Retention analysis helps retail banks improve customer relationship management
2010-08-19
A growing number of financial institutions are turning to customer retention analysis to determine not only how to maintain customer loyalty in banking, but how to increase their profits as well.

The practice of understanding customers through business analytics is becoming increasingly reliant on integrating technology with people and processes, a new report by Research and Markets finds.

The report specifically examines how the retail banking sector can improve business intelligence and data management to amplify customer relations and retention. It also considers future strategies for relationship management.

Currently, financial institutions are working to integrate transaction information, web analytics and marketing data into various channels to heighten understanding of their core customers. By implementing business analytics, banks are able to use their customer-centric data to identify better ways to internally and externally serve their customers, the study writes.

Additionally, the study finds that bad data quality can cost banks customers and profits. Customer segmentation helps banks tailor their services and communications to the individual to increase loyalty.

By implementing these tactics, the retail banking sector could continue to amplify its earnings recovery. An additional report by the research firm found that first-quarter earnings for retail banks showed a significant year-on-year improvement.

Customer retention in retail banking is becoming more and more important as institutions are increasingly competing to retain customers that have grown more critical of the sector as a result of the financial crisis.

However, while customer service improvements and loyalty programs are key tools for keeping customers satisfied, the largest segment of lost customers have been relinquished when individuals changing financial needs have gone unnoticed, PNT Marketing wrote in a 2006 white paper on customer retention.

If business intelligence and data management are to be successfully implemented, FIs cannot afford to ignore the changing financial situation across their customers' entire relationship, not merely within a single account. According to PNT's research, up to 75 percent of account closings are a result of changed circumstances that have gone unnoticed by the bank - not the result of general dissatisfaction with service or terms.

Of those who had closed accounts, the majority did so do due to an altered perception of what they needed. Six percent identified the account as no longer needed, an additional 6 percent said the account funds were needed for a "major expense" and 1 percent reported their business had closed.

Business analytics, demographics and customer relationship management are best when used to continuously track customers' financial needs and situations. Too often, customers are sold accounts that do not match their needs. By utilizing customer data more effectively, retail banks can prevent future defection.

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