Relationship banking: Why now is the time to create customers for life

Banks connect with customers when they focus on an approach that’s both data-savvy and customer-focused.

By James White

Today, as banks face increased competition, a natural focus is on developing stronger relationships to retain customers and expand the number of products and services they use. Strong relationships will be also crucial for banks that want to pass the loyalty—and business—of older generations down to younger generations.

The big question is: What do successful relationships look like today? How can banks connect with customers who don’t have a personal allegiance to their financial institution and are used to doing their banking digitally on their smartphones rather than in person in a branch?

Some steps that banks can take to form better relationships with customers are familiar—such as using relationship pricing. But banks that truly want to connect with customers, gaining not only their business but also their trust, will need more than money-saving offerings. A better approach is one that is both data-savvy and customer-focused, so they can create genuine, meaningful relationships that benefit customers based on where they are in their financial and personal life journeys.

Is everything old new again?

Relationship pricing is a popular yet often temporary solution that banks embrace when rates go up and loan applications go down. Today, as the industry faces these challenges again and the threat of a recession looms, banks are likely to return to using relationship pricing.

But banks are learning that relationship pricing is not a stop-gap solution to protect their business when times get tough. They should see it as a way to continually create stronger relationships and build loyalty among customers. Because if a customer feels rewarded for using multiple services—such as a savings account, debit card, and home loan—all at the same bank, then they are likely to turn to that bank for other needs, too. Relationship lending is another tactic that banks have used in past economic downturns and may embrace now as high rates slow home purchases. Here again, banks should consider making this a permanent rather than short-term solution.

Today, banks can use easily accessible data to get a clearer picture of customers and their financial situations. This can allow banks to have greater flexibility when giving out loans—instead of strictly limiting them, such as to customers with a credit score of 700 or higher—while still managing risk and creating stronger customer relationships in the process.

Interactions that matter

If a bank’s interactions with a customer are self-serving, the bank is not building a relationship. It is marketing.

Today, banks benefit when they focus on building meaningful, two-way relationships that benefit not just themselves but their customers, as well. They can do that by being reliable, relatable and credible in all their customer interactions.

Banks prove they are reliable when they communicate consistently, follow through on promises and respond to questions or requests in a timely manner. They prove they are relatable by showing that they understand customers and the challenges they face. And they prove they’re credible when they don’t just say they’re a “trusted advisor” but instead actually act as one by providing answers and solutions to address customers’ unique needs.

For example, by using customer profile data, banks can create targeted communications and educational offerings that are relevant to each customer. A new 17-year-old customer who was just signed up for a savings account by their parents may benefit from hearing about how to save for college. Their parents, on the other hand, may be interested in getting tips for retirement planning.

Data to drive it all

Creating strong, genuine relationships with customers begins with understanding those customers. And to do that, banks benefit when they can access, analyze and act on good customer data.

This is where many banks get tripped up. In some cases, banks are simply overwhelmed. Maybe because they manage data manually or because they have limited access to useful data. As a result, they may not even know where to start. And in other cases, banks delay data-driven strategies until they clean and organize their data, but that can be a monumental task.

To avoid analysis paralysis, banks can use a customer-engagement platform that combines data integration, analytics and marketing automation all into one place. Such a platform can take heavy-lift data work off the plates of a bank’s human workers by managing, understanding and acting on customer data all on its own.

In addition to helping banks create more customer-focused engagements, a platform that’s purpose-built for the financial services industry can also help banks be more proactive in their customer engagements. For example, banks can use data such as credit alerts and MLS listings to identify customers who have specific financial needs. Banks can even automate processes like sending out emails to customers to help banks act on that data.

Where to start

Some banks embarking on data-driven customer strategies want to use the latest, most-talked-about technologies like artificial intelligence and machine learning. But the truth is, most banks don’t need to start with advanced technology, which can have a high learning curve. Instead, they can focus their initial efforts on small steps that allow them to act on data and engage with customers immediately.
A good example of where many banks can start is CD renewals, which are becoming more important today as banks seek to secure deposits.

Managing CD renewals is a relatively simple process. Using just a few data elements—such as a CD’s term, rate and expiration date—banks can reach out to customers before their CDs expire, encourage them to renew and educate them about the fine-print conditions that may exist when other financial institutions promise them CDs with higher rates.

A bigger, better role for banks

Today, banks may have fewer face-to-face visits with customers than they did in the past. But there are many ways to interact with customers, such as through email, text messages, in-app messages, blog posts, online and in-person educational courses, ATM messages and more. The key is to ensure each interaction resonates with each customer.

With a data-based approach, banks can connect with customers on a personal level even if their interactions are not in person. Banks can change how customers perceive and value them. Not just as a financial services provider but as a financial advisor who can improve their financial health and literacy. And they can create customers for life who will help them thrive in both good and turbulent times.

James White is general manager, banking, at Total Expert.