Driving Customer Profitability in Financial Services Industry – Interview of Samir Jayaswal, SVP & Head of Operations, Prism Cybersoftadmin
Driving Customer Profitability in Financial Services Industry – Interview of Samir Jayaswal, SVP & Head of Operations, Prism Cybersoft
Why is client engagement so important these days?
Financial services are very fast becoming a commodity business. Profit margins are coming down and top line growth is coming with difficulty. Every institution is wooing the same customer. The problem is more in India than anywhere else. The number of brokerages in India is much higher as compared to developed nations like UK, USA and Singapore. A country like UK has much lesser number of stock brokers than India. Since volumes are higher in developed nations and number of brokers is lesser, each broker gets significant amount of revenues and profits. In India, customer acquisition and earning profits from those customers is a problem and needs to be managed well.
What is the impact of such fierce competition?
Naturally this results in undercutting of prices and compromise in risk standards. Adverse selection problem hits institutions. The customers you want don’t come to you and those who come to you are not the ones you want. When the market is surging, sales people add accounts in thousands without caring for customer quality. But when markets recede, real problem starts. In developed countries with lesser number of brokers, if the brokerage relaxes its risk criteria, it can increase its profits. In India relaxing risk criteria doesn’t guarantee profits. Worse, if you don’t relax criteria, you lose customers because someone else will. Customer acquisition may not be a big challenge today, given the size of our population. However, financial services are fast becoming a commodity business and a lot of innovation and technology investment is needed to retain, service and profit from the customer in today’s scenario.
Can better client service be a differentiator?
Yes certainly. Leave alone good client service, a decent enough service also these days looks like enough differentiator. This is because clients have been treated so badly in the past that they get delighted if they receive good service. The level of ‘disconfirmation’ is currently running very high. ‘Disconfirmation’ is the difference between the level of service the customer expects to get (because of the positioning the institution has already created in their minds) and the level of service they receive. It is imperative for institutions to get into the shoes of their customers and get better engaged with them. When clients get treated better and get products customized to their needs, they stick around for years.
How can technology help in this process?
There are two areas where Indian financial institutions must invest going forward. First is in a good CRM system that not only captures customer’s preferences well but also helps the institution in implementing them in day to day transactions with the customer and also learning by capturing feedback. The second area where investment is needed is in good downstream analytics. This will help institutions understand what works and what doesn’t work and which type of offering works with which segment of customers. Many times institutions just announce discounts, products and schemes without weighing its implications. This kind of error of judgment often happens because institutions are not armed with the right kind of data. A good analytics system can help management get insight in their customer’s behavior that would otherwise not be available. Having these two systems is great. However, the key is to have the linkage between the two. The learning from analytics should feed the CRM. This will create much better traction with clients.
What are the service levels customers expect?
This depends from service to service. However, it is important that institutions carefully analyze every factor involved in customer service. Some factors are hygiene factors and without these factors being present, the customer will simply drop off. For example if a branch of a bank takes longer than usual for customer to withdraw or deposit money, customers will shift their account. Then there are some factors that are enhancing factors. Absence of these factors may not make the customer drop off but presence of these factors can lead to higher customer satisfaction. For example if the bank’s teller also remembers customer’s name and greets the customers with their name, it certainly becomes an enhancing factor. Some enhancing factors may also result in customer delight. Finally, there are factors which have a dual nature. If service is delivered above this level it creates customer satisfaction and anything below this creates dissatisfaction and perhaps customer disengagement. For example, when a customer is being handed over a copy of a contract, if the company executive also explains the salient features of the contract, it will lead to satisfaction.
Customers look for personalization in service. How can technology assist in personalization of service?
Personalization of service is very big values add for financial services businesses because customers just love it. As a client if I inform my bank that me and my wife are both at work during working hours, they should stop sending stuff at residence on a week day that requires our signature. These are small data points and preferences which can be captured by any customized CRM software. Personalization also helps in customer retention.
Study of personalization and preferences can be a very good thing for the financial institution because such data is invaluable if the institution wants to do behavioral analysis. Through behavioral analysis and predicting customer response, technology is now helping financial institutions save a lot of money. The actual strategic value in data is if it can predict how customers will respond to products and prices being offered to them.
Why is customer loyalty important?
Customer loyalty is important because it lowers the cost of customer acquisition by reducing the need of having fresh customers all the time. Reduction in customer turnover increases profitability and creates tremendous cross selling opportunities. This is because customers have believed you in the past and are thus willing to try your newer offerings. Customer loyalty also increases customer acquisition through word of mouth reviews etc. However, it is very important to know that customer loyalty may not always mean profits. There are a lot of customers who will be loyal but won’t always be profitable. Institutions need to have insight into this. Again technology tools can help institutions figure out the ‘Life Time Value’ of each customer based on their transaction behavior. The institution must then take a retain versus let go decision on the basis of this ‘Life Time Value’.
It is said that a lot of problems can be solved by having a single view of the customer? What are the technology constraints?
That’s true but easier said than done. The problem in getting a single customer view is that these days a typical corporate customer may have subscribed to several services at the same time. They may have bought insurance, subscribed to brokerage service, risk consulting services and also banking services. As a result the service provider may be having its data in four or five different applications and databases. The main person, say the CEO of this client institution may also be a retail brokerage customer at a personal level. In such a case, it is very difficult to have a unified view of such relationships. Difficult, because data resides in such institutions in silos. It may happen that this gentleman walks into a branch one day to ask for a statement of his personal brokerage account and the employee entertaining him may not know about the larger corporate relationship the institution enjoys. As a result, the treatment he may receive may not be fitting someone who has a very large corporate relationship. The overall value of the relationship is vital information and it is important for the employee attending him personally to know before the interaction begins. The constraints in achieving something like this is that financial institutions don’t have a unified data architecture and every product or offering accesses a different data set in the organization.
Customers complain a lot about mis-selling. How can it be controlled using technology?
Misselling is a recognized menace. It happens in all developing economies where regulation is trying to catch up. Financial institutions managing others money play a fiduciary role and they must be very careful about this aspect of selling as it may involve huge financial liability. Discretionary money management and non discretionary management should be separated. Senior Management of these companies must watch closely the advice dispensed by their advisors on ground. No where should advice be given to customers who are formally not soliciting advice. Also, no advisor should give un corroborated or random advice to clients. It should not happen that the financial institution in its own prop books is selling banking stocks or research reports generated by the same institution is advising to sell banking stocks and the advisors on ground are advising clients to buy banking stocks. This kind of divergence must be actively controlled using technology and processes else institutions will land themselves in huge trouble. What must also be monitored is the quality of advice dispensed. There is nothing more damaging from a client’s perspective than losing money again and again due to poor advice.
On the institutional client’s side, these days customer on-boarding is taking longer than usual. What are the reasons?
Institutions are now facing several regulatory issues in client on boarding. First the KYC details needs to be filled, executed and notarized. Then the counterparty’s records have to be ascertained. If the client is a corporate, their shareholding structure has to be understood. Then it has to be verified that there is no PEP (Politically Exposed Person) owning the company. List of debarred entities etc needs to be checked closely. It is very difficult to screen every entity because the list of debarred entities is large and complex.
Due to all this, institutions are facing a huge cost of compliance. It is said that one large bank alone has 30,000 people managing regulation and compliance out of a work force of 250,000 odd employees. KYC, sanctions, AML etc are all talking their toll. Now the latest introduction is FATCA. The provisions of AML and FATCA are so strict that financial institutions can just not risk any slippage of compliance on these fronts.