It's Time for Banks & Credit Unions to Embrace Change

As I travel across the country, visiting financial institutions in the midst of their annual planning cycle, it is like a trip down memory lane. While the technology and distribution channels have changed, banks and credit unions are still faced with the many of the same strategic challenges we talked about 20 years ago.

As a long time banker and friend, Michael Bencic said, "Improving the customer experience, embracing change, deriving value from data, building strategic partnerships, leveraging technology, ensuring privacy and security, cutting costs and generating fees is like deja vu all over again."

I agree. While the details behind these goals have changed, why have the overarching themes stayed the same? Is it because the planning process usually begins with broad financial requirements and many involved in the process simple dust off last year's plan and hit the restart button? Or is it because, despite a lot of talk around embracing change, the industry (and the regulators) frown upon the potential risk associated with innovation and doing things differently?

In a new report just published by KPMG entitled, Reshaping Banking in a Dynamic Business and Regulatory Climate, the author emphasizes the importance of getting out of 'survival mode' and embracing change, creating new strategies, crafting new infrastructures and focusing on the customer. While there is no denying the importance of each of these issues, this report is not much different than similar reports I read in the 1990's. The primary difference is that the risk of ignoring these issues has far greater implications.

Dusting off last year's planning document and making small alterations is not enough. It will take more than simply finding ways to 'do more with less', cost-cutting and operational improvement. According to Brian Stephens, national leader of KPMG's banking and capital markets practice and author of the report, "There must be acceptance among the entire leadership team that the rapid, unpredictable, and profound change we are witnessing is structural -- not cyclical." He continues, "The debate in not about the need for change, but what changes should be made."

As in the past, the issues that must be addressed are many. The difference is that today, while the issues may look similar to the past, the issues are more interconnected than ever before and the environment where these changes need to be made is evolving at breakneck speed.

The KPMG report provides a perspective into the following critical areas as banks and credit unions plan for 2014 and beyond:

• Culture of embracing change – In today's environment, change is constant, so banks must be nimble and innovative. "Banking leaders must choose to adapt and evolve, or risk irrelevance," says KPMG. "In the future, when banks look back on this time of change, an organization's resilience will not be measured by how much adversity it endured throughout the financial crisis and this period of recovery; rather, it will be measured by how well it adapted to it." The challenge is a tradition of rigid internal resistance to change and a consequent inability to execute. The change in culture must come from the top, starting with the board and senior leadership. And it must me more than just words.

Banking Industry Taking Small Steps With Big Data

As was discussed in the first of my series on Big Data in Banking, the financial services industry has a vast reservoir of data on their customers, but is in the infancy stage of utilizing this data for financial or competitive gain. 

A new study published by the IBM Institute for Business Value confirms that while the majority of financial firms believe data can create a competitive advantage, the scope of data used and the analytic capabilities lag behind other industries.

Second in a series on Big Data and Banking

In a study published by the IBM Institute for Business Value in conjunction with the Said Business School at the University of Oxford entitled, "Analytics: The Real World Use of Big Data in Financial Services," it was found that 71 percent of banking and financial firms globally believe that the use of insight and analytics creates a competitive advantage, compared with 63 percent of cross-industry respondents. This compares with only 36% reporting this advantage in 2010, representing a 97 percent increase in just two years.

Pragmatic Customer-Centric Strategy

Not surprisingly, the IBM research found that most 'big data' strategies being implemented by the financial services industry begin by initially identifying business requirements, then leveraging existing infrastructure, data sources and analytic capabilities before incrementally expanding sources of data, technology and analytic capabilities. This 'slow to go' progression is actually on par with the global cross-industry counterparts reviewed.

Customer Analytics Is Key To Growth In Banking

Understanding customers is the foundation to a sustainable competitive advantage in banking. Therefore, financial marketers can no longer wait to embrace the power of advanced analytics to gain insights and evaluate opportunities that will improve cross-selling, up-selling and enhance share of wallet.

Financial marketers also need to extract more value from internal and external data sources, guiding product development, customer communication, innovation and growth.

First in a Series on Big Data and Banking

In a recent report from Celent entitled, "Customer Analytics in Banking: Why Here, Why Now?", senior analyst, Bob Meara writes that now is the time for banks and credit unions to leverage the advances in processing, memory, database design and analytic methods to improve performance and reduce costs. While the Celent analyst notes that some institutions are already on the path of using advanced analytics for decisioning and optimization, other organizations have only limited experience (this correlates with several other studies).

The following are the primary reasons why banks need to step up their customer analytics game:

• The New Normal: The banking industry is expected to remain revenue challenged for the foreseeable future as a result of low interest rates, moderate fee revenue, onerous regulation and a less than robust economy. As a result, it will be more important than ever for banks and credit unions to focus on all possible strategies to reduce costs and increase revenues. Some of these strategies, enabled by customer analytics include:
• Improved targeting of customer segments
• Moving from a product focus to a customer focus
• Better management (and measurement) of sales leads across channels
• Inclusion of custom customer incentives/rewards to influence behavior
   
• The Imperative for Customer Centricity: With customer delivery and communication channels expanding, and more customers interacting with their financial provider using online and mobile channels, always-on, real-time sales and service become imperative. Analytics can respond to the migration to digital channels by:
• Improving branch efficiency and effectiveness
• Integrating sales and service tools within a new digital environment
• Helping to drive high value, high touch traffic back to branches
• Technology Advancement: Customer analytic applications are no longer the sole domain of highly skilled specialists. Today's solutions can be accessed and used by marketers and other business users to answer complex inquiries. Improvements include:
• Collapsing of product silos and ability to process increased data sources
• Increased number of specialized vendor solutions and expanded talent
• Cloud-based solutions

For readers interested in an excellent understanding of big data, data analytics, predictive modeling options, and the data analytics process, I suggest purchasing the Celent report here.