Maximizing customer relations in the Middle East's banking sector

A perspective by Ayman Abouseif, Oracle Corporations

The fact remains that although both private customers and businesses in the region provide their banks with comprehensive information about themselves, their preferences and spending habits - information that is frequently updated through interaction and transactions - this detailed data is largely being ignored. Even Middle East-based banks that are considering CRM initiatives may be failing to use and integrate this valuable resource within the new system to maximize the return for their shareholders.

Increased Customer Awareness

Certainly regional banks are spending both time and resources to analyze their customers. The challenge is in retrieving customer data from a mere operational level, and integrating it into the strategic budgeting and planning process. Banks also need to increase their analysis of the customer as a complete but individual entity. In order to be consistent, the organization needs to determine which business units 'own' customer analysis, and how this information is shared. In the retail banking unit, analysis may be 'owned' by the marketing department, but marketing's analysis criteria may not be understood or supported by the bank's customer service staff.

Many banks in the Middle East tout their superior understanding of their customers and the shareholder value they contribute, but how many really understand and consider the costs to the bank of the transactions the customer undertakes across all the lines of business?

A greater understanding of customer interaction is vital to develop the maximum return from any customer. Given the cost differences between different banking channels, from branch to e-banking usage, banks must know which channels each customer uses to more accurately assess the cost of doing business with that person or company. Just because
two customers appear to be similar - such as, they share the same personal attributes - professional, middle-aged, married men living in an affluent neighborhood, it does not mean they will transact with their bank in the same or similar manner, or hold similar products with similar balances. Why, then, does the traditional marketing approach used by many regional banks segment these men the same way?

The sheer volume of data involved is one of the reasons that the assessment of individual customer profitability has always been difficult. Advances in technology have helped - storing and processing the data for thousands or even millions of customer accounts is no longer something that requires the expense of massive mainframe computers.

Knowing the Individual

Really understanding each customer and his preferences is one of the fundamental challenges facing regional banks today. Each unique account holder decides how many transactions to initiate, selects a preferred channel for each transaction, sets levels for current account balances, and makes investment decisions. By the same token, the customer is also in charge of a number of other often negative impacts: customer defaults or late payments have a major influence on the profitability of any loan book, while credit card income is driven by repayment profile, bad debt and take up of payment protection insurance. These factors can vary considerably from client to client, forcing banks to capture, store and analyze, at a very detailed level, large amounts of data related to the customer. It is this analysis of an individual's activities and then the comparison of individuals that will give an insight into a customer's behaviour.

Once a bank understands the differences in value between customers, the resulting analysis is likely to highlight many facets of the relationships with apparently similar customers, which are different, including how and where they transact, as well as the products bought and the balances associated with these holdings.

Banks can then compare more profitable customers against account-holders with similar attributes who are not providing a suitable return, and more quickly assess potential marketing opportunities. If the majority of a particular customer demographic group use specific products, those who are in the same group but do not own the product may have the same need. Of course they could be satisfying it through another bank but it may be a sales opportunity for you.

Determining Customer Value

Banks in the Middle East are under no illusion that the long-term value of any customer to a financial services provider is hard to predict. Customers may use a mix of financial products from different institutions, and the expatriate population in the region may have a short customer life-cycle or maintain their customer status with banks in their home countries.

Customers in the region frequently shouldn't be considered just as isolated individuals, but as members of large and wide-reaching families. Banks can also look at the interrelationships between individuals and businesses. Obviously customers who are major business decision-makers need to be treated well, even if their banking relationship does not on its own warrant such treatment. It is crucial to be able to see the whole relationship that your customers have with you, their own personal accounts, those of their family, and business accounts as well as guarantees.

When banks better understand their individual clients, the organisation can more accurately identify what a products and services people are likely to buy and use. Understanding the changes in customers' lives - a new job, new car, new baby -- can more accurately predict what they may be interested in, not just for today but in the future. A bank that can show customers it understands their financial needs, at the various stages of their lives, is much more likely to be viewed as a valuable service provider to which the customer may show loyalty.

Another vital consideration is attracting new customers by analyzing the services that they might want, and the value to the organisation that will accrue if you win the business. A solid understanding of your existing customers will help you accurately predict what will appeal to new customers and the type of customer you want to attract - ideally those who have profiles similar to your existing profitable customers.

