Website
Email
Twitter
LinkedIn

Banks Must Learn to Know Their Customers Better Than They Know Themselves

As ‘fake news’, misinformation and mistrust pervade financial markets, banks are tasked with developing a deeper understanding of what makes business decision makers tick. What will the typical SME business customer look like by 2025? Is institutional banking set to experience a radical overhaul in how CFOs and corporate treasurers prefer to deal and interact with their bank?

 

Banks themselves are grappling with a crippling identity crisis evidenced by a new modus operandi of ‘shrinking to greatness’, in contrast to vertical integration and broader scale conglomerate banking models incorporating wealth and advice of the past decade. An effective way of approaching the challenge is leveraging readily available demographic data in order to develop a better understanding of how behavioural trends are driving customer expectations ever higher.

 

Robust & Rigorous Research Methodology

 

East & Partners captures a wealth of valuable demographic information as part of the group’s global primary business banking research programs. Over 80,000 direct interviews are conducted with CFOs, corporate treasurers and business owners each year coupled with significant investment of resources into building, framing and qualifying robust and reliable representative samples.

 

Several programs incorporate screening to fill research program samples with a customer subset, for example businesses with a defined import or export function for Trade Finance and Business Foreign Exchange (FX) programs.

 

In addition to capturing valuable customer characteristics, this process enables calculation of market size and engagement through the use of rejection rates as a proxy, an especially important undertaking for opaque markets that are difficult to assess in terms of the ‘size of the pie’ each provider secures such as Equipment Finance or Trade.

 

Trade Finance Market Size Example

 

The latest Australian Bureau of Statistics (ABS) data confirms the total number of exporters in 2016/17 remained steady at 51,992, ticking higher by one percent year-on-year. The value of export goods increased to A$291 billion, representing an increase of almost 20 percent. The increase was mainly attributed to large goods exporters with trade volumes greater than A$100 million, predominantly based in the mining and resources sectors. Importantly trade in services data is not included and quantifying the number of importers in the economy is also not available from official data sources.

 

East & Partners Trade Finance research captures businesses trade profile to determine the number of enterprises with a defined export only, import only or both export and import function. Scaling up the data reveals fascinating insights into the scale of export participation among small businesses.

 

This further analysis confirms only one in three SMEs currently have a defined trade finance need (A$5 – 20 million turnover), falling to less than five percent for Microbusinesses (A$1 – 5 million turnover). Seven out of ten middle market enterprises trade internationally while the institutional segment reaches a consensus level of cross border trade. Interestingly growth in the number of internationally trading enterprises has been confined to the SME and Corporate segments as Microbusinesses remain heavily domestic market focused.

 

 

 

 

The Age of Alternative Data

 

Alternative data is the term applied to any and all information beyond traditional sources, regardless of how idiosyncratic or unorthodox their form takes. Enhanced data collection brought about by the rising adoption of Internet of Things (IoT) coupled with advances in Big Data and machine learning allows deeper insight to become more accessible, both for corporates and banks. The expansion of IoT has exponentially increased the scale and scope of data generation.

 

Satellite photos of how full shopping centre car parks are can be analysed to determine retail demand while real time algorithms run over fitness trackers and receipts harvest insights on shopping trends and product marketing. From consumer behaviour to container ships traversing the world’s oceans, every element is recorded and ripe for analysis to better understand emerging trends and outliers.

 

The alternative data movement is gathering pace as evidenced by substantial institutional equity backing by banking majors such as Goldman Sachs and JPMorgan while Bloomberg recently announced that it would promote alternative datasets through its terminal.

 

Corporates no longer simply have databases of customer details but untapped gold mines of valuable consumer insights by packaging ‘exhaust data’ to third parties. Privacy concerns remain a pressing concern, requiring anonymity and security in data collection and storage.

 

"Every company is now a data company.

There’s no transaction that doesn’t leave a trace”

- Quandl Chief Data Officer Abraham Thomas.

 

The growth of alternative data has coincided with innovation in data collection and technology to process massive swathes of statistics into applicable strategic insights.

 

Conclusion

 

Demographic data provides valuable insight into the evolving nature of key business decision makers who in many cases are fulfilling an expanding role – CFOs are increasingly overlapping with CIO and CTO functions in greater regularity. It is for this reason banks are encouraged to ‘think outside the box’ by incorporating disparate datasets but also get back to basics to define the true characteristics of their customer base and where they can add value.

 

Are Accounts Payables and Accounts Receivables teams shrinking to the point where they need more input and support from their bank? What industries are showing the most appetite for growth? Is the responsibility for certain functions, such as payments, starting to shift?

 

Reanalysis of existing customer information can yield extraordinary insight but also provide a reliable forward estimate of what the typical business banking customer will look like in the not too distant future. Speak to East & Partners today to find out how you can harness the voice of the customer to learn how to know your customer better than they know themselves.

If you enjoyed this article, sign up here to read more from us

 

Speak to East & Partners today to find out how you can harness the voice of the customer to learn how to know your customer better than they know themselves.