Banks Need to Show New Love for Old Customers

Traditionally, banks in India have focused on the corporate sector, so individual customers have always been of lower priority. However, with the huge defaults on loans to corporate borrowers, (see Corporate Borrowers Owe Over Rs 5000 Crore Each to Five PSBs), banks have burnt their fingers, and are feeling the need to increase lending to individual customers. In this sector, the challenge that banks face is to identify good and bad potential borrowers.

At the same time, consumers in developing countries have an increasing appetite for banking products such as loans of various types and credit cards, so makes perfect business sense for banks to focus on individual customers. A recent survey shows that 85% of customers in India buy at least one new product each year.  However, consumers also have more choice today than ever before. 35% of new business goes to a competitor, and not to the customers’ current primary bank

With new customers becoming scarce, it makes sense to win the loyalty of existing customers, so that the business going to competitors decreases, or at least, doesn’t increase. Winning new customers, limiting attrition and seizing opportunities to cross-sell all start with a bank’s ability to earn loyalty.

There are many factors that affect loyalty, including the product and service offered, sales and marketing efforts, service experience, brand and media. However, one of the most important and effective ways to build loyalty is by leveraging insightful and meaningful customer segmentation methods.

I believe we need to go beyond profiling individuals, and looking at the Household View. In a family oriented society such as India, it becomes a key component of segmentation. This household view aggregates information for all customers residing at the same address and enables far more sophisticated segmentation analysis by considering the client’s financial needs in a broader context.

Using an ‘agile’ approach – starting with the available data, and following an iterative process of segmentation, we can start building the unified household database and base segmentation. This is then supported by clustering techniques to segment. The segmentation definition gets refined based on what is succeeding in an iterative manner. In this way, we can build an ongoing model of predicting, such as predicting who would be good borrowers.

We then see that each customer segment has different priorities and expectations from the bank, and lifetime value for the bank. We can see and predict the propensity towards specific products depending on whether the household is a single adult or a childless couple or a young family or an empty nester or a mature adult.

While data unification is not new to banks, so far they have only seen it as a compliance requirement, and neglected its power to get the right customers.

This analysis and the insights gained can enable banks to offer the most suitable products and services to the household. This will go towards building a deeper relationship with these customer households and generating loyalty.



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eCommerce Investors, Look Out! Plug Revenue Leakages Before It’s Too Late: Part 1

We were at John’s Optical outlet yesterday.  I was a reluctant companion for a friend who wanted to select frames for her husband.  Her brother-in-law Shyam had recommended this outlet as the owner, John, was his class-mate and close friend. Moreover Shyam had always had a good experience with this shop when he needed spectacles himself.

While we waited for my friend’s husband to join us, I was casually looking around the store. I tried on some of the numerous designer frames showcased and looked at myself in the mirror, more from the aesthetics point of view. John and his team did not object and allowed me to try the frames at my own pace. Though I’ve never worn glasses, I’ve recently been having some difficulty with tiny font and find myself peering at medicine bottle instructions. When John offered to check my eyesight, and said it was free, I agreed. After the test he handed me my prescription and lenses that would work.  That was that.  I told him I would recheck this with my local doctor before taking any decision. Soon my friend’s husband arrived and we got engrossed in selecting frames. But with the background of this goodwill and relationship, I suddenly, as you must have guessed by now, trusted John the Optometrist and decided to place my order.

Instead of just one customer Shyam, John had now won over my friend, her husband and me.  And we aren’t even from that part of town. This is the power of advocacy and relationships. Let’s see what this means in the online world.

A July 2015 article ( had the rather alarming headline ‘eCommerce investors press the pause button’.

Another article published in a leading business daily at the end of October 2015 quoted the CFO of a leading eCommerce company as saying that “The Gross Merchandise Value (GMV) concept makes no sense and is used by ecommerce players like Flipkart and Amazon to justify valuations”

These news items reflect the growing concerns about eCommerce operations and questions about what is the net realization after deducting returns, cancellations and discounts. The profits after accounting for all these drop significantly.

How does one build a truly sustainable, profitable company or how do investors help their investee companies become profitable? Let’s look at the key stages:

  • eCommerce companies needs to mine the assets they have created – customers. To grow beyond this initial euphoric phase – there need to be ways to get loyalty and advocacy.
  • Advocacy includes groups of friends, neighbours, relations and family. Family is the immediate nearest circle. One of the ways is to use the power of ‘House-holding’ to engage with customers. Profiling a household goes beyond looking at individual customers, yields further insights, and can be used to build deeper relationships.
  • However, we then come across challenges, as the data provided by a customer for online purchase is very limited – largely names and addresses. Transaction information is richer in comparison as details of product purchased, mode of delivery, date and discounts are available.
  • The data may be quite patchy as customers don’t have the time, energy or inclination to enter details – ‘what if the discount disappears by then?’

How then does one encourage loyalty?

  • Identify groups, and we can start with the most basic of them -  households
  • Technology can be used to identify households and their collective interests, purchases, seasonality etc.
  • Understand Recency, Frequency, Monetary etc, all the golden-era marketing principles can be applied here
  • Understand group dynamics, propensity to spend – India is still a land of households – the concept will take time to go away

The Loyalty they are able to create among their customers is potentially the most significant indication of the ability of eCommerce companies of becoming from good to great to formidable.

An organization that builds emotional connect with households is sure to sustain loyalty more than with an individual. There is a lot more that can be done to profile information and enrich this. This is one of the best-known secrets for scaling. In the next article we will discuss the power of Locational Analytics.

