Relationship Decisioning Builds Strong Relationships and Profitability

Kristie K Heinemann
June 6, 2012 — 1,596 views  
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With numerous new regulations and the rapidly changing economic environment, financial institutions' (FIs') relationships with their customers are changing. Products that used to be very profitable have become loss leaders; the profile of a profitable customer has changed; and consumers have lost the trust and loyalty they once had in FIs. Banks are struggling to create relationships that are profitable, while also adding value to their customers. Relationship decisioning can help FIs determine which customers will be profitable, make decisions about which products those customers are likely to use, and decide the most profitable products for the FI to cross-sell.

Traditionally, FIs used checking and savings accounts to initiate relationships with customers and used cross-sell as a device to deepen the customer relationship. With recent regulations such as the Durbin Amendment, profits from demand deposit accounts (DDAs) have been drastically reduced. Because of this, DDAs aren't as profitable as they used to be and are even becoming unprofitable for some consumer segments. FIs have continued to use DDAs to bring in new customers in the hopes of creating a profitable relationship through cross-sell, often offering credit products to their customers.

Instead of generically offering products to their customers, FIs could increase profitability while personalizing their relationship with their customers through relationship decisioning. Relationship decisioning allows the FI to determine what products should be offered to a consumer in order to create a profitable relationship. Predictive modeling can use a customer's past behavior to make inferences about how they would behave in the future, allowing the FI to create a profitable relationship with that person. A profitable DDA customer won't necessarily be a profitable credit card customer so the FI shouldn't offer them a credit card, but maybe an auto loan instead. A customer who doesn't pay their bills on time and has a history of account abuse shouldn't receive cross-sell offers at all. Using predictive modeling, the bank can offer the right product to the right customer to ensure that they are receiving relevant product offers that will create a long-lasting and profitable relationship with the FI.

Using relationship decisioning to make relevant offers to consumers will create a positive cross-sell experience because they feel that the bank knows their preferences and cares about their financial future. Relevant cross-sell also increases the acceptance rate of offers. This is especially important when the offers that are being made will increase the profitability of the overall relationship with that customer. Not only are there more offers being accepted, but each offer contributes more to the bank's revenue.

By implementing relationship decisioning, FIs can increase the relevancy of the offers being made to customers to create a profitable relationship. This strengthens the connection that the bank has with its customers while increasing the return on investment for cross-sell efforts and increasing overall profitability.

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Kristie K Heinemann

Zoot Enterprises

Kristie Heinemann is an Online Marketing Specialist at Zoot Enterprises. She holds a BS in Marketing and Spanish from the University of Wisconsin La Crosse.