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Thankfully, our local banks were not significantly affected throughout the global financial crisis, however they still face significant threats. Heavily reliant upon interest generated income, market conditions have the potential to erode our banks stability. In an effort to combat this, many institutions in mature markets are driving revenues through innovation; selling the right product, to the right person at the right time. Our banks are not yet well positioned to exploit the customer data currently available to them; as a result, they may lack a deep understanding of their customer base. This makes it difficult to attract new customers effectively and efficiently.
To improve the situation, customer segmentation models used by financial services organisations in Australia and New Zealand should be more detailed and specific than they are at present. Such an adjustment would drive the development of tailored product offerings, with a greater subsequent take up of products offered to customers and the generation of higher revenue streams in return.
Recently, IBM and The Economist Intelligence Unit surveyed the top 200 banks across the world (including the major Australian banks), and discovered that the most successful financial services organisations are leveraging Business Analytics to build insights into risks and client needs. These analytics models are usually based on historical customer information and are being used to predict, assess and negate risks for both the general operations and portfolios of the banks. Doing this more accurately ensures that the banks are able to hold more appropriate levels of capital and thus, operate more efficiently.
The lack of local investment in business analytics and optimisation, more specifically in behavior and needs analysis (also known as psychographics) has left the door wide open for one of the big four Australian banks to seize first mover advantage. If they don’t, it is likely that an overseas player will come into the market and easily steal significant market share. The aforementioned research reveals that our local banks are lagging behind their global competitors in regards to the importance and usefulness of their customer data. Banks using psychographics look at a far more detailed view of their consumers and subsequently ask much more specific questions of their data than those that do not. These banks also segment their customers more significantly, for example, by looking at their spending patterns and interaction channels and regularly re-evaluate this information.
To better understand how this is beneficial to such an organisation, let’s look at a first home buyer as an example. Banks using a demographic approach would assume that this individual would want a face-to-face meeting with a mortgage adviser to discuss their home loan needs. In reality however, the customer has traditionally applied for financial products online, conducts their banking online and rarely visits a branch, so would rather apply for their loan online. The bank already has all of this data, however if it does not use it, it risks offering products to consumers that fail to meet their needs. Psychographics on the other hand would tailor and target an offer to the historical needs and patterns of this consumer by leveraging this data.
This is not the only use for psychographics however, with the data also providing the potential to predict the future needs and behaviors of a client. As an example, a bank’s customer who begins defaulting on their regular monthly direct debits is highly likely to also begin defaulting on their home loan payments. Using psychographics, banks can identify these trends promptly and start having conversations with that customer to try and prevent defaults from occurring.
There is a huge opportunity for the banks in Australia and New Zealand to develop these capabilities, and if they get it right, they will be able to deliver the right products, to the right customers, at the right time whilst simultaneously reducing risk within their organisation.
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