Re-Shaping the Customer Segmentation and Customer Acquisition in Banking

Not all customers are the same. Banking customers, in particular, are very diverse, spanning generations, all with different needs and expectations. Customer segmentation in the banking industry is an art, as one-size-fits-all approaches do not work with this assorted client base. For banks to maintain and acquire new customers, they have to focus on the customer experience for all of their consumer bases.

These days consumers are savvier. Comparison sites and easy online set-up mean they can choose and swap banks without stepping into a branch. The ease at which customers can change their financial institution, and the numerous choices available, requires financial institutions to be more focused on their customers’ needs and expectations.

Customer Segmentation

The art of separating customers into different groups is vital for ensuring appropriate targeting of their needs. Previously, segmentation models were built around basic and unnuanced, high-level demographic data. Typically, this generalized focus was on age, income, and education as a way to understand and target their consumers. This inadequate segmentation lacks the granular and sophisticated depth of information needed to capture customers’ level of digital-savvy or financial acumen.

Without understanding customers preferences and behavior, banks to offer the wrong products, use inappropriate delivery channels, and ultimately fail to meet their customers’ needs. Behavioral segmentation, breaking down customers based upon their actions, habits, and interests gives companies, including banks, more insight into what their consumers really want. Innovation has improved data analytics, and artificial intelligence has helped sift this data to create predictive and prescriptive approaches to better anticipate customer need.

Customer Acquisition

Many banking customers have particular expectations for their bank. Given the wide range of customers requiring financial services, banks must use more effective segmentation approaches to acquire and maintain customers. Ultimately, to gain and maintain customers, banks have to find the right way to engage. In today’s world where analog and digital approaches are demanded of banks from their diverse customer base, financial institutions have to have a variety of tools to offer and be flexible in their approaches.

Traditional banks have tended to shy away from the innovations that other sectors have adopted. With a deeper understanding of customer needs, comes a stronger requirement to offer customers the tools, communication channels, and services they expect. In order to provide a quality customer experience, banks have to not only understand the information gleaned from segmentation but apply it to provide better products and services. As recently identified in a global survey, PWC highlights how customer service is a number one area of investment for banks, this is because there is a high demand for customers to have a deeper relationship with their financial institution.

Re-Shaping Banking

Innovation is leading to greater and more efficient communication channels, in ways that many industries could have never envisioned. Similarly, data analytics have improved greatly, allowing for companies to learn more about their customer’s behaviors, moving beyond simple demographic data.

As many industries have been transformed by these technological advances, banking is often slow to adopt. However, many banks are starting to realize the advantages technology offers in reaching more customers, as well as remembering not all of their customers want to change, so completely revolutionizing their approach is not typically viable.

Technology is being harnessed in different ways, and at different paces for banks. More and more banks are discovering the importance of chatbots, which were once relied upon for automating the customer service process, but are now being utilized to improve customer acquisition, create leads, and drive banks’ growth. This merging of AI with conversational interfaces allows for 24/7 engagement through a variety of channels including WhatsApp and Facebook Messenger. Not only can many answer simple questions, but they can also guide customers through more in-depth processes like setting up accounts, or applying for mortgages. Bots are becoming more advanced, and ‘human,’ continually evolving to provide deeper and more meaningful interactions.

Similarly, improvements in segmentation, allowing greater insight into behavior, and a deeper understating of the lifestyle and mindset of their customers, have led to the development of niche and micro-niche banking, more bespoke offerings that make consumers feel valued. As a recent Accenture report highlights, digital innovation has driven niche marketing, allowing segmentation to not only be better understood, but the development of niche-specific products and services to be more cost-effective to develop and target to those niche markets.

Further insights have also led to more personal finance management solutions, where a shift from educating the customer to coaching them has increased adoption. Through technology and better insight into customers’ engagement, banks can tailor information to guide actions, rather than simply disseminate educational materials in the hopes their customers read it. Instead of focusing on selling products, these approaches help guide and support their customers to make better financial decisions. Ultimately deepening the customer’s engagement, and builds trust with their bank.

Disruptive new entrants into the financial space are offering better customer experiences and creating competition for the traditional bank. Today, innovation and experimentation are the hallmarks of better customer engagement across sectors. In banking, technology is proving to be a powerful transformer – one that is no longer an expensive hurdle, and instead of a powerful facilitator challenging the traditional approach with greater, customer-focused innovation.