The 5 ways banks can profit from customer segmentation

For the most part, the power of microsegmentation is talked about through the following marketing lens: refine personas to understand behaviour so that you can address customer needs in a relevant way that will increase their likelihood of saying  “yes” to whatever you’re selling them.

But microsegmentation isn’t just a way for financial marketers to convert more sales; it’s an opportunity to optimize decision-making across business departments and explore new value propositions for customers.  

In addition to refining customer personas, segmenting customers based on receipt data would take into account behaviors that can be used as business intelligence.

Let us suppose that a bank department head wanted to establish the characteristics of disaffected customers; or characteristics of customers who are price sensitive; or parents for whom money is no object for their newborn. All of these microsegments can be quickly identified by analyzing receipt data. Receipts reveal when customers are using a competitor’s card; or when they purchase and when purchased items have been discounted; and when a parent has spent an exorbitant amount on diapers and formula. All this information helps decision-makers at banks focus their efforts and allocate their resources effectively.

Armed with this information, banks can improve business efficiencies organization-wide, including but not limited to:

1. Retaining the most valuable customers. According to McKinsey, “deeper and more detailed profiles of customers, together with transactional analytics can improve the acquisition and retention of clients.” Information about purchase and payment behaviour can help banks accurately evaluate customers’ profitability and long-term value, and assess retention strategies.

2. Increasing share of wallet. EY found that, “Almost a quarter of customers say that they access between 2-4 products from a second bank, while 91% hold one account with a third bank, and nearly 10% hold more than one account with a third bank. Such statistics demonstrate a clear opportunity to increase fidelity.” Insight into SKU-level purchases from receipts could help banks segment clients who might be shopping with a competitor’s card and need to be re-engaged. This allows banks to create new strategies and incentives to appeal to disaffected customers, and become their primary card providers.

3. Identifying life stage events. According to FIS Pace Index, 56% of customers anticipate one or more life events with financial implications in the next 36 months. Is your customer suddenly buying diapers and formula? Your customer probably has, or is expecting, a newborn. Banks can respond to major events in customers’ lives that require financial assistance. Being positioned to address life-stage events engenders customer trust and paves the path for lifetime loyalty.

4. Identifying underserved segments. A TD Bank Survey found that 27% of small business owners are using personal banking accounts. Small to medium sized enterprises are the most under-served segment in banking. Deeper insight into these customers’ spend would allow for improved pipeline management, migrating customers to business accounts with more services suited to their needs, as well as more profitable payment products.

5. Discovering new segments. Similar to the point above, more information about spending could help banks discover new segments among their customers. A prominent one would be the gig economy and freelance segment. These workers comprise 30% of the workforce in the US, and that number is growing. Accenture predicts that by 2020, 43% of the American workforce will be freelance workers. Freelance workers are reportedly making more money than 9-5ers, and are expected to comprise 6% of US GDP by 2020. Banks would be wise to get ahead of this by finding ways to identify these customers and optimizing products and services to suit their needs. In getting a first-mover advantage on this, they could effectively capture market share.  

To effectively personalize experiences, institutions must first focus on consolidating customer data to develop a single, company-wide view of the customer. By building a richer, deeper view of customer segments, banks can clarify positioning and promotions, reduce marketing leakage, sharpen their value proposition, and rally business units around a common goal: understanding their customers’ needs.

If you want to find out how Sensibill can enable your bank’s personalization goals, contact us.