The Financial Services Blog

News emerged yesterday of a $7.2Billion loss at Societe Generale, caused by a single derivatives trader.  There can be no greater reminder that security in financial services is vital.  Sadly most security breaches are not caused by outsiders trying to break in but by a company’s own employees.  They may be disgruntled or paid by an unscrupulous competitor but this huge loss shows that internal security is a company’s first line of defense.

In the example at Societe Generale it has been reported that the trader involved had access to passwords as a result of a previous role in the back office.  Shouldn’t internal procedures have forced those passwords to be updated when a staff member changed jobs?  In financial services companies it is essential to study every aspect of IT systems security and ensure that any gaps are closed.  It is important to look at potential breaches from both external and internal sources.  This is a subject that Xerox has thought about a lot.  Take a look and give us your feedback.

What a week!  Terrible results from the banks with huge rightdowns and then a worldwide stockmarket plunge followed by a panicky three quarter point rate cut by the Fed.

It reinforces my belief that particularly in these difficult times financial services companies need to continue their efforts to improve the customers’ experience.  I just read an interesting article by Nancy Feig who wrote in Bank Systems and Technology about how banks are trying to improve their connection with younger customers.  She writes about how banks are starting to experiment with web 2.0 as a way to engage students and educate them about financial matters.  One good example she cites is the online forum for college students created by Royal Bank of Canada.

These are great examples of banks choosing to communicate with customers in the right medium.  As I mentioned in my post last week, to communicate most effectively with customers it is important to not only personalize what you say, but also personalize the way you say it.  So a traditional letter in the mailbox may suit one customer while an online community may suit another.

The latest news suggests that Bank of America may buy Countrywide, at least they are in talks about a possible merger.  In the last 12 months Countrywide has lost over 85% of its value as its share price has fallen from $42 in January 2007 to just over $5 yesterday.  This gave Countrywide a market cap. of about two and a half billion dollars, little more than Bank of America invested back in the summer of 2007.  Countrywide has rebounded on the news of takeover talks but the whole story raises the question, how many more mergers are about to happen?

If they do, and I think it’s very likely, then to merge operations effectively the companies will need to look at the way they manage documents across their two organizations.  I read recently that the average document management costs for the top 10 mortgage lenders in the US was $86 million.  That is a lot of expenditure to control and manage.  Removing some of this document management cost is a great place to start when you want to add value to a newly merged organization.

Record high oil prices, falling stock markets around the world and fears of a recession in the US and a slowdown in Europe do not paint a pretty picture as we start the new year.

Financial services companies have suffered from the credit market problems and many balance sheets as well as share prices have been badly dented.  But I am a glass half-full person and I believe that 2008 is going to be a year of recovery and returning growth for the financial services industry.

The recipe for success is well known, focus on the customer, keep costs under control and invest for growth in areas of strength and financial services companies will rebound.

One sure way to control costs is outsourcing.  I expect the financial services industry to consider outsourcing functions and even complete business processes that in the past they have viewed as something that could only be managed in-house.  Outsourcing not only has the benefit of reducing costs but it can also change a fixed cost into a variable cost.  For example if a mortgage company outsourced part or all of the mortgage origination process they would just pay the outsourcer for each loan processed so if loan originations fall, the mortgage company’s costs would also fall.

By the end of 2008 I predict that financial services companies will be enjoying an upswing in revenue and profits - a happy new year I’m sure you’d agree.

The most important time to build loyalty and cross sell new products and services to a customer is in the first 90 days of their relationship with the bank.  In fact nearly three quarters of all cross selling happens in those crucial first three months.

The number of products a customer has correlates with the loyalty of that customer and the most important factor to increase cross selling is to sell the products that best fit the customer’s needs.  It is also important to introduce a customer on-boarding process that welcomes new customers and contacts them two or three times during the first 90 days.  The first contact could be a phone call to make sure that everything is going smoothly, for example did the new checks arrive, and is there anything else that the customer needs.  Follow up communications could be by mail, email or again by phone, in fact through whatever channel the customer prefers.  If those communications are personalized and relevant the chances of cross selling go up and the loyalty of that new customer will also increase.

