Ask any executive in any conference room: Do you have a digital transformation strategy? You will hear a confident, unequivocal "yes" every time.
Catch that same executive in an unguarded moment in the hallway between meetings; ask them how exactly are you translating that digital transformation strategy into tactical improvements to the processes and technologies you use to acquire, onboard and retain customers? You will hear a lot more uncertainty and equivocation.
This is understandable. Digital transformation is hard. It is made exponentially harder when executives in charge of transformational projects attempt to solve for every problem and meet every objective, even when those objectives are contradictory.
You can’t do everything. Market leaders set a clear vision for what they want to be—and, just as importantly, what they don’t want to be. Leaders exercise discipline in pursuing that vision and avoiding distractions. They use data and analytics to recognize the trade-offs and opportunity costs of their decisions, relying on those insights to drive their strategies and prioritize the tactical changes needed to implement those strategies.
Here are a few lessons I’ve learned from my experience.
Focus on internal data first. Lots of firms are looking for new ways to improve the performance of their marketing campaigns. Too often, the solutions they land on (encouraged by unimaginative vendors) rely on tired cliches about personalization and the use of third-party data to identify life-stage triggers that might be indicative of a financial services need. In my experience, the best thing you can do is avoid outsmarting yourself. Extract as much marketing value from the customer data you already have before you go questing for new, questionably useful third-party data.
Know who you want to acquire. A focused and well-designed origination process may be mildly frustrating to customers who aren’t your target. That’s OK. The goal is to drive self-selection for the population of customers you want in your portfolio.
Figure out your appetite for fraud. This is a particularly important question as a majority of credit applications have migrated to digital channels and fraudsters increasingly focus their efforts on the account opening process. Strategies for mitigating application fraud sit on a continuum. The extremes on either end of the continuum are untenable—you can’t ignore digital account opening altogether nor can you design a digital account-opening process so restrictive that no fraud occurs. The right answer is somewhere in the middle, but where, exactly? How much friction should you introduce into the process to dissuade most fraudsters without frustrating too many legitimate customers? Which specific fraud detection tools should you utilize and in what sequence, to maximize your hit rate while containing costs? Surprisingly, many institutions don’t openly describe their fraud appetite in advance of opening up digital channels for account opening.
Consider cannibalizing existing revenue sources. Whether it’s offering a segment of your revolving credit card customers a personal loan for debt refinance; or making small dollar loans available to your deposit customers, even though they are paying overdraft fees. A myriad of competitors are looking at the customers in your portfolios right now, trying to find the profitable, unsatisfied ones. The ones who are mildly unhappy with the features or fees of their current products, but who are too busy or lazy to switch (without a little nudge). You know your customers’ lifetime value, you also probably know their likelihood of attrition, but are you using those insights to guide your day-to-day interactions?
Design for (and promote) utilization. An engaged customer is generally more profitable and less likely to attrite. Do everything you can to engage customers in using the features and rewards of your products. Related, you also need to ensure that those features and rewards are actually designed to incentivize usage. For example, card issuers have historically offered price protection to customers for payments made on their cards. Find a lower price, jump through a few administrative hoops, and they’d refund the difference. It was sustainable because, while it sounded great, the process was too much hassle for most cardholders to bother with. Then a slew of fintech apps came in and automated the process and suddenly it was easy and instantaneous for customers to take advantage. And issuers eliminated or curtailed that particular perk a short time later.
Be quick, but don’t hurry. In the era of digital transformation, it can be easy to mistake activity for achievement. Everyone appears, on the surface, to be making significant changes to their customer acquisition, onboarding and retention processes to adapt to this new environment. Under the surface, the difference between leaders and laggards is the discipline with which those changes are evaluated, prioritized and implemented.
