Effective ways financial institutions can increase their recurring revenue – while keeping their customer base happy (and costs low)

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The financial services industry landscape- especially with respect to banking- is continuously evolving- brought on by further changes caused by the Covid-19 pandemic. With the rise of minor players like fintechs and smaller credit unions threatening to steal away market share from the “old guard”- or the traditional banks which have historically wielded so much dominance and power over the economy- many new variables are at play. CEOs are now frequently examining ways in which to make the most out of their recurring revenue models; and ways in which to apply these models to their clientele base.

Dublin-based multinational professional services firm Accenture recently defined three business models for banks which could double their revenue growth while at the same time, reducing their servicing costs by 20% (or even more):

A) Place the bank at the center of an ecosystem selling both financial and non-financial services. Build out your core business but also pay attention to hot new trends that can allow you to appeal to diverse demographics- ie. Loan/financing products geared toward millennials; plus also build out from that core and offer additional value-added services that millennials may also benefit from- so they do not have to get them elsewhere. Make your institution a one-stop shop for all kinds of products and service- both financial and not- which from the convenience factor alone can appeal to people from all age groups, financial & income brackets, and lifestyles.

B) Build on enhanced multi channel experiences to engage customers and meet their financial needs effectively. Think of your bank as an intelligent; living, breathing organism. Leveraging advances in technology; with respect to data, computer algorithms, and other intelligent applications- see your institution as being an ‘intelligent multichannel bank’ that can harvest technology to meet the needs of your diverse customer base.

C) Leverage social media interactions to increase customer intimacy. Over the past five years, social media has become such a powerful force in the marketing world, that it simply cannot be ignored or overlooked anymore; especially in the ever-increasingly cutthroat environment where financial institutions are trying to gobble each others’ respective market share. Employing social media experts and leveraging the largest platforms (Twitter, Facebook, Instagram, and Youtube) can pay off in spades; as it is free to join all platforms; and you have the option of whether you would like to spend money to create enhanced marketing campaigns. Social media marketing dollars can go a LOT further than dollars spent on traditional forms of marketing- like television commercials for example- which are far costlier to mount, with lower return on investment. It is all about creating a one-on-one bond between your firm and social media users- who are looking for firms they feel care about them and are behind them 100%.

D) Focus on data. Obviously I am biased in saying this, but it is the hard truth. There are too many organizations that are not properly utilizing their internal customer data and external advertising data to make decisions and it is costing millions.

Following developments in fintech innovation is also highly recommended- as this can provide a glimpse into what the future will look like in banking and finance. More recently, new fintech firms, the ‘new kids on the block’, have one mission in mind- and that is to steal away market share from the traditional banks and credit unions, who have been around much longer. Fintech companies often target banking products and services that are outdated; because they can deliver new technology that makes these areas more affordable and easier to use for consumers. To quote a saying, ‘If there is blood in the water, fintech usually finds it first.’

Furthermore, if you pay attention to the innovations in fintech, you should be able to determine how quickly a particular banking or financial services revenue stream will be replaced or eliminated. Previous high revenue winners such as fee-based chequing are now accumulating less revenue because now, alternative options exist free of charge. The new and robust mobile banking platforms are mostly free- and this is pulling in a new generation of financial services consumers- mostly in the younger millennial demographic. While the mobile segment may not account for a large upfront revenue source for financial institutions; it is necessary to create and maintain a robust mobile platform experience- especially if you are looking to retain existing customers- and draw new ones in.

While these new fintech firms might appear nimble; the fact remains that most of them have not built existing customer bases large enough to compete with banks. That is why instead customer acquisition has long been viewed as the central core competency of larger financial institutions. These banks have spent billions upon billions of dollars developing and maintaining their customer bases for years. It is now at the point where it is almost too costly to overlook- and potentially forego- any of your customers. Keeping up with technological developments and offering greater points of access- such as feature rich mobile apps (not just table steaks basic banking)- can make the difference between whether a customer stays with you or goes with the new guy- as convenience and ease of use are among the top factors among groups like millennials in determining which financial services provider they are likely to switch over to- and stay with for the long term.

Customer-centric models are nothing new, but as certain fee structures decline, banks should be looking to their customers and analyzing all available data to tweak and optimize revenue models; while building long term strategies for growth. Customers can and will still offer significant revenue generation potential; growth will come from new business segments outside the core business model- such as non-financial products added for convenience, as mentioned above (think one-stop shop). 

In this cutthroat era of constant competition, doing things as simple as following recent trends and acting on them (especially with respect to developments in fintech, social media, and fraud/security) can make the difference of whether a financial institution sinks of swims in the years ahead; and diversifying beyond your core offerings to offer customers a more diverse array of financial and non-financial products and services can introduce significant new revenue streams that will ultimately, give you the competitive edge, and allow you to retain your customer base well into the future.