Post 4 of the blog series Transformational Banking
After my previous posts API's and Big Data I was asked by a few people, "these are great ideas, but how does a bank make money from doing this". This to me was an eye-opener as I assumed it was clear that this drives customer engagement, what I hadn't appreciated is that not everyone sees the link between engagement and creating revenue.
We know customers are moving online, banks can expect 90% of customers to interact with them through digital channels. As this happens, how do Banks sell, advise, reward and drive advocacy? The answer is simple they have to:
- Provide good content and useful services to drive more interactions and to gather data about the customer interests, habits, life stage etc.
- Drive even more interactions by being able to identify the customer wherever they are online be it on your or another website, mobile/internet banking or social media. Be where the customer is online, I call this Omni-Presence
- Provide more ways to interact online email, IM, Video, social media...
- Use each interaction to communicate with the customer, but respect privacy, channel communication preferences and acceptable frequency.
- Provide communication in timely (real-time), relevant and appropriate way
- Use analytics and machine learning to improve the decisions you make on what to communicate, when and how
Each opportunity (interaction) is a chance to sell, advise, reward, retain or engage the customer.
So how does this link with API's and Big Data?
Banks can profit from API's directly by either selling / licencing access to partners or just making money from the underlying transactions driven by the API's. However API's used to create more innovative services (either by the bank or partners) can drive much more interaction. Every interaction is not only a chance to communicate with the customer but is also a valuable source of data. As the result of any communication can be captured and if successful can replicated to other customers, if not then refined and another approach tried. The continuous improvement of communication creates a self-learning, self-tuning engagement model that is more effective than traditional marketing.
By incorporating 3rd party API's Banks can also open up new revenue streams from 3rd parties, for example by taking a margin on ticket sales for travel or music festivals in the case of students.
In a similar way creative use of Big Data can also drive greater interaction and create new revenue streams. In terms of the latter some banks are already capitalising on PFM (Personal Finance Management) data to provide 3rd party offers and rewards to their customer base.
The customer gets something for nothing or a discount, the bank gains a commission from the merchant and the merchant gains a customer. This is a win-win-win scenario driven by the banks being able to provide more targeted offers (based on customers spending patterns) than the merchant would be able to themselves. There are many more opportunities to profit from data that Banks hold but this is a stark change to their current business models, but one that challenger banks are already looking to exploit.
There's money to be made from API's, Big Data and driving customer interaction but it will require a mind-set focused on transformational banking rather than incremental change of existing banking services.