Analytics Are Becoming Increasingly Important Tools in Banks’ Customer Retention Strategies

Predictive analytics tools are helping banks understand customers' behaviors and meet their unique needs with tailored products and services, improving customer retention as a result.

Sidebar: Keys to Improving Customer Retention

The ability to predict when a customer may jump ship for a competitor's offerings would be gold to banks, allowing them to focus efforts on retaining that customer. While they can't look into the future or read customers' minds just yet, banks increasingly are realizing the benefits of analytics tools in retaining existing patrons.

Charlotte-based Wachovia ($782.9 billion in assets), for example, looks to analytics to anticipate customer events, according to Dan Thorpe, SVP, director, of the bank's statistics and modeling group. The bank, he says, builds attrition models to predict if an individual or household might defect. "We want to anticipate and understand the needs of the customers so we can reach out to them before the need arises," he explains. "We want to understand this across all channels as appropriate."

Insiders agree that the prospects for organic growth in banking are starting to slim. As a result, banks' customer-retention efforts are more important than ever.

"This is becoming an increasingly important problem," says Alenka Grealish, managing director of the banking group with Boston-based Celent. "These are challenging times. [Mergers and acquisitions] will continue and banks will continue to acquire new customers. But organic growth is hard to come by and will get more difficult with the economy, so they're going to go for the higher-hanging fruit by using customer predictive analytics."

Adding to the problem, banks' marketing departments will find it more difficult to advertise their messages to both prospective and existing clients due to some of the consumer privacy regulations enacted recently, claims Charles Nicholls, founder and CEO of SeeWhy (Windsor, U.K./San Francisco), a provider of real-time event intelligence. "The proportion of people banks can market to is shrinking with all the spam rules and opt-out programs," he states. "You may have a million customers, but the addressable pool is only half that. So retention through superior service becomes more vital."

Robert Phillips, founder, chief science officer and VP, research and development, with Nomis Solutions, a San Bruno, Calif.-based maker of price optimization systems, agrees that banks face challenging times ahead in finding and keeping customers. "Organic growth is not great in the developed economies, and there is only so much M&A you can do. So banks are starting to look to the customers they already have to see how they can make them more loyal," says Phillips. "Technology, the economy and competition are all contributing to banks' greater focus on analytics."

Kate Stackhouse, SVP and director of sales integration at Columbia, S.C.-based First Citizens Bank ($16 billion in assets), believes that analytics are increasing in importance in the industry today for understanding the behavior not just of individual customers, but of markets as well. "You want to look at the competitive landscape and how your individual branches are keeping pace with consumers' needs. Understanding this helps shape marketing plans unique to each market," she explains. "There's so much conversation around predictive analytics for individual customers -- yes, that is important, but you need to understand the needs of the broader market, too."