What's in Your Wallet?

In the past, bank marketers have relied on models based on demographic, geographic, psychographic and purchase variables to better understand their customers and prospects. Some financial institutions even use attitudinal, lifestyle or customer value segmentation to improve the targeting of their marketing communications.

As consumers are provided more and more options as to how to transact business and make payments, however, a better way to segment may be achieved by using advanced behavioral segmentation based on payment decisions. In other words, when consumers open their checkbook, reach for their wallet, turn on their computer, or use their phone, what payment option they choose may help bank marketers improve targeted engagement, channel and relationship expansion communication.

Payments behavioral segmentation may also be the best indicator of future financial services purchases since it can gauge changes in consumer purchasing, saving and investment patterns and enable Payments to effectively join Product, Pricing, Place and Promotion as the fifth P of marketing for bankers.

There are definitely challenges posed by payments behavioral analysis, however, since it introduces an element of time into the analysis that is different from other types of modeling. As opposed to using a single point in time like marketers can do for age, income, geography or even attitudes and lifetime value, behavioral segmentation requires analysis over a period of time with the length of time impacting the nature of the segmentation. Different conclusions can be made when looking and long vs. short-term trends. This is especially true during a time of significant economic change like we have today, where people's buying, saving, borrowing and payment behavior may be in transition.

Another challenge is presented by the number of channels and insight capture options available within the payments landscape, since consumers can pay using checks, debit, credit, ACH and even P2P or P2B using mobile devices in person, online or through the mail. As a result, it may be easier to capture ranges of transactions (high/medium/low) or develop a segment grids measuring ranges of transactions based on method and channel. As a starting point, marketers could potentially track tendencies using just one component of the payments continuum like measuring just point of sale transactions over time.

A final level of complexity is added when you consider whether how the consumer decides between funding today's purchases out of current income, wealth or borrowed funds. This adds the element of financial management into the picture.

Using all or singular components of payments data, bank marketers can build attitudinal segments that answer the questions "what payment instrument does a customer usually choose" and "why does a consumer choose a particular instrument (or channel)". While no easy task, it is one that can reap significant rewards. This is because the foundation of most financial management decisions revolve around the consumer's choice of payment method. Their attitude around safety and security, borrowing and saving, electronic or traditional all provide insights not available with traditional segmentation and open the window to the customer's potential level of engagement and potential value for your bank.

While certainly not a flawless segmentation process since the environment is constantly changing and is far from frictionless, payments behavioral segmentation could provide a level of insight not found in with other modeling processes and could assist in proactively addressing customer needs, improving customer lifetime value and enhancing the customer experience.

I would love to hear from banks that may be employing some form of payments behavioral modeling to drive marketing communications beyond the selling of payments products. Are other behaviorally modeling techniques working?