021 will be all about harnessing their RPA automation expertise—and leveraging it with complementary technologies like process orchestration and document intelligence to automate their mission-critical business and create high-value workflows.

With an open intelligent automation platform, financial firms will be able to orchestrate work across people, in-house technologies, and third-party RPA bots. They can assign the right worker, whether it’s a human or digital worker, to the right task at the right time, while maintaining total control over the complexity and cost associated with a given task or project. Additionally, they can take advantage of more advanced AI technologies as they emerge.

 

  1. Risk Management and Security

In financial services especially, it’s crucial that automated processes meet audit and compliance requirements. Security is also of paramount importance, with risk mitigation being a high priority. Yet many firms don’t properly consider the security risks associated with RPA, such as the access software robots have to sensitive data. As human and digital workforces merge, a single governance environment is vital.

Central control allows managers to synchronise software robot releases with broader IT system updates, minimising disruptions and failures among the digital workforce. Robust digital workforce management software lets companies secure and monitor how information is used by all resources. The integration of identity management with financial security solutions supports unified governance over the access human and digital workers have to sensitive systems and applications.

Financial firms also need a way to address potential misuse of digital worker credentials. A sophisticated solution supports the segregation of duties, in which functions are spread out across people and departments. Managers can ensure a particular individual doesn’t have access to too much sensitive information based on the combination of digital workers they oversee.

It’s also important to remember that a digital workforce management solution should enable the organisation to manage and enforce policy controls throughout the entire lifecycle of the digital worker, from creation all the way through decommissioning. Control over the entire lifespan of digital workers enhances security, compliance and auditability.

 

  1. Total visibility into operations across the firm

In order to drive continuous improvement, achieving—and maintaining—total visibility into all resources performing tasks within a process is essential. Financial services firms need to be able to answer such questions as:

What tasks are being worked on?

What’s in the pipeline?

How does process performance compare with KPIs?

An intelligent automation platform including process discovery and visualisation provides insight into business processes across the enterprise. Executives and managers get a holistic view overcoming the boundaries between departmental silos, making it easier to identify opportunities for digital workforce automation that can have a greater impact across the entire firm.

 

  1. Scalability

 The requirement to keep pace with changes in consumer behaviour and agile competitors has only intensified during the pandemic. Scalability will be more urgent in 2021, and yet the majority of organisations have struggled to expand their automation initiatives. The biggest barrier is process fragmentation, in which resources performing the work, including automation and digital resources, exist in silos.

Fragmented operations increase overhead costs and eat into the ROI on digital transformation investments. An open, integrated platform enables common governance and permits financial firms to scale rapidly.

As the pandemic wanes, firms need to reimagine customer journeys and rethink operations to improve customer and employee experiences. The successful ones will build upon their RPA capabilities and rely on intelligent automation digital workforce management to foster more agile and competitive ways of working and thinking so they can work like tomorrow—today.

 

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