Leveraging Growth from the Back-Book in Financial Services

by Justin Bock

Decades of product enhancements, combined with banker, adviser and employer changes have created a phenomenon that in many financial services firms is known as the back-book, the legacy-book or the tail. This often neglected but highly profitable part of the portfolio has historically been very tolerant of poor service and product outcomes. With the rise of the consumer, enabled by technology and new competitors, and supported by regulation, the pace of ‘run-off’ or defection from the back-book is accelerating rapidly. In this post, I’d like discuss how to develop compelling value propositions and create the efficiency required to profitably cover the back-book.

In the 1980s, we witnessed the start of a multi-decade boom in financial services. Products like insurance, loans and managed funds were sold, not bought.  Product proliferation became the norm, with new products regularly being launched with distinctive features and benefits intended to attract new customers.  The pricing of these products was outrageous by today’s standards and hard to understand, however as the years have progressed, we’ve seen margins compress and fee structures become simpler and more transparent.  However, with each new wave of product launch, we created a new batch of customers stranded in yesterday’s product.  The customer’s ability to leave or switch service providers was limited by break costs, lack of market knowledge and a general lack of engagement with financial products.

Fast forward to today, and the rise of the savvy consumer - information at their fingertips, technology enabling speed and transparency, and a level of engagement with finances beyond anything ever experienced before. Alongside this change, financial services firms have struggled (in general) with top-line growth and have become reliant on the revenues from customers in the back-book.  In fact, this group of customers are often considered to be the ‘goose that lays the golden egg’ – and no-one wants to stress or wake the goose up, lest it run away. So year on year, the back-book becomes further neglected or even worse, mistreated.

Let's consider flipping this paradigm on its head and assert that the growth which financial services firms are looking for, can indeed come from the back-book.  By offering optimised experiences, better prices and by developing a deep relationship with these customers, organisations could more than offset the margin they would give up by ‘waking the golden goose’.  It’s a radical thought.

The financial services market in Australia is not as large as we think, and it is a fact that most customers have relationships with multiple firms.  The latent ability to increase share of wallet by delivering wonderful experiences across multiple financial needs is significant, with the flip-side being if you don’t start delivering, someone else will be waiting to entice your ‘golden goose’ away.

So how do you develop compelling value propositions and create the efficiency to profitably cover the back-book and at the same time build close relationships with these under-serviced customers?

Clean up your data

The back-book is neglected in so many ways, not the least of which is the fact that we know very little about these customers. In fact, many organisations struggle to get their current address or contact details right, let alone preferences and needs.  An overhaul of customer data is therefore an obvious and essential starting point for improvement.  There are a number of tactics that firms can employ to achieve this, including cold calling, running campaigns to entice customers to update data, as well as leveraging third party data providers (like credit agencies) to fill in the gaps.

Whatever the strategy, your CRM needs to be simple and enabling to make this task as easy as possible.  If you are going to invest the time and energy in scrubbing the data, you want to be able to leverage the effort into your marketing and sales processes as cleanly as possible.  You also need to ensure that updating the CRM forms part of business-as-usual processes so that the investment does not wither on the vine.

Supercharge your demand-generation engine
 
With time invested in data hygiene, you’ll now know who the customers in the back-book are and where they live, but to deliver any material personalisation, you’ll need to understand much more about what’s important to them.  The more conventional approach is to develop a range of marketing campaigns and deliver them through an integrated marketing-sales funnel, which directs high value opportunities to the most appropriate channel for engagement.  While this will yield some great results, in today’s world of big data, you can really supercharge these efforts to deliver personalisation at scale.

In modern society we continually express our likes and dislikes, and our needs and goals through a myriad of digital channels leaving ‘fingerprints’ everywhere.  Consider the situation of one of your back-book customers being interested in buying a house – they’ll probably run some affordability simulations through online calculators and select a house or two on their mobile device to add as ‘favourites’.  All this information is available for firms to acquire real-time through ‘feeds’, and can be used by the marketing department by leveraging contemporary marketing software to deliver highly personalised offers (e.g. loans, insurance, wealth advice, accounting) to this customer without them even having asked.  Such a direct approach may be a bit confronting for some, and a sensitive pragmatism is required, however the capability is a reality right now and many financial services firms are already on this journey.

Beyond the first interaction, a robust demand-generation engine reduces the costs historically associated with interacting more frequently with your customers, and the more opportunities you have to interact with your clients, the deeper and more intimate the relationship becomes.  This deep understanding of your customer enables you to build better products, create better journeys and drive an agenda for future engagement in a virtuous circle.

Build compelling customer journeys across multiple channels

Armed with your now rich data, and hopefully swamped by a legion of warmed up back-book customers, you’ll need to complete the sale and deliver ongoing service through a combination of digital, phone, and face-to-face channels.  The data you have built up through your ‘feeds’ along with your interactions to date, must be able to drive an intimate understanding of customer personas, content and channel preferences, perceptions of value and needs at each stage of the process.

Typically, your lowest cost to serve channel will be your digital channel, followed by phone based (or ‘inside’) sales teams with only the highest value customers sensibly being serviced through face-to-face sales channels.  Your back-book customers will generally not be your highest value customers, with most financial services firm back-book customers having low balances and single products.  The challenge for leveraging growth from the back-book is to deliver engaging experiences through digital and phone channels that delight customers and fulfil their needs without any face-to-face interaction. To enhance the experience for the customer and the efficiency for your firm, the CRM and supporting processes need to be able to track the customer journey history and inform each future channel in a way that seems seamless for the customer.

Set yourself up for success and nurture the golden goose

Rather than neglecting your ‘golden geese’ – tend to them, nurture them and deliver top-line growth in a strategic and sustainable way. A broader change is required to realise this, which means more than simply investing in new data, software and channels. The operating model must be recalibrated to be successful, with sales, marketing, technology and operations acting harmoniously with clearly established decision rights, roles and responsibilities as well as seamless hand-offs between channels and teams.  KPIs will need to be channel and product agnostic, and aligned to back-book customer outcomes, with reporting insightful enough to measure performance from these outcomes.

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