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Having uniform KYC Norms across Financial Sector – The “Compliance vs Simplification” challenge

A May 2013 article by Solomon Teague in Euromoney  has this to say “On pain of fines and imprisonment, banks from India to the US are looking to beef up their data reporting procedures and customer information standards to comply with know your customer, a due diligence activity to address financial fraud.”

Many banks have signed consent orders related to addressing anti-money-laundering and know-your-customer gaps. Given this environment, there is an ongoing challenge between “Simplifying things for customer” vs. “Ensuring Compliance”. The recent RBI norms on “Address proof simplification” and the Union Budget – declaration two days back on the intention to have common KYC norms across the financial sector is a movement towards simplification. Concomitantly, do the compliance risks increase or remain the same?

Address proof simplification

The  RBI (the Apex Bank in India) move allows Bank Accounts to be opened with one Address Proof, which can be either permanent or local.  For the local address, customer’s declaration of the postal address is to be sufficient.  The address may be verified by the bank through ‘positive confirmation’ such as acknowledgment of receipt of letter, cheque books, ATM cards, telephonic conversation or visits. Since 2013, Aaadhar has been accepted as an address proof for getting your PAN card, Passport, IRCTC, Insurance Policy, Demat etc. Aaadhar cards may contain address that is not current. They may also be printed in local language which makes it hard for the Back office to verify.

Compliance challenges – Local and Global

Further, in order to stay compliant Banks need to provide single view of customers across all multiple channels, business units, products and markets.  Banks in India are further faced with a prospect of complying with “Foreign Account Tax Compliance Act “ – where they would need to identify reportable accounts (US taxpayers holding accounts in India and above a certain balance) and give information to the IRS. The USA PATRIOT Act dictates that institutions “shall establish appropriate, specific, and, where necessary, enhanced, due diligence policies, procedures, and controls that are reasonably designed to detect and report instances of money laundering through those accounts

There has been enough talk about having uniform KYC norms across the financial sector for easing processes and making life simpler for the investor while encouraging wider participation in financial markets. At the same time, the relaxation in address proof – while enabling a large number of Bank accounts to be opened – leaves a door open for possible fraud.

Address verification – Establishing Norms and Processes

The Banks would need to put in place processes to identify the local Address. This would require both investment in technology and manpower to ensure verification and validation. Further a sharing of data across Banks and across the financial industry would be truly beneficial – to determine any conflicting patterns and get timely alerts.

A third party service providing standardized services for verification and address validation will become a requirement.

Going forward the following questions demand attention:

What is the mid-path for FI’s between meeting KYC challenges and making life better for investors? Would local investors while wanting simplification, want a process that helps  transaction consolidation?  How will financial inclusion increase without ‘increasing’ risk? Would the proposed “National Identity – for citizens only” be a safer option than Aadhar especially if no local address proof is being taken? How can address proofs be strengthened?


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Health Insurance – Loyalty through fear or Delight

Here is a sample of direct mail I have been getting the last week:

Seasonal Discount up to 50 % from a top retail chain with whom I have a loyalty card
- An email from the local multiplex informing me of the latest movies playing
- A letter reminding me to renew my health insurance within the next fortnight

Of all the communication received, the last one is a small worry at the back of my head. The deadline for the health insurance renewal is nearing and I need to make a choice. The decision is the same as in the previous year – to go ahead. I have been renewing year on year for the last eight years – without giving much thought to the process. This I suspect is more out of “fear” rather than “satisfaction” if not delight. If truth be told, I have a health insurance cover from my company – but I still prefer to renew the policy that I have been paying for so long. I presume – that should I now change, I stand to lose the benefit due to my continuity and lack of claim.

For the last 8 years that I have been their customer, there has been no interaction from the company save the annual renewal reminder! To be fair – some of the product and distribution innovations prevailing in markets elsewhere in the world are not permitted in the Indian regulatory environment. In spite of this – I feel cheated!

Do companies really not have to worry about competition? From October 2011, The Insurance Regulatory and Development Authority (IRDA) has allowed health insurance portability In order to improve service standards of health insurance. Portability allows customers to shift to another insurance company along with all the accrued benefits such as no claim bonus and waiting period of pre-existing diseases. The fight to retain the customer is therefore a key concern for every Health Insurance Provider.

As I shopped around, I found that several health insurance providers (HIPs) were offering loyalty points which can be redeemed for vouchers, products from their wellness and health partners. One leading company was offering benefits through Independent Service Providers across various services like Pharmacy, Health & Beauty Clinics, Gyms, and Spas etc. Another offered Health Checkup Coupons for customers who had renewed for more than three years regardless of claim. Loyalty programs alone wouldn’t be sufficient. Innovative products and high service standards would be crucial in attracting and maintaining customers. My provider seemed to be doing nothing of the sort. Health Insurance could be fun – rewarding too! If only my insurer had thought of it too.

When we talk to organisations – they all want to know – “How can I  Improve Persistency”. At the grass-root level, the focus is  on getting the contact information right and as much contact information as possible. This is seen as a pathway to improved Persistency – but in my opinion not necessarily “Loyalty”.

Health Insurance companies are more worried about eroding profitability due to false claims. On checking websites – I find a little more positive approach from HIPs – they have offers for loyal customers in spite of claims! Worry about the bad ones should not prevent faith in good customers. Treating Customers individually on the basis of their overall interactions is the true way to loyalty. Capturing these interactions pre-claim, claim – experience, post-claim, chatter on sites and mining them will enable the HIPs to engage with the customer at an individual level. Additionally, companies should mine physician and hospital records along with customer data – to prevent risk and ensure better claim management so that honest customers don’t have a bad experience.

I have a few days more before I have to make the choice. This time – I will be shopping.


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