The two immutable truths of retail banking are:
However, increased competition, advent of technology and proliferation of channels to service the customer, have led to the following:
Increased usage of impersonal electronic services
Low customer intimacy level along with the security issues related to electronic services like Internet banking increase the potential for fraudulent activities like money laundering.
Shrinking opportunity window to know and influence Customers. This has led to reduced time window for marketing products and services. The graphic shows the relevance of an event (such as a promotional event) to a customer as a function of time elapsed after the event. This shows that customer interest peaks and falls rapidly. This makes it absolutely necessary for banks to optimally leverage all available customer touch points so as to be able to influence the customer.
In short, these points amount to a reduced knowledge of customer behavior. Banks worldwide have responded to this challenge by using modeling and decision theory based solutions. Some of the issues addressed are: assessing life cycle value of customers, designing focused marketing campaigns to reduce cost and improve retention, improving in-bank service levels, modeling credit risks and scientifically determine risk capital and so on.
The following matrix examines the important issues facing banking in the light of key challenges and proposes modeling based solutions.
Other issues relate to handling increased credit risk and fraud, because of a diffused customer base using impersonal modes for transactions. Data mining solutions have again been of help by warning banks of potential delinquents, by "learning" from patterns in profiles of known delinquents.
The key drivers for successful implementation of the modeling based solutions for retail banking are: