December 22, 2010

Retail banking is under attack. No longer can banks look to lure consumers with the convenience of free checking subsidized by overdraft fees and debit card interchange revenue. Rather, a bank must focus on building lasting relationships with its customers that can endure all stages of the customer's lifecycle. Where today banks often try to drive profitability from customer relationships based solely on a single deposit account or lending product, in the future they will need to think holistically and dynamically about their customers' needs in order to survive against a myriad of bank and nonbank competition.

Whether called the 360-degree customer view or enterprise customer information, banks have talked about attaining it for years. The reality is that most banks today remain challenged in pulling together an accurate snapshot of all the business that their customers do with them across all their lines-of-business, let alone understand the potential value of each of their customer relationships. It's not that banks do not have enough customer and transactional data to evaluate. In fact, they are drowning in data, so the challenge becomes how banks get to the right data, at the right time, and make the right decisions. It's not surprising that banks basing their decisions on fragmented, incomplete and often inaccurate customer data that mimics their siloed line-of-business organizations frequently realize suboptimal and often undesirable results. Standardizing customer data models across the bank is a good start to addressing this pervasive challenge.

Not every basic checking account relationship is equal. Some may be standalone accounts that should be associated with larger, more profitable relationships at the bank; others may just be marginal accounts with the potential to become profitable over the customers' lifetime. Still others might have been set up as an alternative to providing costly encashment services for the employees of a lucrative middle market relationship. Until banks are able to get the complete picture of their customers' financial relationships, their relationships to other parties connected to the bank, and their underlying financial services needs, they will be challenged to make prudent sales, service and risk management decisions that benefit both the customer and the bank.

Complete customer data is also the key to useful segmentation and relationship pricing as well as increased customer "stickiness." Banks have long had access to a wide array of demographic, transactional and wealth information on their customers. Many banks' data warehouse strategies entail capturing pertinent information and storing it in cubes, ready for easy retrieval. The challenge most banks have had is in consolidating disparate, fragmented pieces of data precisely and holistically to attain true views of their customers and extend the appropriate offer. Until banks can leverage their data to construct complete, accurate views of their customers and their customers' relationships, business intelligence strategies will fall short of their expected benefits.

Once a bank understands the extent of its customer relationship and the potential for cultivating the relationship, it's in a position to truly meet the customer’s needs for the long term. Banks should consider offering product bundles, with demand-based pricing that reflects their customers' present and potential relationships with their banks. These bundles should not just encompass traditional banking products, but should be priced to include transactions, relationship balances, value-added services, channel access, loyalty rewards, and customers' willingness to pay. As such, these bundles should positively promote desired customer behaviors by providing incentives for increasing balances, expanding relationships, performing transactions efficiently and helping mitigate risks. With more and more customers relying on direct deposit, online banking and ATMs to transact at the expense of branch visits, banks must become efficient in extending these personalized offers at non branch channels such as the web, ATMs, and mobile phones. These self-service channels can enable banks to drive increased business by leveraging GPS technology and real time decisions for incorporating location and context specific offers. An example would be targeting customers who withdraw cash from ATMs at lunchtime with personalized offers on their cell phones for meal discounts at nearby restaurants when paid for with the bank's debit cards.

Maintaining that knowledge of changing customer needs is critical to product bundling. The needs of a customer shopping for a six month certificate of deposit today could vary greatly once that CD matures, and the bank would benefit by both understanding and being there to fulfill that next need. The basic banking needs of a recent college graduate could expand over time to ultimately include several car loans, mortgages and HELOCs, investment advisory, brokerage and trust accounts. For the bank to win the more lucrative business as these needs arise, it must anticipate and respond accordingly.

The foundation for all of this is data management. First, banks should standardize customer data models across their various lines of business by adopting a master data management strategy or leveraging a core banking platform that provides an embedded 360-degree view of their customers. With common data elements, banks can obtain complete views of their customers and manage associated risks.

Banks could better address their customers' needs by implementing an agile infrastructure that supports the rapid introduction and customization of innovative products and services. The ability of the bank's core system to support the creation of multi-product bundles and relationship pricing is also a prerequisite. Real-time decisioning is another enabling technology that banks can leverage to extend the right, personalized offer at the right time. With more and more customers choosing to only interact with their banks via self service channels, the ability to extend relevant offers at ATMs and the Internet becomes essential for deepening customer relationships. When combined with bank or partner loyalty programs, real-time decisioning can provide needed differentiation. The proliferation of smart phones and their GPS capabilities adds a new dimension as location-specific offers can help address customers' immediate needs.

As banks reposition and repurpose themselves to thrive against, or survive, a myriad of traditional and new competitors, they must ensure that they have the right technology for the journey.

David Bomser is a senior director of Oracle's Financial Services Global Business Unit.