Growth Levers for Retail Banking
Bank Transfer Day – Disaster or Opportunity?
(Or did it really matter at all?)
With apologies to the late Oldsmobile brand, it’s not your father’s banking world anymore. In fact, PR-wise, some bankers might feel like there is a bounty on them of late.
However, underneath all the Sturm und Drang of the current environment, the reality is that people still need banks and banks still need to serve them and, in the process, make a profit.
Bank Transfer Day 2011 came and went and the world did not end.
In fact, any practical impact is still being determined. On one hand, according to an online survey by TNS Research, about 12% of 2,500 respondents said they had closed their accounts or planned to do so. On the other hand, according to the American Banker, most of the defectors said they had yet to make the switch and there has been no sign that customers are draining the large banks of their deposits. Even if a large number of those follow through, some industry analysts are predicting it will actually help banks. Public relations aside, they deduce that reducing the number of unprofitable accounts on the books also reduces FDIC premiums and overhead costs. And, in fact, some customers may be better served by credit unions.
While there may be some validity to such reasoning, the fact remains that banks must deal with revenue growth in the face of public backlash against increasing debit fees and other revenue generating options. Challenging? Very. Thus, a renewed emphasis on how to grow revenues and profits in the current regulatory and economic climate.
There are three primary levers to grow revenues and profits… acquiring new customers, increasing share of wallet, and, in the current environment, creating restructured products, prices and features. To truly be effective, banks need to orchestrate these levers together with a common goal or objective regarding revenue and profit growth.
1. Acquire New Customers – A shrinking customer base does not a profitable bank make. Investment in customer growth is essential, but only with the right customers. Profitable ones. This requires effective outbound marketing, effective cross selling and meaningful products. And careful evaluation of increasing acquisition costs.
2. Increase Share of Wallet – On average, customers have eight financial products but fewer than three with any one institution. Multiple product relationships are still a key influence on profit and retention. More products greatly reduce customer churn.
3. Restructure Product Price and Features – Given the current regulator strictures and less than ideal customer views of the banking industry in general, progress will be found here. Banks must react to new customer needs and changing regulatory requirements. From service to sale, creating timely, relevant offers will inevitably win the day.
In short, future success depends on banks learning how to better manage their existing data, technologies and customer experience to win and retain a reluctant and skeptical consumer.
Many of our customers are undertaking banking system technology transformation initiatives, including core banking, loan origination, application processing, and on-line banking systems. These systems must co-exist in the banking technology eco-system, and increasingly must integrate to help banks achieve their new imperatives.
These new systems feed on information — credit, income, wealth, and demographic information. Thus the success of the systems depends in large measure on ensuring their access to new and alternative information assets that enable increasingly powerful analytics.
We see many banks identifying this as a critical and early step in their technology transformation initiative.
And, banks are learning to better use these technologies to create and better manage relevant offers.
Equifax is deeply involved with our customers in managing these changes. If you want to talk to an Equifax specialist about managed services, please send us an e-mail. If you are interested in learning more about Equifax technologies and analytical services, please sign up for our monthly newsletter. It summarizes the new articles in our blog.
This post was contributed by: Lee Grice.
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