When I wrote about the research that The Banker published recently I emphasized the importance of personalizing the content of any communication sent to a customer.  Another very important element of the article was that customers aren’t only looking for content that is interesting and relevant to them, but they also want to receive that communication through the right channel.

So that means don’t send a letter to a customer who only wants to receive information via email and don’t try to sell a product over the phone to a customer who wants to come into the branch and sit down for a discussion with a banker.  In fact the branch remains the most important channel with 78% of those surveyed saying the branch played a key role.  It is most important for the banks to develop an integrated channel strategy that will allow them to meet their customers’ needs now and in the future.  Interestingly the research shows that email and online banking, as well as mobile banking, will become more important to customers in the future as the branch and direct mail become slightly less important.

The Banker has just published an article in this month’s supplement called “Personalise or Perish“.  It’s based on research that was sponsored by Xerox and published in a report called “The Future of Communications in Retail Banking“.

The essence of the report is that bank customers want their banks to market to them in a much more personal way, sending offers and promotions that are relevant and timely.  The banks understand this desire (about 88% wanted to deliver more personalised messages) but are constrained by technology and a lack of good customer data.

The conclusion of the article is that few banks have been able to achieve the goal of personalising customer communications but I have worked with a number of insurance companies and investment firms who are making good progress and the way they began was to start small and grow.  For example one insurance company chose a new product launch and promoted the new product using personalised communications.  They now have over 100 personalised marketing pieces available in multiple languages.  An investment firm wanted to use personalised communication to attract high net worth clients and they started using the technique to invite clients to just one type of promotional event.  They now use it with dozens of different communications and are incorporating smart document technologies to automatically respond to their clients.  Please share your experience in this area by giving us your comments.

I was reading a report yesterday called “The untapped Opportunity in Financial Services” by Carlson Marketing and the Peppers and Rogers Group.  It was all about organic growth in banking and how a strong customer relationship can drive great business results.

Their study showed that customizing client communications can have a profound impact on the relationship between the client and the bank, increasing the strength of that relationship by up to 35%.  It also showed that relevant and customized communications led to customers buying 47% more than those who received no customization.

Designing great client communications and then being able to customize, print and mail them, easily, is key to delivering these impressive results.  How do you achieve this in your organization?

Improving customer loyalty is a priority for all financial services companies and there are many factors that affect loyalty such as the right product at the right price, quality of service and convenience.  But I’d like to talk about an important factor that may be very difficult to address - how well does the financial services provider know what the customer wants and then how do they deliver that to the customer. 

If the financial services provider knows what the customer wants then they can market and sell to them more effectively and provide them with a better customer experience.  So of course many financial services companies do tremendous amounts of analysis of their customer base to understand what makes a customer loyal and what makes a customer profitable.  This analysis could provide information about what combination of products makes a customer profitable and how customer loyalty increases with the number of products they have.  The analysis can also help to identify the product that a client is most likely to buy based on the products they already have.

But if you have done this analysis, how do you use it to drive up loyalty and profitability of your customers?  You develop marketing and selling campaigns that show your customers that you understand what they want and shows how your products and services satisfy that demand. But who do you target?  How do you construct your marketing to be most effective and to break through the clutter?  How do you segment your customer base?

I’ll be addressing some of these questions over the next couple of weeks but I’d love to hear your thoughts, please make a suggestion or a comment.

Most of the leading financial services companies in the world have grown by acquisition.  Buying another institution can immediately increase revenue and profit and shareholder value can be increased further by eliminating duplication where operations from the two companies coincide.

Great savings can also be acieved by optimizing the infrastructure of the combined companies.  One example is consolidating document management services such as copying, printing, storage and distribution.  Xerox has helped many merging financial services companies to maximize these savings. Can you share any examples of how your company has realized savings in document management?