Come. Sit. Stay: The Care and Training of Your Best Customers

For financial services organizations, automating processes is more than a means of shaving a few bucks here and there. For them, automation is everything. Financial services companies of all kinds—retail and commercial banks; brokerages; mortgage companies—rely on technology to gain new customers, retain existing customers and persuade the fence-sitters that a better life awaits them.

I sat down for a chat with Nancy Lai last week. Nancy is the director of strategic marketing for Fast Search & Transfer, also known as FAST, the Norway-based company that has grown to have presence in six continents. FAST, as per its name, is considered a search company, rightly so. But these days being "a search company" can mean... well, it can mean a lot of things, as I was about to find out.

I had already read Nancy’s very informative article (The Dawn of a New Financial Services Industry), and so I knew that her focus was primarily on how financial services companies can improve their top-line, revenue-generating processes by applying fancy search tools to the tasks. So I, being a world-class curmudgeon, decided to start by asking her about what she DIDN’T mention in her piece. Nancy talks about a lot of things in her article: competition... consolidation... automation. But she didn’t address compliance and governance directly. Is that because financial services institutions (FSIs) are already heavily regulated, and are accustomed to such scrutiny?

"You’re partly right. Financial service institutions ARE getting used to the regulatory environment. Plus there are new proposals being considered at the federal level to relax some of the restrictions imposed by the SEC and by the Sarbanes-Oxley Act (SOX). There’s been an outcry from some FSIs that SOX places undue burdens on some types of companies. There are several proposals in the works to roll back some of the tougher constraints imposed by SOX," said Nancy.

That doesn’t mean the compliance fight is over. As Basel II heats up in Europe, companies that do business internationally—and who doesn’t?—have only just begun to feel the pains surrounding corporate governance of the third kind.

"We do have people who are more focused on compliance than I am. But it’s true that, increasingly, FSIs are looking at technology that helps serve the customer better and increases revenue. It gets companies’ attention when you can talk about increasing up-selling and cross-selling from their current customer bases."

Sounds good. How do you do that? "By being better able to integrate data from different departmental silos where customers have touch-points... accounts, mortgage, loans... and integrate all that information to better understand the customer," said Nancy.

Frankly, I’ve learned that one of the things you need to "know better" about your customers is how to manipulate them. Sir Isaac Newton’s First Law of Motion states: "Every body perseveres in its state of being at rest or of moving uniformly straight ahead, except insofar as it is compelled to change its state by forces impressed." Or, as we learned it in school: "A body in motion tends to stay in motion; a body at rest tends to stay at rest, unless some force is applied." It could be also put this way: "Objects tend to keep on doing what they’re doing."

Customers, I have come to find out, are like that, too. It takes a lot to get a customer to change banks, for example, when it’s MUCH easier to just stay and put up with it. The "it" that they put up with can vary all over the place, from dissatisfaction with rates to unmet expectations in the online experience.

The force that holds customers in place is called "switching friction," and increasing that friction and holding customers in place is extremely high on the priority list of FSI executives.

There are two ways to create friction: You can make it more attractive to stay as a customer, by doing good things; or, conversely, you can make it harder to leave, by doing things to make the process more painful. It’s sort of a "glass-half-full vs. glass-half-empty" worldview.

"What the company usually comes up with as a solution is a little bit of both," Nancy admitted. "Something that’s inherently attractive still requires the bank customer to invest time in setting it up."

The familiar example to most of us would be bill "auto-pay" arrangements, where payments are deducted from bank accounts and wire-transferred directly to various vendors or utility companies. As everyone knows, setting up these agreements—what with all the account numbers, routing numbers, forms and waivers—can be a huge pain. No one would lightly opt to chuck them all and start over with an entirely new interface, methods and means.

"It’s not only the consumer markets," added Nancy, "but also the professional capital market. For example, the premium customers who use Reuters’ trading platform have to set up various personalized profiles that trigger alerts when a certain stock goes above or below a threshold, etc. In order to maximize the value of these profiles, you have to invest a lot of time," she said.

"For traders at this level, losing a thousand dollars here or there is not that critical. What’s most valuable to them is the ability to get information immediately in order to be first to the trade... or as far ahead of the pack as possible." According to Nancy, "We tend to underestimate the value of a good interface, and a good online experience, whether you’re a professional user or a regular consumer."

Regaining Customer Touch

It’s not only an online game. The retail banking business has famously re-energized its focus on the "branch" concept... thought to be anachronistic a few years ago in the emergence of ATMs and online banking. Yet many of the acquisitions and mergers among retail bank organizations have been specifically designed to grab a bigger and more effectively located brick-and-mortar infrastructure.

That doesn’t negate the push to integrate back office information systems; to the contrary, whether the customer is standing in line or sitting in front of a PC, "knowing the customer better" is a competitive advantage with enormous value. "Knowing how often they come into the bank, or whether they’ve had customer service calls that went unsatisfied, or whether there are outstanding issues of any kind... all that helps the teller as much as the online self-service system," explained Nancy.