Q1 2019

www.wealthandfinance-news.com 22 Wealth & Finance International - Q1 2019 The open banking initiative just passed its first anniversary and it is believed that the directive will continue to pick up the pace – further disrupting an aging banking scene. A mere 10 years ago the world endured the worst financial crisis since the 1930s depression. The recession of 2008 toppled the global financial sector and saw the collapse of top investment firms and banks. The shockwaves are still felt throughout the sector and highlighted in an EY survey which found that only 39% of consumers completely trusted their banks. The findings were 5% higher with e-bank customers. In response, traditional banks must identify new marketing strategies to keep these wavering customers happy before they are lured away by their online challengers. What is Open Banking? A stark 72% of UK adults in a recent YouGov survey had no idea what Open Banking was, showing a lack of clarity and communication between service providers and their customers. Open Banking, an offset of the GDPR, is a set of regulations that enable improved customer data sharing across an array of financial institutions. The key focus of the initiative is to give customers more control over their data than ever before; a timely move as privacy and personal data security have become increasing concerns among consumers amidst a string of recent data breach scandals. The business side of the policy will enable institutions to innovate and create more choice for consumers. The second Payment Services Directive (PSD2), forces banks to share customer account data and open up the back end of their programs to other external developers. Customers are able to compare and evaluate what each financial services company can offer them, without having to shop around. It also means that third parties will be able to carry out money transfers without having to go through the bank, making transferring currency electronically even easier. Simply put, data is democratised and made extremely fluid. Traditional banks can no longer rely on brand loyalty to retain customers; these institutions must respond to this new, more consumer-focused era in their industry by utilizing data-driven marketing strategies. The Open Banking Era – Only the Savvy Will Survive Roni Cohen, Director of Data Science at Optimove, on how Open Banking changes the relationship between financial institutions and their customers, and why now is the time for banks to invest in that relationship through data-driven marketing. In the past, consumers tended to stick to a bank or specific branch, even if they were dissatisfied. This inertia in the industry allowed traditional banks to neglect the close customer relationships, and after many years of failing to invest, they are now faced with a considerable challenge. Currently, a year into Open Banking, 8 out of 10 Millennials say they would switch banks for a more personalised service. These fintech players and challenger banks now account for 20 per cent of the banking and payments sector in Europe. With this heated competition as a result of PSD2, customer-focused marketing strategies have never been so important for banks – and will give brand agnostic Millennials a reason to stay. How have online banks become so popular? A digital bank has recently toppled First Direct from its near decade-long reign as Britain’s best-rated lender, according to a Which? annual survey. The bank attributes this success to its community approach, and contends, “every bank claims to be customer-centric, and they are invariably not. They’re product-centric.” The company’s biggest growth driver is loyalty, claiming 80 per cent of new customers are drawn in by word-of-mouth referrals. The remaining 20 per cent of growth is based on intelligent placement of sponsored ads on social media. This is contrast to traditional banks who rely on hugely expensive, national advertising campaigns, which are no longer as impactful or cost-effective in this modern digital age. Furthermore, digital banks are allowing thousands of customers to easily participate in online feedback forums to give their input on new products, cultivating community spirit. Popular features such as saving towards pre-defined goals through envelopes called “pots,” came from such a suggestion. This has resulted in users feeling less like sold-to customers, but an integral part of a wider movement, which is crucial to fostering customer loyalty and trust. In contrast most traditional banks either have very little idea how their users are interacting or if they do, they’re unsure of how to capitalise on this information. Although these new fintech players are currently experiencing immense growth, they must act now to engage their customers before growth turns into churn in this new open field. Digital banks currently focused on customer acquisition should not leave customer engagement too late; now is the time for them to start investing strategically in engagement solutions such as data based marketing in order to stay ahead. How to use customer data effectively Last year banks increased their investment in data and analytics by 60-80%, making it one of the most invested in industry horizontals, valued even above cybersecurity. However, the ways in which banks use this data is more crucial than ever and will certainly decide who will be the future winners. With these new online-only entrants eating into the market share of traditional banks, it is essential they reinvent the customer journey. This is where the importance of the Customer Data Platform (CDP) comes in; a software which should act as the central nervous system of the analytics and marketing team. Our data from at Optimove has shown that 90% of companies currently feel that they’re unable to review, analyse and act on their customer data in a continuous fashion. This highlights the business need for a CDP to drive more independent, nimble and agile teams. Implementing personalization is the best way for banks to make the most of this additional wealth of customer data from Open Banking, which is also now available to their competitors. Segmenting their customer base into distinct categories based on behaviour, such as account size or time spent as an account holder, marketers can target their customers with appropriate offers and strategies. Once these categories with key common traits are identified and isolated, marketers can develop a variety of different, personalised marketing strategies. Banks can measure the revenue from each strategy through customer transactions which can then further inform marketers on the approach for particular customer types. AI programs can make smart observations about the results of these trials, isolating not only the most successful strategies, but also the types of customers who respond best to each strategy. Relatively large starting segments can be further narrowed down and kept dynamic, at the same time as marketing strategies are perfected. The eruption of hugely popular fintech disruptors, the loss of trust amongst consumers since the banking collapse alongside