August 3, 2017
About 20 years ago, when Jeff Bezos took Amazon public, he told his shareholders that delivering the best customer experience was his primary objective – even if it came at the short-term expense of shareholder value. And 20 years later, the company has more than lived up to this promise, attributing its multi-billion-dollar success to one thing: prioritizing customer satisfaction. While the devaluation of shareholder returns in favor of customer satisfaction is characteristic – if not cliché – in the tech industry, this rhetoric would be met with considerable resistance in the banking industry.
To be clear, I’m not suggesting banks turn on their shareholders. I’m suggesting that they embrace the idea that a customer-centric approach, although a longer game, ultimately stimulates the bottom line and satisfies shareholders.
More than that, I’m suggesting banks take a closer look at what is actually driving Amazon’s customer experience. Hint: it’s not just about clean design.
"A company shouldn't get addicted to being shiny because shiny doesn't last." - Jeff Bezos
What Amazon has doggedly focused on is how to make the experience as convenient as possible for its customers. It’s about ease, not aesthetics. More than that, it’s about knowing what their customers want, and giving it to them when they want it. It’s about instant gratification driven by personalization. Banks need to start thinking like Amazon. And it starts by shifting their data focus.
"All businesses need to be young forever. If your customer base ages with you, you're Woolworth's." - Jeff Bezos
Amazon knows its customers intimately and is fluid in how it communicates with them. When customers change their buying or browsing behavior, Amazon notices. The company uses its recommendation machine as a targeted marketing tool based on historical purchases, browsing behavior, and aggregate receipt data. It uses these data and insights to continuously improve the customer experience by offering relevant items, at the right time, on the right page.
To illustrate the success of this pursuit, in the last quarter, Amazon reported that 35% of their revenue is generated by their recommendation engine. More than that, their ability to leverage customer insights is the secret to their customer loyalty. The company reported that 44% of US households were part of their Amazon Prime loyalty program, and spend about $2,500 a year. This is almost six times more than non-Prime members spend.
Of course, the idea that personalization drives loyalty and purchase volume isn’t exclusive to Amazon. When brands personalize the customer experience, they almost always create a greater propensity for customers to buy more and even pay more for their products.
Like Amazon, banks increasingly depend on relevant product recommendations for a large chunk of their revenue. It’s not enough to have a customer sit on a deposit account for 10 years – bank revenues and growth depend on customers holding at least 2-3 products at any given time from their primary financial institution.
The pressure to increase product penetration is at odds with the data banks use to target their customers, so personalization efforts have been largely unsuccessful thus far. The truth is, some data sets are just better at creating human-like interactions.
To this day, banks prioritize demographic data when communicating with their customers. Sure, there are still logical markets and products where broad metrics like age, gender & income are pertinent. You’d probably want to know someone’s age before you sell them a stairlift. Even in banking, demographics are important for marketing certain products. My 70-year-old retired mother has probably missed the boat on a Retirement Savings Plan. Age alone can determine that recommendation. But not all financial products are black and white.
No doubt, demographic data is an important piece of the customer profile, but it’s just that: a piece. Prioritizing these broad metrics paints everybody in broad strokes. It takes individuality out of the picture and assumes that when someone reaches a certain age or salary bracket, their behavior and financial needs will change accordingly. It’s a linear approach to understanding the nuances of people’s needs. Just because a woman is approaching 30, doesn’t mean she’s ready to buy a house or have a child. She probably wouldn’t appreciate receiving offers suggesting otherwise, either.
Moreover, banks consider transaction data from card statements as strong indicators of spending habits and lifestyle. How many times have you stared at a merchant & date and racked your brain to figure out what you bought at Best Buy for $251.75? Beyond being a pain point for customers, this ambiguity is a pain point for banks as well. Banks may think they know what their customers are buying because they’re at an electronics store, but that’s not the case. Did someone buy four monitors for their new office or a 70-inch-screen TV for their new pad? Should banks be offering products to help a small-business owner or financing for home renovations?
Banks need to take a cue from Amazon and hone in on purchase data. They need to know exactly what their customers are buying in order to understand their lifestyles and their priorities and map them to their financial needs. Like Amazon, they need to understand their historical & current purchases and be cognizant of shifts in spending that might indicate a shift in interests, preferences or life stage. This purchase data is dynamic; it helps build behavioral profiles and is more indicative of financial needs than demographics and transaction statements alone.
How people spend and, more importantly, the motivation behind that buying behavior is critical for financial marketers. Unlike retail, in financial services, these behavioral insights don’t just translate to an uptick in sales of some nice-to-have product; they can change someone’s life. These insights mean banks can market things that are good for their customers’ prosperity, and remove options that could harm them. It means advice and information enrichment that can improve their financial literacy. It means financial health.
More than half of bank executives in the US indicate that alternative players and tech giants are a threat to their business (PWC, 2015) – with reason. Roughly one in three banking and insurance customers would consider switching their accounts if companies like Amazon, Google, Apple, and Facebook (GAFA) offered financial services (Accenture 2017).
Customers have indicated that they would bank with GAFA because they believe that their services would bring greater convenience and a more personalized experience. Of course, GAFA could deliver on these fronts – their core businesses rely on analyzing customer data to customize offerings and deliver a seamless user experience.
Customers have come to expect this and will hand over personal information to ensure that they have a personalized experience. From how we shop to what shows up on our news feeds, we understand the necessary exchange of personal information for optimized services.
Banking shouldn’t be any different.
And though Amazon has expressed no interest in core banking, that could change if the customer demand stays strong and the banks keep failing to deliver. The company has already inched its way into the payments space with Amazon Pay. It even has a lending service that's provided $1 billion worth of loans to independent merchants of their marketplace. With the era of open banking upon us, I see no reason for Amazon to stop there. The company gets into everything that makes its customers’ lives easier and facilitates its ecosystem. Financial service is a natural extension.
After all, Amazon started off selling books out of Bezos’ garage and is now the largest online retailer in the world of everything from electronics to groceries. The company is in cloud computing; shipping and logistics; and on and on. What's more, Amazon reigns supreme because it has put the customer journey at the forefront of its business model. Which begs the question: What are banks waiting for?