IT Trends in Financial Services

Generally there is two broad approaches to survive in any commoditized market

• Be a low cost producer. By lowering costs and prices, you hope that revenues can be increased to compensate for loss of margin. This is done through a combination of automation, outsourcing, rationalization and centralisation.
• Be an innovator. By offering improved and/or new products and services, you hope you can find customers which are willing to pay premium to offset lower volume.

These approaches are general guidelines and are not actionable items. Based on my past experiences as IT professional and consumer of financial services, the majority of financial services providers have forgotten their relationship with their customers. Most have adopted the approaches mentioned earlier : offer products and services with lower costs or offer more products and services. These approaches are fine for a period of time but they are not sustainable competitive advantage. Sooner or later the competitors will catch up. In fact the majority of consumers of financial services do not expect lowest prices or favor providers with most products and services. In fact their baseline expectation is reasonable range of products and services at reasonable prices.  So why a financial services provider is chosen over the others? In financial services industry, the main differentiator is trust. The consumers are likely to do business with providers which they trust most. One way to cultivate trust is the providers have to demonstrated they have the interests of their customers in every interaction. For example, the providers will tell the customers current bargains available even though the customers do not ask them or the providers will try their best to find a solution for customers even they are not required to so. If a customer trusts a provider, the person is less likely to switch provider. The person may even offer suggestions and tell the provider his future needs. Therefore how do IT participants(vendors and internal IT staff) assist business users in building trust. Below is a few suggesitons:

• Create a cross-product profiling system. The profiling system will try to create a financial profile of a customer based on past transactions and interactions. The profiling system will attempt to answer some of these questions
  • Does the customer spend money prodigally or thriftly?
  • Is the customer an active trader or buy-and-hold investor?

  By making the customer profile system available to customer services officers and product development/marketing department, the provider can customized products and services for each customer. I think all customers hate to be treated as anonymous member of the public. However one of the main issues of profiling sytem is privacy. In different countries, perception of acceptable use of data mining and profiling is different.  What are the privacy issues and how to handle these issues?  You can view two reports produced by EDS :
  EDS Canada Financial Services Privacy and Customer Relationship Management Survey and EDS U.S. Financial Services Privacy and Customer Relationship Management Survey

• Enhancing existing systems to support cross-selling or cross-bundling. One of the worst things IT can do is stand in the way of business. However enhancing systems can be easily said than done. The systems can be hard to be changed or the changes are cost-prohibitive. The only long-term solution is better understanding between IT and business through cross pollination.
• Providing community-related software for business users to build an active customer-only communities. In the past big companies resist communities, e.g. forums, due to perceived poor ROI and fear of bad publicity. However with liberation, the problem of retaining customers is getting bigger. Lower prices and/or more features can only buy existing players some breathing space. However these tactics cannot deter new entrants which can match or beat offerings of existing players. Only relationship cannot be replicated easily in a short term. Forum is an appropriate channel to build communities and relatioships. It can be used to detect problematic area in operation and to detect emerging customers’ needs. However the repercussions of bad publicity amplified through communities are real. On the other hand, even without forums, dissatisfied customers still can badmouth a provider using blogs and websites, e.g. http://www.paypalsucks.com. The providers are adviced to conduct an analysis of risks and rewards related to commnunities.

Related resources

• Customer satisfaction : At what price?
• IBM CIO insights: Finding the new route to competitive advantage (registration required)
• CEO Agenda for 2007: Customer Care and Innovation On Top Again