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HOW BANKS CAN USE PREDICTION ANALYTICS TO IMPROVE THE CUSTOMER EXPERIENCE

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HOW BANKS CAN USE PREDICTION ANALYTICS TO IMPROVE THE CUSTOMER EXPERIENCE 1

By Nick Mitchell, managing director, EMEA, at intuitive consumer experience firm [24]7

Amazon has changed the nature of the modern customer experience. It makes such good use of the data it holds on customers that it can anticipate and predict the type of products that customer is interested in. But Amazon hasn’t just changed the retail customer experience; its influence has spread to other sectors as well. Banking and financial services is most definitely one of those other sectors. When consumers use Amazon, they get instant gratification and they expect similar speed and efficiency when dealing with their bank.

But are they getting it? The challenge for banks (and other financial services organisations) is to be able to apply that Amazon-like experience to their own customer service. How can they best go about doing so?

The importance of the right customer experience

It is more important than ever for banks to deliver a superior customer experience. Even 20 years ago, consumer choice was much more limited and banks could get away with not always delivering good service. But now it is easier for consumers to switch banks so they are less inert when doing so. The advent of the internet also means there is far more choice for when they do decide to change. In short, consumers are more empowered to switch service providers than they have ever been.

But part of the problem is that many banks only pay lip service to the idea of providing a good customer experience and because they have been around so long can be overly cautious about deploying innovations to improve the customer experience. A good example in the UK is the 2010 launch of Metro Bank PLC, the first high-street bank to be granted a licence by the Financial Services Authority (now the Financial Conduct Authority) for more than 150 years.

Nick Mitchell

Nick Mitchell

In February 2015 Metro Bank opened its 33rd branch in the UK and is seen a true success story. It has achieved this by placing the customer experience at the very core of its proposition, focusing on high quality service and customer convenience, traditional banking qualities working hand-in-hand with the latest technology.

Metro Bank canvassed the opinion of consumers and used this information to inform its proposition and overall customer experience. All stores provide instant printing and replacements for lost or stolen debit cards, free coin counting for customers and non-customers alike with Metro Bank Magic Money Machines and, Safe Deposit Boxes for customers’ valuables.It even has a ‘Dogs Rule’ policy, where customers in some branches can bring their dogs in with them and those dogs will get their own treats.

Using prediction analytics to deliver the right customer experience

This in itself is not necessarily key to delivering a superior customer experience, but it does show that anticipating your customers’ needs is an important part of delivering an experience that puts customer requirements at its core.

Metro Bank applied this to offline, high street banking. But the good news is that there is no reason why banks cannot be doing this online, where more and more consumers choose to do their banking. Every single time a bank has an interaction with a customer, they learn more about them and these large volumes of data can be used to introduce new offerings that target pre-defined segments based on location, demographics, psychographics, and other factors. Banks can then more accurately anticipate financial needs and provide an improved service, identifying and anticipating market trends.

[24]7 works with FS organisations to deliver a predictive experience for their customers that anticipates requirements to smooth the path of their interaction. This is done by analysing the customer data and developing smart models, which learn to adapt and intuit customer needs. Using these big data techniques to reduce customer effort will pay dividends in brand loyalty and reduce resources required for managing enquiries, not to mention complaints. However, the benefits can also extend into the capability to support cross-selling and upselling:  the system learns to understand customer requirements and patterns, then suggests relevant complementary products and services in any channel.

So not only can predictive analytics based on customer data help anticipate customer needs, it is also a growth opportunity.  Leveraging big data predictive analytics with customer service can help a brand focus on building this customer trust, thus leading to overall higher profitability.

Don’t let customer experience be an afterthought

The ultimate in FS customer experience would be if banks could just ‘know’ what a customer is looking for on their website. Or if when calling the bank, the agent would already know what page the customer is visiting on their website or mobile app and be able to offer a solution to any problem.

We are really not too far away from that situation. However, many large FS organisations tend to put different departments in silos. Customer service becomes an afterthought because products have to be delivered, then marketed and then bring people into a branch or onto a website. The process goes on and on, and then the last thing that gets discussed is the customer experience.

Yet the customer service experience is part of the product experience, and it’s hugely important. Banks must start getting their customer experience teams define what they will provide to the customer at the very start, and base their products and services on this. Once they start approaching banking from this perspective, deploying predictive analytics to anticipate customer requirements, then they will be able to offer a truly modern banking customer experience.

Banking

A quarter of banking customers noted an improvement in customer service over lockdown, research shows

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A quarter of banking customers noted an improvement in customer service over lockdown, research shows 2

SAS research reveals that banks offered an improved customer experience during lockdown

A quarter (27%) of banking customers noted an improvement in their customer experience over lockdown, according to research conducted by SAS, the leader in analytics.

This represents some good news for banks in an extremely challenging time, with 59% of customers also saying they’d pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.

The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of banking customers using a digital service or app has grown by 11%, adding to an existing 58% who were already digital customers. Over half (53%) of new users plan to continue using these digital services permanently moving forward.

Brian Holden, Director, Financial Services at SAS UK & Ireland, said:

“It’s notable that in times of need customers value being able to communicate with their bank and place an even higher value on good customer service. A rise in the number of digital customers means banks can now reach a wider audience online, leveraging AI and analytics to offer a more personalised experience.

