Smart Engine: The right customer loyalty and retention programme for you – Christian Bacher
The growing popularity of mobile payments has thrown a spotlight on the slow pace in which the banking sector is adapting to technological change. Future Banking talks to Christian Bacher, founder and managing partner of marketing analytics firm Smart Engine, about how his company is preparing new customer retention models for financial institutions in a disrupted banking landscape.
The science of the transaction used to be so straightforward. Until very recently, banking institutions bestrode the entire process, ferrying capital from willing customer to merchant whenever the former used an associated payment card or, if they felt daring, a cheque. Yet the growing complexity of smartphones has allowed new players to sidle into the transactions marketplace. Platforms like Apple Pay and Zapp have peeled customers away from their credit cards, and in so doing jeopardised financial institutions' grip on these critical revenue streams.
It seems almost inexplicable that the big banks could have missed the opportunity to fully integrate mobile payments technology into their own services to the detriment of any prospective interlopers. Naturally, this raises troubling questions as to the ultimate loyalty banks command over their customers. Yet, according to Christian Bacher, founder of digital marketing firm Smart Engine, these trends are hardly irreversible.
"Analysts have predicted that if retail banks do not develop their services in line with emerging technology, they stand to lose up to 60% of their revenue to new competitors in the next few years," Bacher says. "On the other hand, banking institutions still have formidable assets to call upon. Fundamentally, they possess reams of extraneous data on account holders that is enormously valuable, and secured through substantial investments in IT security and updated through consistent access to their customers through online banking. Those three elements, I believe, are essential in adapting new services and for thinking about what customers are really looking for from their bank."
Prior to founding Smart Engine, Bacher spent 12 years with IBM in Europe in its systems integration and outsourcing departments, and another three as the director for strategic projects at Raiffeisen Bank. Both experiences convinced him that there was a gap in the market between the foresight of multinational financial institutions and their considerable (if latent) ability to adapt to future technological challenges. Through its work devising innovative customer loyalty programmes for banks based on the transactions of their account holders, Smart Engine aims to be the bridge between the two.
In accomplishing this, the firm has steered clear of some of the more misguided efforts made by financial institutions to glorify banking itself. "I'm not entirely convinced that money transfers or looking at your account balance are really enjoyable experiences," laughs Bacher. "In reality, a customer's interaction is limited to when they use their payment cards and mobile apps. Realising this brought us to the conclusion that consumer loyalty is really sustained by providing something meaningful and useful to customers when it is based around the shopping experience."
An emerging field
Smart Engine is not the first to develop sophisticated software solutions that fully integrate advertising and rewards schemes with daily transactions. However, it is ahead of the competition in providing a range of services that fully complement the three stakeholders in any bank customer loyalty programme: the customer, the affiliated merchant and the institution itself.
"A few of our competitors mainly focus on cashback schemes and only general discounts," explains Bacher. "This is because of the nature of the data that they're analysing, which is based on historic payments made by the customer. That's great, but this data doesn't provide any information about the product or why people are buying it. Furthermore, businesses aren't always willing to limit themselves to a loyalty programme based primarily on cashback, especially since it entails quite a large effort to administrate that process."
Viewing this, Bacher and his colleagues at Smart Engine decided that there had to be a much broader mix of reward schemes to maintain customer loyalty in this era of technological disruption. "This would allow merchants greater freedom in choosing their promotions and provide a richer experience for customers," he says. "In addition to fully automating cashbacks within our systems, we also developed digital coupons that the consumer can redeem immediately. We also provide a full-scale loyalty point scheme across several of our international projects."
The incorporation of a transparent and easy-to-use points scheme between the bank and the merchant is, Bacher believes, the bedrock of any effective loyalty programme. "It provides an accelerated and increased level of loyalty because it prioritises customer experience to a much greater extent," he says. "We see that these schemes enable banks to more easily assemble so-called 'earn and burn' coalitions of merchants, where the customer is engaged over a longer period of time than would be the case with a purely cashback and discount-based programme."
On a higher level, Smart Engine can more accurately target consumer preferences for deals by loading product data, numbers and customer receipts into its central database. The firm then applies algorithms to determine where consumer interests will be days, weeks or months in the future. "By doing predictive analytics, we're able to create up-selling and cross-selling opportunities for merchants rather than simply promoting something that people found interesting in the past," says Bacher.
This allows businesses to exploit their connection with the bank to target existing and potential customers with more relevant offers, providing a much higher conversion rate than is attained with more conventional marketing channels. "This, of course, is a win for the customer, because they receive relevant information as determined by their preferences and can redeem offers in a convenient way," Bacher explains. "In the end, they avoid having to repeatedly acquire dozens of different merchants' cards in his wallet."
This model can be applied to banks of all sizes, but becomes more effective the larger the institution is. "The bigger the customer base the more interesting the programme ultimately is for merchants," he explains. "Ultimately value for merchants, for the bank and the customer always has to be integrated for programmes such as ours to be at their most effective."
Smart Engine has deployed this basic model to great effect in its operations across Europe, North America and the Far East. However, the firm has not forgotten the value of tailoring its projects to local realities. "We have learned that if you want to apply programmes for different countries, you need to be multicurrency and multilanguage, and be able to retain the ability to adapt your analytical models and algorithms to local cultural circumstances," Bacher says.
Ideally, Smart Engine is looking to work with institutions that are willing to trade on that reputation while investing in the kind of analytics that taps into consumer demands. That isn't easy in an industry that is traditionally conservative when it comes to considering ideas that lie outside its investment wheelhouse.
"Most banks do not like to be the first," Bacher reflects. "Then again, you don't even necessarily have to be thinking in that way. All our partners need to realise is that banking in the form that it has remained in for decades will eventually change or even come to an end."
In that respect, banking has to come full circle to the practical needs and wants of the individual customer. Within that, there's always room for a relevant customer loyalty programme that also complements the interests of the business and the bank that run it. "We're looking to partner with organisations that understand that digital customer relationships are totally different to those they used to have," he says. "We're looking for organisations that have that willingness to transform their operations accordingly. We see in all markets, in all countries, in all geographies, that there are banking groups that want to transform."