I recently organised two debates at the Financial Services Club
entitled "This House Believes We Really Know Our Customers". Both
debates focused upon fraud and money laundering (AML) and the vote at
the end of both debates resulted in a resounding rejection … as in
this house believes we really don’t know our customers.
I referenced this last week in my piece on Buyology but, having been through the debate a second time, I thought I’d share the logic I would propose to say that banks do really know their customers.
why do banks need to know their customers in the first place? For a
number of reasons which fall soundly into either a regulatory risk
bucket or into a revenue and profitability bucket. Both buckets are
mutually inclusive by the way.
The regulatory part is to do with
Wolfsberg, FATF, AML, the Patriot Act, KYC and all those good
acronymns. By law, banks have to vet customer to make sure they are
not no-good, lowly criminal drug launderers, terrorists or other
malcontents. This has been the focus of several blogs, including the
announcement of Lloyds TSB being accused of "knowingly assisting" money launderer Lycourgos Kyprianou last week.
risk part is all to do with whether the bank could be risking business
by allowing this customer to do business with them. After all, you
don’t want bank robbers opening accounts with your bank do you? Risk
equally relates to the regulatory part.
Most of this focus on
regulation and risk therefore is geared towards making sure the people
you do business with, as a bank, are honest. By law, banks are now
forced to check that the client is honest upfront. Are they who they
say they are? Can they prove it? How far do they need to go to prove
it … driving licence, passport, birth certificate … we’ll soon be
at the stage where opening a new account will involve not only bringing
in these documents to your local branch (see, there are reasons to keep branches) but
also your mother and father, brothers and sisters and anyone else who
knows you to have them state you are who you say you are. And maybe
they’ll need to bring in their birth certificates, passports and
driving licences too.
Anyways, assuming you can get an account
opened successfully, which is a painful process, you are then prime
fodder for selling products to: Give ‘im a credit card! What about a loan or mortgage sir? With or without insurance?
leads into the second part where, having overcome the regulation and
risk aspects, you are now someone who banks can make money out of. So,
we start talking about CRM and cross-sell ratios; we start talking
about retention strategies and calculating your propensity and
profitability profiles. Is he a black card prospect, gold card or
green? Is this guy a lemon, an apple or a pear? What about kids – has
he got any kids we can sell to? Inheritances imminent?
It’s all about leverage to the top line and you can only sell more to the top line if you really know your customer.
we need to know our customers to onboard them during account opening
for both legal and internal risk management requirements, and then we
need to continue that client knowledge through our relationship with
them to know what to cross-sell them, to retain them and to make money
out of them.
This leads to the second major area of knowing
customers: once you know your customer, do you know them well enough?
This is the critical part as it is the basis of all competition in
financial services: the more you know about the customer, the more
likely you are to be able to retain their business, cross-sell to them
and make money out of them. Whether retail, high net worth, corporate
or institution, the banks that know more about their financial needs
will get more business than the banks who don’t.
So the question comes down to whether banks use customer information effectively because, if they don’t, then others will.
has been true since the foundation of banking, as demonstrated by
visionary CEO of Citibank Walter Wriston, who stated in the 1970’s: "Information about money has become almost as important as money itself". In
financial services, information is where the value lies. It’s all well
and good having data, but you need to leverage that data into
information about customers, and then into knowledge of customer habits
and needs. Walter Wriston’s innate understanding of this turned
Citibank into America’s leading bank, much of which was on the back of
technology innovations focused upon leveraging customer data.
others got the point though, as demonstrated by generations of
management thinking from Total Quality Management with Tom Peters to
Business Process Re-engineering with Michael Hammer; from 1:1 Marketing
with Don Peppers to the Loyalty Paradox with Fredereich Reichheld; from
CRM with Siebel to the Experience Economy by Joe Pine … the point of
all of these generations of management thinking is the same. How do
you use information about the customer to give the customer great
And here’s the point.
Banks do know their
customers. Banks know more about their customers than most partners
and spouses. Banks know your mother’s maiden name, your birthday, how
much you earn and how much you owe. Banks know where you spend your
money and who you spend it with. Banks know when you’re in financial
wealth and when you’re in dire straits.
In this context, banks know more about you than anyone. Who else can you point to who knows all that information?
issue then is that I can only name one or two banks who recognisably
use that information to demonstrate that they care; to show they know
this information about you and who use it to create empathy, loyalty
and intimacy to the level where you honest-to-goodness feel that you
just love your bank.
The rest still need to go back to the
drawing board as it’s not about the data, the information or the
customer … it’s about the culture of the bank.