“There is work to be done, though. Even greater personalisation is needed if banks are to win over the 12% of customers who felt banking services deteriorated over lockdown. And this personalisation will need to get right down to a segment of one to properly reflect the unique circumstances some individuals now find themselves in due to the pandemic.”

While the number of digital users grew over lockdown, there is still a quarter (24%) of the banking customer base that have chosen not to make the switch to digital services.

Meanwhile, failure to offer a consistently satisfactory customer experience could prove costly for banks, with a third (33%) of customers claiming that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service, so this just underlines how much retail banks can win or lose in these difficult times.

For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer? 

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Banking

Swedish Bank Stress Tests in Line with Recent Rating Actions

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Swedish Bank Stress Tests in Line with Recent Rating Actions 3

The Swedish Financial Supervisory Authority’s (FSA) latest stress test results show major Swedish banks’ robust ability to absorb credit losses. The results support Fitch Ratings’ view that short-term risks have abated in recent months, and are in line with Fitch’s assessment of major Swedish banks’ capitalisation at ‘aa-‘, which was a factor when Fitch removed the ratings of Handelsbanken, Nordea (not covered by the FSA’s stress test) and SEB from Rating Watch Negative in September.

The FSA estimated about SEK130 billion of credit losses over 2020-2022 for the three largest banks (Swedbank, Handelsbanken and SEB) under its stress test. This represents about 220bp of their loans, or about 70bp annually. However, the banks’ pre-impairment profitability in the stress test could absorb credit losses of up to about 110bp of loans annually. Fitch’s baseline expectation is for credit losses below 20bp of loans in 2020 and 8bp-12bp in 2021.

Capital remained strong under the stress test. The average common equity Tier 1 (CET1) ratio fell by only 2.8pp (1.9pp if banks did not pay dividends) from 17.6% at end-June 2020. The capital decline was not driven by credit losses, which could be absorbed by pre-impairment profitability, but by risk-weighted asset inflation.

The three banks’ 3Q20 results showed that capital has been resilient despite the coronavirus crisis. The banks had a CET1 capital surplus over regulatory minimums, including buffers, of almost SEK100 billion (excluding about SEK33 billion earmarked for dividends). SEB had a CET1 ratio of 19.4% at end-September, Handelsbanken’s was 17.8% and Swedbank’s 16.8%.

The SEK130 billion credit losses under the latest stress test are lower than under the FSA’s spring 2020 stress test (SEK145 billion), which also covered a shorter period of two years. However, they are still larger than the actual losses incurred by the three banks during the 2008-2010 crisis. This is despite tightened underwriting standards by the three banks in recent years, including, in the case of SEB and Swedbank, in the Baltics, the source of most of their loan impairment charges in the previous crisis.

In its baseline economic forecasts, the FSA assumes a harsher shock to Sweden’s GDP in 2020 and 2021 (-6.9% and 1%, respectively) than Fitch’s baseline (-4% and 3.4%), although it assumes a similar recovery by end-2022. It also assumes real estate price corrections, which appears particularly conservative in light of a 11% housing property price increase over January to November 2020.

The ratings of Handelsbanken (AA), Nordea (AA-) and SEB (AA-) are on Negative Outlook due to medium-term risks to our baseline scenario. The rating of Swedbank (A+) is on Stable Outlook, reflecting significant headroom at the current rating level following a one-notch downgrade in April due to shortcomings in anti-money laundering risk controls.

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Banking

Future success for banks will be driven by balancing physical and digital services

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Future success for banks will be driven by balancing physical and digital services 4

Digital acceleration due to COVID-19 has not eliminated the need for bank branches

Faster service (23%), smaller queues (26%) and longer opening hours (31%) are among customers’ biggest asks of their bank branch, new research from Diebold Nixdorf today reveals. But with 41% consumers saying they would be comfortable to engage with all banking services via an app, it is vital that banks respond to the full spectrum of customer needs – balancing and evolving their offerings on multiple fronts.

A third (35%) of customers say they will always want access to physical, in-branch banking services in some capacity and one in ten (10%) consumers will never bank predominantly online in the future. This demonstrates that there remains an important role for the services a branch provides. This role, however, continues to shift away from purely transactional banking:

  • A quarter (26%) value face-to-face advice when it comes to their banking needs

  • One in five (18%) seek advice on different products

  • 17% want to speak to the staff or other customers.

Matt Phillips, Diebold Nixdorf vice president, head of financial services UK & Ireland, said: “The majority of banks have spent the last decade focusing on their digital strategies and investing in improving – or establishing – their online customer experience. However, the data shows that there is still an essential role for physical branches. Banks now increasingly face the challenge of continuing to provide customers with access to a range of physical and as well as digital services, giving them the flexibility to choose the best service for them at any given moment in time.”

When looking beyond the impact of COVID-19, planned branch visits by customers are expected to rebound to 28%, following a dip to 11% during lockdown. And when asked about the new services they’d like to see inside their bank, sixteen percent of respondents said more self-service machines would improve their in-branch experience.

Matt Phillips continues: “In a world that is fast evolving and where the future is digital, there’s no doubt that high street banks must, and are, responding to the needs of highly digital customers. But not every customer requirement is digital. There is still a strong need for physical bank branches and the interaction and services they offer, and striking this balance between physical and digital is where the industry must come together to provide solutions. For example, building a strong, leave-behind strategy is something we’re seeing across the board when banks have to close branches, ensuring customers have access to self-service machines to complete all their transactional needs.”

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