Smart Engine: Get smart: reviving loyalty in retail banking - Christian Bacher
Some analysts have questioned whether customer loyalty still exists for banks, as it is easy to switch accounts between banks, and more alternative providers of finance seem to enter the market every day. Christian Bacher, CEO and managing partner of Smart Engine, discusses why the company is challenging that view with its promise to turn big data into a successful loyalty platform based on card-linked offers and merchant-funded rewards.
These days, it is easy to switch to a new bank in search of better customer service, higher interest rates or personalised products. At a time when many banking products and services have become commoditised, and banks often sit in the background, their processes hidden behind the sophisticated front-end applications of big corporates, it is more important than ever for financial services institutions to build their brands and find a new place in the market.
Disruptive competition from new entrants - including some of the world's biggest companies such as Apple, Google and Amazon - has created a crisis of identity for banks, which cannot rely on customers to stick with them as lifelong service providers as they did decades ago.
"Customer loyalty existed in the UK and in Europe before the financial crisis in 2008. People would have a current account, loans and mortgages with a bank, and would stay with it throughout their lives. Now, not only young people are totally flexible, older customers are also willing to change to find the right products and services," remarks Christian Bacher, CEO and managing partner of Smart Engine.
"Banks offering commoditised products find it hard to differentiate themselves from their competitors. New entrants like Apple and Google cannot replace banks. They need banks to provide back-end services, but banks can only be easily replaced as their service providers; also, they could lose the direct connection to customers. It will be companies like Apple that the customer interacts with, and banks may just become providers of white-label banking functions that can be replaced," he adds.
Headquartered in Austria, but with a reach that extends to Russia, Hong Kong and New York, Smart Engine is an innovator in the field of customer loyalty. Working with financial services companies and merchants as strategic business partners, it implements personalised target-marketing solutions through mediated online channels to create value for both groups.
Its proposition rests on the premise of smart shopping, which simultaneously enables banks to build a loyalty eco-system of merchants that deliver relevant offers to bank customers.
"Most banks have developed a mobile strategy, which is the key to reaching customers at the right place and right time. Some are using social media, which is great for traditional marketing and for attracting new customers, but many banks are not sure what to do in that space. There is no strategy to develop something new - they are just bringing their existing commoditised services onto new technology platforms," says Bacher.
"Banks in the UK and Europe are in a difficult situation because their technology was developed over many decades and it is hard to overcome the complexity of legacy systems. In a country like Turkey, where retail banking did not really start until the 1990s, banks have newer systems, so they are more agile and innovative, just like the new non-bank competitors in the financial services space. The answer is to partner with companies like Smart Engine, which provide technologies that can bring new products to market quicker," he adds.
When you look at the models that make companies like Apple and Google a threat to traditional banks, its clear that they based on merchant alliances. Although banks still come into the equation by offering card services and providing the functionality that underpins mobile-wallet services, they are out of the loop in terms of the relationship between customers and merchants. Smart Engine offers a way to change this dynamic.
"Banks need to develop merchant relationships and we help them to achieve that so they can compete. Analysts are saying that software as a service - SaaS - is the answer, but that just means adopting technology developed by others. Our system centres on building relationships so that people using cards can save money when they go shopping, and merchants can access the card base of banks with targeted offers," explains Bacher.
"With interest rates likely to remain low for some time in Europe, banks have a problem with their traditional products, but when people shop at merchants and use bank products to pay, there is an opportunity to provide a value-add through savings or cashback offers. Our system encourages people to stay with banks because of the benefits of the relationship between those banks and the merchant community," he adds.
On one hand, the bank benefits from the appeal that merchant offers have for its customers. On the other hand, merchants have a powerful marketing channel. Using many sources of data - including bank and merchant systems, social media, online shopping history - Smart Engine's sophisticated campaign management and analytics systems can predict customers' shopping patterns and ensure merchant's offers are specifically targeted.
"As well as encouraging loyalty, it can also be used to help banks acquire new customers. For example, we offer full integration with social media and all our services are branded for the bank, so a customer using Facebook can send the offer to a friend - whether or not they are with the same bank - and the value of that offer could attract that friend as a new customer. Social media becomes a cheap and effective marketing channel," says Bacher. "Loyalty is no longer an idealistic concept. It becomes meaningful and it can be supported by KPIs such as retention rate and the rate of customer engagement with digital channels. Our services are integrated with online and mobile applications, and they increase customer use of those channels, as well as increasing card spend. We achieve great conversion rates for merchants, which steadily draws more of their marketing budget to this channel," notes Bacher.
Furthermore, the Smart Engine system is easy to implement for merchants and banks. Onboarding merchants has proven relatively easy because there is no upfront investment to make, no IT project to run and no additional labour cost. Half a day's training on the offer platform and campaign management tool is all that is required.
Reaching out across the world
The benefits Smart Engine offers to merchants and banks are compelling, which is why interest has built quickly in its target markets.
"Generally, it takes a long time to sell a new IT idea to banks as they have long decision cycles. We started three years ago and, at that time, banks in Europe were not looking at new business models as they had more immediate priorities. So, we became heavily involved in Russia, where we are a market leader. We focused our efforts there and have become very successful. Now, from our Hong Kong office, we are building the business in Asia, where the decision cycle is shorter and where there is more competition in the card market," says Bacher.
"We began targeting Europe and the CEE region in 2014 and we have seen a lot of movement. Banks are looking for new business models and merchant alliances. We could see very fast growth in Europe in the next few years and we are constantly enhancing our analytics capability to improve the performance of the system. Relevance and personalisation are the keys, so we always need to make sure we have the most sophisticated algorithms," he adds.
Smart Engine's platform is easy to implement, simple to use and transparent. Bacher himself cannot hide his passion for what is a solution that brings clear benefits for merchants, banks and their customers. As the company extends its reach into new markets, there is little doubt more people in the banking community will come to share that passion.