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Customer Intimacy, Cross-sell, and the Value of Personal Financial Management

Topics: Customer Acquisition and Retention, Customer Experience
Tagged: , , ,

One of the hottest topics in the financial industry right now is personal financial management (PFM). This refers to a software service that allows consumers to track all of their financial accounts and obligations in a single interface. Such services usually enable consumers to track their finances, create and manage budgets, and set short-term and long-term financial goals. PFM services can be offered by banks as part of their online banking services or by independent websites like Mint.com. From all of the press and analyst attention on PFM these days, you would think that it must be essential for every bank to offer personal financial management services to their customers. You would be right to think that, but not for the reasons listed in the press stories and analyst reports.

One of the most frequently touted benefits of PFM is its effect on customer satisfaction and loyalty. A survey by Aite Group found that, in the wake of the recent financial crisis, consumers have a renewed interest in carefully tracking and managing their finances. PFM services enable consumers to do exactly that. Consumers that use PFM services claim that they have a much better understanding of their finances and because of that, they have been able to save more money and pay less in late and overdraft fees. In keeping with the corollary that satisfied customers are loyal customers, the survey also reveals that 30% of customers who use PFM services provided by their bank’s website are less likely to switch banks. So according to conventional wisdom, that’s the value of personal financial management- increased customer engagement that leads to increased customer satisfaction and loyalty.

Now if this was the limit of personal financial management’s value, it would still be worth doing. All banks interested in increasing customer satisfaction and loyalty should offer PFM services to their clients. Another survey suggests that Americans are more comfortable accessing PFM tools through their banks than through independent websites. The reason for this is because consumers are not comfortable storing their financial account data with third-party PFM providers. Because banks already handle their personal financial data, consumers trust them to handle the added account information required for personal financial management. This puts banks in pole position for meeting their customers’ PFM needs and using the personal financial data provided by those customers to enhance their cross-sell efforts.

This is where I think that the real value of PFM is. One of the main limitations of customer intimacy strategies built around cross-sell and offer optimization is that there is a lack of data. You have to use statistics to determine which products your customers are most likely to accept. These statistical models suggest that 60% of a bank’s customers are not interested in any cross-sell offers. If that is true, the implications for cross-sell are enormous. As I have already pointed out, making cross-sell offers to customers who are not interested can have a negative impact on customer loyalty and employee engagement. In order to sort out the 40% of customers who are interested in cross-sell and determine the appropriate product to offer them, you need to know as much about your customers’ financial lives as possible. You need to know where in the financial lifecycle each customer is at. Are they more interested in deposit products or credit products? You need to be able to anticipate exactly what banking products they are going to need so that you can offer them those products before they have an opportunity to shop around. Statistical models are a good first step, but they can’t facilitate true customer intimacy. You know what can? A personal financial management system.

Independent PFM services work something like this:

  • You sign up for an account.
  • You plug in all of your financial accounts by entering your account credentials and giving the PFM service permission to aggregate the data from those accounts on a recurring basis.
  • You use the PFM service’s tools to organize your finances, track transactions, create a budget, and plan financial goals.
  • The PFM service analyzes your accounts and then makes recommendations for additional financial products that can save you money and help you meet your financial goals. If you accept one of these product offers, you are immediately transferred to the website of the bank that made the offer so that you can apply for the product.

That last bullet point is how independent PFM services like Mint.com make their money. They use an algorithm to analyze their users’ financial accounts and make unbiased product recommendations. If one of those recommendations is accepted, the bank that made the offer pays Mint.com a fee. The problem, as referenced in the study above, is that most consumers are uncomfortable putting all of their financial data in the hands of independent PFM providers.

This is why PFM is such a good opportunity for banks. Consumers want to use a personal financial management service. They would prefer to use a system provided by their bank. Most importantly, banks can use the data provided by their customers using their PFM service to enhance their understanding of those customers’ financial needs and make product offers to fill those needs.

Imagine having a customer log-in to your combined online banking/personal financial management system. Your system analyzes their accounts and recent transactions and determines that they are becoming increasingly driven by deposits rather than credit. Before this customer can even think about starting to shop around for a deposit product to meet their evolving needs, they receive an offer from your online system for a high-yield savings account. The customer, happy to finally get a relevant cross-sell offer, quickly accepts. Your bank, focused on growing wallet share, books another account with a profitable customer.

Personal financial management can dramatically improve your understanding of your customers’ financial needs. When customer service and cross-sell become indistinguishable, both you and your customers win.

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Alex Johnson

About Alex Johnson

Alex Johnson is a marketing specialist at Zoot. In his role at Zoot, he is constantly studying the ways in which new marketing trends, techniques, and technologies are impacting the financial industry. As a member of Generation Y, Alex's insights and observations will undoubtedly be influenced by his generation's passion for/dependence on the internet. Find Alex on LinkedIn, or Twitter @AlexH_Johnson.

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