As I’m speaking to more and more banks about BANK 2.0 a glaring realization is coming together. I think this has to be a core role with the bank moving forward – why? Because this is what someone needs to tell management for them to get it right.
Right now today I believe that in most developed economies if we properly measured Internet as a channel we’d find that it contributes on a par with Branches in respect to revenue. Internet is the primary day-to-day channel for almost half the retail bank’s customers today.
My argument is as follows. Let’s take a product like mortgages – in the USA, UK, Hong Kong, Singapore, Australia, Malaysia or similar with 70-75% internet penetration. Most people would be doing their primary product research on the web before committing to a mortgage. In some cases they might actually apply online, but even if they don’t apply online they are still doing the bulk of their research online then they’d call to make an appointment or use an online enquiry form, etc. The key component of the sales process has really happened outside the branch (i.e. the ‘hook’), but in the end it’s likely that a bunch of sales get recorded as ‘branch’ revenue when actually the lead was generated online. Same with credit cards, life insurance, etc.
Now, internally as a bank we tend to have revenue as a key measure because it directly effects profit and therefore EPS (Earnings per share). What we look from a financial metrics perspective is what Branch A, Product B and Direct Channel C did month-on-month as a comparison of relative performance over time. We look at revenue for product as a whole, we look revenue for the channel as a whole, but I don’t believe banks generally have a clear picture of how customers engage for a product ‘journey’ and where the revenue is really coming from. Additionally, we probably have a fair idea on transaction traffic per channel, but do we know how that traffic has changed over the last 2-3 years? What is the pattern? Can we predict more accurately where customers will be going in the future.
The fact that we’re recording product revenue like mortgage, cards, life policies as ‘branch’ or inbound ‘call centre’ revenue when the lead and initial engagement was likely through the online channel, this results in skewed operational budgets, management strategy, etc. Revenue alone is a poor reflection of the actual customer engagement with the bank from a channel perspective.
You can tell me if I’m wrong here…
What we need to do is inform bank strategy. To understand how to engage customers more efficiently, we need to know what they are doing holistically, not just channel by channel separately. This will better inform organizational strategy, marketing, etc.
Mortgage Journey – Customer Channel Intensity
What triggers a mortgage buy? Normally the initial trigger is when someone finds a property they want to buy. So they have two or three potential contact points before they engage with the bank on a mortgage – a real estate agent, a real estate website and a developer. Then we know that a customer engages with a bank. They’ll probably go to their own bank first, but if they have multiple bank relationships, they’ll make an enquiry through each. How do they do it?
They’ll either ring the call centre, walk into a branch, or go online. Since 2002-2003 that the number of leads that have come through internet and call centre have been increasing relative to branch. This is a trend we need to know about because it tells us where customer behavior is going and where we need to support the customer engagement most efficiently to secure their business. It’s hard to predict when a customer is going to need a mortgage, but we do know that when they are ready to ‘apply’ our ability to close that customer depends on three things, approval time, rate or how competitive the proposition is, and how easy it is to engage with your bank on that product.
Measuring how much revenue we did on mortgage product through Channel A or Channel B and how much it increased from Q409 to Q110 doesn’t help the bank understand effectiveness in engaging the customer through the journey. Revenue could be a function of economic conditions, housing supply and demand, etc. So revenue management doesn’t necessarily inform the bank from a strategic perspective. However, if we know at which points of the journey the customer used which channel, and how that pattern of engagement is changing over time, then we have a winner. This can help Banks more accurately target marketing/media buy, it can help us figure out which partners (real estate, developers, etc) to be targeting, it can help Banks optimize channel experience where it most matters, etc.
The objective is as follows:
1. Help the organization quantify changing behavior in respect to bank contact/engagement
2. Form more productive budgets and targets based on more balanced channel metrics and expectations
3. Help inform organizational strategy so that org/reporting structure can be reformed
4. Help inform marketing and media buy strategy where dollar spend will be most effective (this in itself will help reform marketing too).
We all recognize that a total channel, total relationship, total profitability view of the customer is essential moving forward for retail banking. So the question becomes how to collate that data organizationally. Until you lift the hood and see all this data, then it’s just too hard to really know where revenue lies.