Information as a competitive weapon

A year ago, I was hugely influenced by a 16-page technology supplement in the Economist that talked about information wars.

The stand-out quote from that report was from Craig Mundie, Head of Research and Strategy at Microsoft, who stated: “ Data is the greatest raw material of business, on a par with capital and labour. What we are seeing is the ability to have economies form around the data and that, to me, is the big change at a societal and even macroeconomic level.”

Now this is where it gets interesting, and shows some of my data mining background.

The essence of data mining is to dig deep to find relationships between diverse and fragmented pieces of data. In banking, it honed in on the single customer view, with the idea of deeply mining customer transactions to find out how to leverage sales.

This was typified by Martha Rogers and Don Peppers’ book on 1:1 Marketing concepts, alongside others such as Friedrich Reichheld’s views  on customer loyalty.

We churned out all the old nuggets about a customer satisfied is ten times more loyal than a dissatisfied customer, and that dissatisfied customers tell ten of their mates how fed up they are with you ... blah, blah, blah.

Excusive my cynicism but over a decade later nothing much has changed and, if anything, services is worse. But at least you can serve yourself now, via mobile and internet, so some things have improved.

Now we all talk about the experience economy – thanks to Joe Pine and Jim Gilmore – and engagement banking – soon to be launched, thanks to Brett King and Chris Skinner!

But I sit and think about all of the above and just wonder whether any bank really gets it?

Y’see, going back to my data mining days, the whole focus of data usage was on sales. Get more cross-sell, get more relationship depth, get more profit, get rid of loss-making losers ... nothing was really focused upon customer service in that lot.

It’s similar to the days of Business Process Re-engineering, where my push was for banks to reinvent the customer relationship from the external interaction viewpoint inwards ... instead, most banks opted for purely incremental improvements to internal processes to lower costs.

Now there is a big change.

That big change is the information economy and the ability of new players to use information as a competitive weapon.

What do I mean?

I mean that deep data mining can now be used to purely leverage electronic relatinsihps that deliver the depth, loyalty and sales that banks were seeking a decade ago ... and it can all be done today without a human hand involved.

We see this with Apple, Amazon, Google and more.

On Apple, you download an app or iTune and suddenly get recommendations of a thousand others. Using Ping, their new music social network, every artist you listen to pings up five others you might like.

The same with Amazon and what Google does today is even more interesting.

Google things and your IP address gives out local information along with adverts that relate to your search history.

Everything is being sensed, analysed, algorithmically processed and then personalised so that the 1:1 marketing vision of a decade ago can be delivered cheaply and easily.

So what are banks doing with this?

Not sure.

I haven’t heard one bank publicly talk about how they use customer transaction data as a competitive weapon.

I know that some banks do, and are, but they’re not talking about it.

The only one that comes close is Visa who, in the Economist’s supplement, say that they now crunch through two years worth of customer transaction records, or 73 billion transactions amounting to 36 terabytes of data, in 13 minutes using cloud computing (FSClub meeting on this on 10th March), compared to a month with traditional methods of internal computer processing.

What does it mean?

It means that you can sense customer’s lifestyles, needs, relationships and desires.

You can then target bank offers to those needs and desires automatically.

Suddenly, you get mobile adverts for loans as you pass the BMW car showroom because the bank knows you purchased your last BMW three years ago under a loan agreement that terminates in two months.

You get a mortgage offer five minutes before you walk past an estate agent because the bank knows you were looking at mortgages online last night.

You get a credit card balance transfer offer online, as the bank has seen you’re making large direct debit payments monthly to a competitive provider.

You are told about a new and improved account that would suit your lifestyle needs, thanks to comparisons with other customers and the accounts they use ... they’ve found customers like you and determined a better fit.

What I’ve described above is nothing new and Mint, MBNA, HSBC and others have experimented or provide all of the above.

But none of this is bank wide enterprise IT.

It’s piecemeal data sets being analysed in pieces.

So what I’m talking about is a mainstream bank completely rearchitecting their enterprise technologies to enable deep data mining across all data, and creating semantic marketing programs that sense customers’ needs proactively and pre-emptively.

Like algorithmic trading in capital markets where algorithmic news feeds allow trading in equities to move in real-time high frequency blackbox strategies that maximise returns, we’re talking of applying the same technologies to retail transaction services for customer loyalty and wallet share.

That’s the battle about to begin as we move from managing data to using information as a competitive weapon.

• “Information about money has become almost as important as money itself .”
• Walter Wriston, CEO/Chair, Citibank, 1967-1984

• “Banking is just bits and bytes.”
• John Reed, CEO/Chair, Citibank, 1984-1998