Comment: Banks Must Leverage Client Data, Become Providers of 'Wisdom'

It is a truism that successful sales campaigns focus on addressing customer needs and behavior. Yet most banks think about their customers in a very product-centered way, instead of considering behavioral characteristics.

In the future, banks must be able to assess their customers based on the products and distribution channels they require, the frequency with which they use those channels, and the transactions that they are generating.

In order to accomplish this, banks need to concentrate on making the most of the information they possess in their data bases. Five to 10 years ago simply completing a complex settlement, cash management, or other transaction provided banks with a positive differentiating factor.

In more recent years, extracting management level information from the transactions flowing through the bank became the foundation of much bank marketing, in particular to corporate customers.

Today, even possessing and analyzing information is insufficient to maintain leadership within financial services.

Differentiation will be based upon the "wisdom" you can provide a client.

Redirecting the company's focus from product delivery and service performance to providing "wisdom" may seem an unlikely goal to many bankers. But, the competitive landscape demands it.

Today, many banks are finding themselves outperformed by nonbanks, both in the quality of products offered and the delivery channels provided.

Banks, however, hold an ace in the hole: a wealth of customer information not available to other businesses. The problem is that this information often is housed in many separate data bases.

Customers, whether consumers or institutions, are being bombarded with financial products and services from numerous vendors.

On the basis of product sales alone, banks are increasingly being perceived as just another vendor. Typically, they are unable to position themselves on price or convenience, and bank management is left wondering how to create a market advantage.

Many technology executives state that banks are becoming disenfranchised from their products and delivery channels as more products become commoditized and distribution channels become electronic, public-domain avenues through which they sell and service customers.

The information now residing in many areas within the bank must be managed to provide effective data base marketing, profitability analyses, and new product development based on customer behavior.

Available analytic tools allow banks to understand each customer as a relationship, providing detailed information on profitability and behavior.

In turn, banks can position themselves as financial consultants instead of transaction processors.

When a bank understands the behavior and needs of its customers, it can then team with product and service specialists to provide a package of value-added solutions for its customers.

In this area, banks may have a short-term advantage.

By using their in-house data, they can introduce products more rapidly by entering joint-ventures and strategic partnerships.

These partnerships can allow banks to offer the product set required to develop fee-generating relationships with customers and stop the loss of attractive customers to competitors.

Another advantage of the wisdom-providing financial consultant model is market differentiation.

Creating customer solution packages, with or without strategic partners, offers a means to position the bank as more than a place for checking accounts. Banks are in a fight for relevance, and if the bank is viewed as a provider of commodities, they will lose.

How do banks change focus, develop new position strategies and build market advantages on the concept of offering wisdom?

First and foremost, they need to realize that effective information management is the key to success and is a tangible assets for banks.

Banks need to eliminate their decentralized approach to information management.

Most institutions have dozens of departmental and proprietary data bases that provide unique information about customers and their behavior. Combining credit card, mortgage, line of credit, and investment data bases, for example, can allow a bank to view a much larger cross-section of its customer relationships and provide insights into overall customer behavior.

Second, banks must eliminate internal conflicts related to information sharing.

One computer company executive says, "If you think folks will automatically share their data, you're kidding yourself. The first obstacle you'll face is pathetically possessive users - those who suffer from data mining."

Third, banks must avoid creating new "silo" data bases. Unfortunately, they have been shackled to a legacy distribution system and technology structures that many are now abandoning.

Fourth, they need to experiment and integrate as rapidly as possible. Proof-of-concept and pilot programs need to be large in number and fast.

In addition, many banks will have to overcome their past experiences with joint ventures and their "invent-it-here" product development philosophy to increase their share of customer relationships.

Deservedly or not, banks are viewed as unresponsive by many customers. They must change that perception, and leveraging the strengths of external product developers may be one way to do so.

Being successful providers of information will not be sufficient for banks to compete. But, offering their customers wisdom and not just information will provide long-term differentiation.

Mr. Wendel is president and Mr. Parslow an associate at Financial Institutions Consulting, a New York-based firm specializing in business process redesign and growth strategies.

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