The rise of the digital banks and digital technologies has given pause for thought for many incumbent banks and lenders. While the sector remains extremely competitive, the new generation of banks have naturally built their technology using new technologies.
One of the advantages that digital banks, and those who have implemented modern tech stacks hold, is that they are able to use data analytics from big data sets to gain a more comprehensive understanding of their customers.
Customer lifetime value (CLTV) is one aspect of the customer journey that is being heavily impacted by the rise of digital technologies. We know that customers in 2020 are less focused on a particular brand but on finding the right features and services that work for them. That means they are more likely to switch banks.
Utilising digital technologies that can lengthen the lifetime value is vitally important to increase spend capture. The difference between a customer banking with you for ten years and their entire adult life could be worth tens or hundreds of thousands of pounds.
Here we explore how digital tech is reshaping the customer journey, and eight methods that can be implemented to help increase CLTV figures.
Issues with CLTV
Customer lifetime value is fraught with difficulties. Challenges consistently rear their heads that threaten the ongoing relationship that bank’s hold with their customers.
These challenges can be surmised as following into two categories; traditional and modern.
Traditional threats include:
- Consumers sold only on promotion or offer that then expires
- Banks lack of understanding of their customers
- Poor customer service
- Lengthy customer onboarding times
- Disjointed and unpersonalised customer comms
Modern threats include:
- The rise of digital only banks
- New technology and apps
- Readiness of consumers to switch banks, and the ease to which they can do so
- Lack of brand loyalty
- Consumer habits
To the bank executive, these issues will be well known and well understood. They will also be well acquainted with the importance of CLTV. By servicing the needs of a customer through different stages of their life, customers will require, and therefore be willing to pay for, different services. The banks role is to satiate these needs in a timely manner.
The question that then arises, is how do we meet these needs in a timely, responsive and helpful manner?
The bank of 2020 looks very different to how it did at the turn of the century. At the same time, the customer of 2020, in their values, expectations and needs is also very different to twenty years ago.
Moreover, as well as changes in the needs and expectations of customers changing, banks recognise that their customer base continually shifts and evolves. From generational differences, to differences in salary and role, from employed to self-employed or unemployed, banks need to understand their customer is more critical now than at any other time in history.
This offers a juxtaposition with the role that banks played a generation ago. During the period of small community banks, customers would know the bank and their employees, and would have what could genuinely be called a “relationship” with them.
In the 2020’s of global bank behemoths that service millions of people and see trillions of pounds move in daily transactions, responding to the needs of an individual customer has become extremely challenging.
How digital is reshaping the sector
The impact that technology such as social media, AI, cloud computing, big data, robot process automation (RPA) and others has already had profound impacts upon the sector. Tools such as AI and big data that have only just come into use offer the promise of providing even further enhancements to the tech stack.
Over the last decade there has been a pronounced movement towards the use of digital services, both in the tech stack as well as in customer offerings. Digital only banks have now become mainstream, and bank branches are increasingly becoming an endangered species. Both as a consequence and a result, use of cash in the UK continues to fall to record lows.
Indeed, technology is prevalent in all areas of today’s retail banking, from RegTech solutions working in AML & KYC; progress in faster payments; Open Banking impacting upon many banking operations; RPA being used across the spectrum; cashierless branches; app marketplaces; spend analysis within PFM’s; and more.
To be able to fully capitalise on the opportunity provided by the gains in tech, it is first necessary to have a long-term plan and vision of where the firm is to go. The market is currently filled with the detritus of failed digital platforms and concepts.
One particular failing that we have seen play-out amongst many of the major banks is bringing in an individual or team who is tasked with implementing a digital strategy.
“Digital” is not a strategy and cannot be brought about by a particular team or person. Instead it must be the result of a broader internal culture. A one-off project, regardless of size, or budget allocated to them, do not mean that a bank is now digital.
That said, as part of a long-term plan that incorporates digital, it is perfectly plausible to raise CLTV value through digital technologies. Below we outline eight concepts that can be used.
Implement Emerging Tech
Without question, many of the technologies that are coming online today will change the face of banking forever. AI and big data are two that particularly stand out. Even today there are new concepts that are having dramatic impacts within banks. RPA is one example. Particularly in the customer onboarding sphere, RPA is making more intelligent decisions, operational savings, and ultimately benefiting the customer through shortening the customer onboarding time and making less demands of the customer (such as multiple requests for ID and physical documentation).
Consider when implementing a strategy what customers are looking for. We know that they like being able to manage their financial lives from one place (principally a phone), at any time, and expect the same result as if they were in a branch. In account opening, they expect the process to be seamless, without multiple requests for the same information, and completed in a timely manner. Which tools can help you achieve these?
