Banking / Finance

Is customer data a non-performing asset for community banks

I work with and talk to a lot of community banks. One of the recurring themes I hear from these banks is the competitive advantage they have over the larger money center and regional banks in how well they know their customers. They are “closer” to the customer and understand them better. This enables community banks to provide “personal” service that is customized and therefore superior to the competition. My observation is that things are not always as they seem. Do community banks really know their customers better than the competition? Do they understand who their customers are and how they behave. Do they tailor products and services based upon this knowledge? Do they target customers based upon demographic expectations and some form of behavioral science? In a lot of cases the answer is no. A large percentage of community banks do not fully utilize one of their most valuable assets – customer data.  The information is there. Unfortunately it is sitting on the books like a loan in non-accrual – not earning a thing for the bank.
I believe that it is critical that community banks get this asset back in “accrual status.” Establishing a culture where customer data is aggregated, analyzed and used to drive key decisions related to customer acquisition and retention strategies is a key element in a successful business model in today’s banking industry. Much of this data is already collected and housed in the bank’s core platform database – additional market data can easily be purchased – the challenge is making sure it is aggregated and formatted in a way that tells you a story. What does the existing customer base look like in terms of age, income, net worth and other demographics? How does the customer base behave in terms of channel usage, shopping pattern, commuting pattern, and other behavioral metrics?  In addition to the story on the existing customers, a story is needed on the market. What does the bank’s market look like in terms of potential customers and competition? The combined story that this data tells then needs to be studied and messaged so that it is understood and then used by the bank to formulate strategy and drive revenue and profits.

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