More Informed Campaigns

Maximizing your marketing spend can be done by learning from previous experience; if a customer doesn't respond to a particular type of marketing campaign, stop trying that method. Banks can either consider another channel to direct marketing messages, change the product offering or possibly stop marketing to that customer. While this appears obvious, why do so few institutions in the Middle East track in detail the responses and act on the information? Considerable resources can be saved in future by knowing who did not respond to an offer.

There is a limit to how much marketing should be directed to a banking customer within a given period of time. The bank can target different campaigns by customer, based on likelihood of success with that individual customer, from the range of campaigns that will be initiated by the bank. Success depends on knowing your customer and about the detailed performance of previous campaigns. With this combination, you can start to make ore accurate predictions of success through better-targeted campaigns.

It is also not just about trying to find the product that particular customers may be interested in buying. Does the bank want to sell that product to that customer? If the result will be a loss-making account, the answer may be no. So often the measurement of success for a marketing campaign is the number of products sold. While this ay be a good measure if one is selling cases of soft drinks, banking is a much more complex business model.

There is no benefit to selling a credit card if the customer never uses it. At the time of selling a credit card to a customer, the bank has made a loss. It has had the marketing costs, processing the application, including credit checking, and the cost of producing the card. If all the card does is to sit in someone's wallet, the bank has gone to considerable effort to generate a negative impact on the bottom line. Today, however, the majority of banks in the Middle East still only look at the number of sales as the success factor of a campaign. Whether an increase to the profit of the bank follows is considered too difficult to evaluate.

Despite holding a mass of personal information on customers, banks continue to offer them products that they may already utilize. How many times have you received calls about credit cards you already have? As well as wasting marketing resources, these offers only irritate clients. To supplement knowledge gained over time, the IT industry provides the tool capacity to perform data mining. A bank can now create test marketing campaigns, on a subset of the target population, then measure the results. Using data mining models, it can change the main campaign to reduce the size of target population to those who have the highest propensity to buy - resulting in reduced costs and a similar income.

Channeling Customer Behavior

In order to drive customers to utilize different banking channels, regional banks should have a clear understanding of the channels that individual customers are already using. Then the bank can target the customers whose behaviour it wishes to change, and better understand the value of effecting the change. A campaign to move people from branch tellers to ATMs is unlikely to be effective if it is based on offering higher interest rates on transaction accounts, which are used only through an ATM, if most of those targeted rarely have any significant balances on their accounts. The financial benefit to them will be negligible and is unlikely to change their banking behaviour.

Customers today are likely to interact with that bank through a number of channels, and through a number of different points within a particular channel. The rationalisation of the branch network is an exercise fraught with risks. The risks of upsetting your valuable customers during this are particularly high if you do not know where your best customers transact. Closing the branch where one of your valuable customer's accounts is held will have little impact - if they have not been in the place for years. However shutting the branch where they transact could send them to your competitor. By mining this information from operational systems in each bank, organizations can help prevent customer churn.

ROI Through Analysis

Before regional banks invest in CRM, they must consider the areas in which they can realistically expect return on investment (ROI). If a project requires an unrealistic buy rate from the target audience, the project has a low chance of producing a positive return. Too often, even when detailed and realistic business cases are part of a new project, one thing that is not measured is the actual performance effect of the project against that
business case.

Analysis is fundamental to the success of any CRM process; it is the oil that lubricates the interaction with your customers. It provides the information, which allows the customer facing staff to differentiate the level of service, and the products to offer to customers. Whatever the IT industry may say, CRM is about how you interact with your customers -- not the latest call centre or sales force automation package. They are valuable tools but if the information they generate is not analyzed and integrated across the business, they are a waste of money. Banks in the Middle East must know the value and potential value of each customer, their preferred channel and how that customer has recently been interacting in order to develop a satisfactory relationship. The resulting relationship is one that satisfies the customer's needs, and gives the bank the necessary return on shareholders' funds.


Ayman Abouseif is the Senior Marketing Director for Middle East and Africa, Eastern and Central Europe - Oracle Corporation