Small Banks, Big Data and the Personal Touch

By Kate Young

Every second of every day, the world churns out more than 75 thousand gigabytes of internet traffic, almost 76 thousand Google searches and nearly three million new emails. And the pace of data generation is continually growing. According to one estimate, by 2020 there will be 40 times more bytes of data than there are stars in the universe. To be clear, “big data” is in fact very, very big.

Yet even the smallest banks are now duty-bound to find ways to harness data. It’s a matter of survival. But in this ever-expanding universe of data, where does one even start?

Michael Bartoo, SVP at data analytics marketing firm Marquis, describes the attitude toward data at many of the banks he works with. “We get overwhelmed with big data,” he says. “The term ‘big data’ frightens us. And it should—because it can be incredibly overwhelming.” Addressing the Emerging Leaders Forum at this year’s Washington Summit, Bartoo was joined by ABA VP Rob Morgan in urging banks to first approach data in terms of the customer relationship.

Morgan sees data analysis as the latest incarnation of “those interactions that used to happen with a teller who’d know your first name because you came in every Tuesday.” As branch visits have declined, so have opportunities to chat with the customers, learn about their goals, their families and their life events. Nowadays, he points out, data has taken the place of those conversations.

Every bank holds a wealth of customer data within its systems—including the core, bill-pay, personal financial management and credit card systems. It’s a lot, but Bartoo has some suggestions for how to start using it.

First, find out who your high value customers are.

Acknowledging that all bankers, on some level, are involved in marketing, Bartoo says, “There’s only one strategy that can’t miss. That is, market to your best customers first, your best prospects second and the rest of the world last.”

Here’s why: You’ve heard of the 80/20 rule—also known as the Pareto Principle—which posits that 80 percent of your outcomes are tied to 20 percent of your efforts. Bartoo believes this applies to bank marketing. Among the hundreds of community banks that Marquis works with, “in our experience, it’s about 10-15 percent of the customers who pay all the bills.” Another 50 percent of the customer base could be contributing more business to the bank, so there’s an opportunity there. And the bottom 35 percent, for a variety of reasons, does not offer much potential for a deeper relationship. “That’s okay,” Bartoo says, “if we know it.” If the bank can distinguish the high-potential customers from the low-potential customers, it can avoid “spending time and money chasing business that’s not there.”

Your bank’s existing data will help you identify exactly which customers fall into which category. “If you’re able to do a profitability calculation on those relationships, fantastic,” Bartoo says. If you’re not, there are other ways to identify high value customers—looking at balances, the number of products or services, or any combination of those elements. Bartoo recommends including balances in the formula: “I’m just as happy with somebody who has a single relationship with me but that single relationship is $2.5 million as I am with somebody that’s got five relationships that total $1,500.”

Then, pay attention to those accounts—and show you care.

Once you’ve identified your high-value and high-potential customers, take the necessary measures to hang on to them and develop the relationships. That means paying attention to what’s going on in their lives and showing—in a non-creepy way—that you care. “There are people who are taking action in your relationship every day,” Bartoo says. It shows up in the bank’s account information, product use, and customer behavior. “They’re communicating with you,” Bartoo adds. “It’s our job to listen.”

Here’s what he recommends watching out for:

  • Customers’ life events. Outreach can be as simple as sending a card to celebrate the customer’s birthday or the anniversary of their first account with you. It could mean watching out for a name change—whether it’s prompted by marriage, divorce or some other milestone, a name change usually indicates a major change in status. That customer might be thinking about buying a home or a car, dealing with a settlement—or starting a family. It’s worth reaching out to ask how the bank can help.
  • Account milestones. Is a HELOC draw period approaching its end? You should contact the customer six months out, when there’s still enough time to reappraise the property and renew the deal without starting from square one. Otherwise, you might lose their business. Same with CDs—are you paying attention to CDs that are about to mature? A little bit of customer outreach at just the right time—even just an automated email—can prevent that business from moving to the bank down the street.
  • Account behavior. The routine ways customers interact with your bank also tell a story. “Think about things that change in your customers’ lives,” Bartoo says. Your core system captures the clues every day. For example, what does it mean when there’s a significant deposit or withdrawal? Has the customer has retired? Won a settlement? Completed a major transaction? Or is the customer planning to leave? Although you may not know the answer, this is the perfect time to pick up the phone and start a conversation. Sometimes, Bartoo says, the data show that “our customers are waiving their hands and saying, ‘something’s changed in my life, and I could probably use a little bit of help.’” Even if the customer doesn’t immediately take you up on your offer, at least they know that you’re paying attention and you care. With the lines of communication open, that customer will feel comfortable calling you when the need arises.
  • Threats and opportunities. A stop in direct deposit or a sudden drop off in debit card use may mean job loss, which could have an impact on the bank relationship. But it could also mean that the customer intends to move to another bank. Bartoo notes that many banks don’t take notice until an account is formally closed, after months of warning signs. “Catch them then when you’ve got a chance to save—or at least reenergize—that relationship,” he advises.

Build personas around your best customers.

Once you’ve identified who your high-value customers are—and implemented a data-based strategy for retaining them—it’s time to focus on accumulating more of them. To do that, Bartoo explains, you must create a profile—or a persona—based on the characteristics and habits of your high-value customers. “What business do they do with you?” he asks. “How do they do business? Are they in my branches? Do they do everything online?”

The answers to these questions will inform not only how and where you can reach these customers with your messaging, but also how you can transform average customers into high-value customers. When you understand what your top customers look like, he says, you can identify others with similar potential. Tapping that potential may simply be a matter of cross selling one or two additional products to them, he adds. Knowing your best customers will also help you build an informed strategy bringing high-value prospects through the door.

“Don’t think big.”

Data does not have to be overwhelming, Bartoo says. It’s just a matter of boiling it down to the things you can use now. “If you’re at the point where you’re already doing all of these things, and they’re happening every single day—automatically in your organization,” he says, “get into big data.” That’s when it’s time to seek out insights from Google and your customers’ Amazon transactions. In the meantime, “there’s an awful lot of things we need to do before that. Things that move the needle.”