One of the prime benefits of moving to digital banking for customers has been that they are free to conduct their financial lives at any time or point in the day, without requiring anything further than their phone and a password.
Customers now expect to be able to undertake all aspects of their finances from within the confines of an app, whether it be on their sofa at home, or lying on a beach in foreign climes. They also feel frustrated should they not be able to do something from an app.
Breaking down barriers to allow customers to perform as much of their financial activity as they wish should therefore be a key strategic goal for retail banks.
Being able to access banking services at any time and from anywhere contributes to building customer loyalty. Offering customers new ways of researching and purchasing products also increases the likelihood that they will purchase from you and not a competitor.
Curate other applications
The rise of the API economy, Open Banking and digital has allowed banks to begin working with strategic partners whose services they can offer. This is not necessarily new; retail banks do of course work with partners in areas such as insurance.
The big change has been the ability to offer these front and centre as part of a strategic digital offering. Revolut and Starling are excellent examples of working with partners to enhance an offering.
Revolut offers a “Connect” business marketplace which allows business customers to connect with many of the applications they use in the course of their business day, such as Sage, Slack and Xero. Starling meantime, focuses on individuals, connecting with the likes of Wealthify, Wealthsimple and PensionBee.
As well as offering a potential source of revenue, tying these applications to the bank enhances customer loyalty. As an example, look how Starling have teamed up with CreditLadder to help renters get a mortgage.
“CreditLadder will enable Starling customers to use their monthly rental payments to help build their credit history. By proving to lenders and credit reference agencies that they can pay their rent both reliably and on time, those using the service could gain access to better rates on a range of financial products – such as mortgages, loans, credit cards and mobile phones.”
Use data for product development
Allied with the introduction of Open Banking, the growth in digital services has given banks more data than ever before.
When new technologies such as AI and Big Data are used on these data sets, far more than ever before can be learned about our customers and products. From these new insights, new products and services can be derived. This could potentially involve creating white label products that can then be sold on to other institutions, creating new revenue streams and amplifying the volume of ingestible data.
As well as new offerings, data can also be used to make operational savings across front, middle and back office requirements.
Segment of one
Superior customer service, segmentation and marketing activity are all now possible as a result of the move to digital. For years customers have been receiving promotional literature or emails that had no concept of who they were as a customer. One can imagine the baffled response to an email urging them to take out car insurance when they did not drive a car.
Our banks know virtually everything about us, but to date, have just not used that data in a particularly effective manner. With digital tools, it is now realistic to send customers push messages at the appropriate time in their financial lives for products that they genuinely want, and at a price that is right for them. There is no excuse now for mass marketing when we have the ability to segment to one.
Build an open tech stack
One of the advantages that the new Challenger banks hold over the older incumbents is that they have deliberately built their tech stack on the latest tech, including open APIs. We all know that legacy banks have been hindered by their antiquated technology. The use of Open APIs has meant that the digital only banks have been in a position to capitalise on new developments such as Open Banking. Their open architecture has also assisted them to build their marketplace of apps with strategic partners.
Customer life journey
To be in a position to offer appropriate products at relevant times to their customers, banks require a genuine understanding of each customer and their financial lives.
Customers will make decisions on products to buy and services to use dependent on where they are in their financial life journey. It is only by understanding the focus, needs and wants of their customers at each stage, will they be able to sell these services.
The amount of money that we save, the investments we have, whether we own or rent a home, how much we spend on petrol each month; all of this information and more is decipherable from our bank statements. Preparing for different stages of life goes much further than helping young people save and preparing older customers for retirement; but using the data that we hold on customers to prepare them for their personal financial future.
At this point in time, there is perhaps only one global company that truly seeks to work with us from the cradle to grave – Amazon. Their relentless customer focus means that they know almost everything about their customers, where they are in their lives, and what their next purchase is likely to be.
Our financial histories worry many people, and education on how to appropriately manage finances has not been disseminated well to those who need it. Customers are often ignorant of how to maximise savings or investments, how to curtail debt spend or work through a mortgage application.
Genuinely understanding customers allows us to arm them with knowledge that will help them manage their finances. Offering this information builds bonds between the customer and the bank, increasing the likelihood that customers will purchase products and services when the need arises.
One example of this was the work carried out Barclays to educate older generations on how to stay safe online, so that they might feel confident about using the web – and one assumes, manage their Barclay’s account.
As we discussed at the outset, there are now more challenges to banks in maintaining customer relationships than at any other time in history.
They face threats from a number of different fronts, including changing customer values, new Challenger banks and digital platforms.
The eight tactics signposted above will not help retain customers in isolation. As part of a strategic move to becoming a digital bank (rather than a digital strategy), can help to increase brand sentiment and brand loyalty, improve the financial lives of their customers, and future sales of new products and services.