Can Big Data and Payments Drive Loyalty in Consumer Banking?

With less than 3 weeks left to Sibos I am eagerly awaiting the start of the conference. One of my favorite events within the event is Innotribe - a forum for forward thinking debate, discussion on innovative technologies, learning about new solutions, and collaboration through exchange of ideas. This year I am intrigued by the intersection of big data (and large amounts of little data) with the payments business, and will follow the conversation at Innotribe. Specifically, my interest is this: can the payments business become the foundation for growth across the bank - to both retail and business segments? In this blog post I'll address the retail banking customer segment, and address the business segment in a subsequent post.

 The Customer Loyalty Conundrum

Banks face a customer loyalty challenge. Research from Capgemini and the European Financial Marketing Association (EFMA) indicates that consumer customer loyalty risk averages 40% globally. Four out of ten customers are unsure if they will remain with their bank for greater than one year. Furthermore, 53% of customers at risk cited ‘quality of service’ and 49% stated ‘ease of use’ as the primary reasons they would switch banks. This counters the traditional wisdom which places a lack of trust in banks (following the financial crisis) and fees as the dominant issues driving customer churn. The Capgemini/EFMA study correlates closely to unrelated research from Celent into the uses of Big Data in financial services. Fully 75% of bank respondents identified marketing and customer experience as areas where Big Data projects would be deployed. With the cost of new customer acquisition being higher than customer retention, banks clearly have the need to increase customer satisfaction and loyalty. Interesting. Does the payments business connect the two trends? 

Big Data and Payments to the Rescue?

In a previous post earlier this year I surfaced the idea that banks need to move their payments business to an information business in order to remain competitive. The premise was that banks are missing out on an opportunity to become more influential in influencing where people shop and what they buy, rather than just how they pay. Of course we have seen several major banks dive into the world of card-linked offers. Some solutions I've looked at appear to develop better offers than others, and the key to success with this is the depth and reliability of the purchase data and the data analysis to drive and targeting the offers. By analyzing spending habits of customers, comparing to a broader universe of payments data, demographic information, social media connections and location information, it is possible to drive valuable and desired offers to customers that might change shopping behaviors.

But card-linked offers are just one step. By extending such a program to digital wallets and mobile devices, bank customers can now search for bank-offers in the mall they are visiting by using the geo-location positioning integrated to a wallet app on the phone. Offer redemption can either be through cash back, or instant rebate/reward - whether customers pay by card or by phone. This is an example of what it will take to approach the value of that plastic rectangle in leather wallets and elevate the bank's payments brand. To achieve this, a multi-channel and device digital wallet strategy is essential for long term success.  But such a strategy requires more than an offers solution, or a mobile banking app. It requires a platform strategy for building and integrating enterprise grade payment solutions with data analytics, an offers platform, and a host of mobile devices. Such a platform must be built from the inside out rather than from the device back, thereby enabling the support of new payment devices and channels in the future. Oh - and by the way - this just might also increase the value customers see in their banking relationship.

At Sibos Dubai, I welcome the opportunity to debate this topic with you, and our team looks forward to showing you solutions that leverage the payments transaction to increase customer loyalty and lower customer churn across the consumer bank. Email us if you would like to schedule a meeting with Microsoft financial services leadership team and come to see us all at Stand D108, just adjacent to the main SWIFT stand.