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How to use AI to enhance primacy of bank clients 

One of a bank’s greatest assets is the intelligence they have from a client’s transaction data

Community and regional banks often ask themselves if they are their customers’ primary bank and if their bankers have an accurate view of their customer relationships and transactions. These types of questions relate to the topic of customer primacy, a concept the financial services industry hasn’t yet standardized.

Some banks determine primacy by the number of relationships the customer has (i.e., lending, deposit and treasury management), while others may consider the number of transactions, deposits or loans. Banks should want primacy clients as they produce higher revenues and lead to stickier relationships. Primacy allows the bank to provide value to bankers, customers and shareholders.

While primacy should be adapted to each financial institution’s needs, the industry needs standardization, which can only start with data. One of a bank’s greatest assets is the intelligence they have from a client’s transaction data. Making the most out of this data requires it to be stored in a clean data environment, grouping accounts by customer, portfolio and business unit. This helps create household and customer hierarchies and enables the bank to analyze profitability.

Data will need to be extracted and categorized at both the transaction and account-level. Then, artificial intelligence (AI) capabilities should be used to help determine a customer’s level of primacy.

Knowing this information can help bankers determine which customers are most profitable, saving time and boosting efficiencies once spent analyzing their primacy. Bankers can now truly become trusted advisors to their customers. Because they have a more detailed view of their customers, they can now better understand their needs and offer more relevant products and services that can add value to these relationships. The bankers who understand the entirety of their client relationships will have more confidence and insight to create meaningful and impactful conversations, helping their customers make healthier financial decisions.

Establishing customer primacy can also be beneficial for a bank’s bottom line, as well as its shareholders. It can increase profitability and lifetime value, further driving shareholder return. For example, customers with a primary operating relationship generate 3.2x revenue and 8x lifetime value. There’s a huge opportunity to transition a business client from the account opening stage to a fully established primary relationship within the first six months of the relationship.

Take First Keystone Community Bank as an example. The bank identified five factors which impacted profitability and longevity of the relationship: total amount deposited threshold, transaction threshold, external credit paid, payroll and merchant. Based on these factors, tiers of primacy were determined, and the following results were found:

  • Each tier increased the lifetime value by at least 10%.
  • 96% of the time, a jump in tiers was due to a customer already having a deposit relationship with the bank.
  • Customers that became regular transactors stayed 5.5 years longer with the bank and produced $2,500 more in annual net income.
  • 94% of customers reached their maximum tier by the third month and 99% of clients don’t increase tiers after the fifth month of the relationship.

These results prompted the bank to find new opportunities to engage with their customers while driving revenue growth. It reinforced the value and importance of selling full relationships at the beginning of a customer’s journey with the bank; for example, expanding lending relationships into depository relationships. The bank could also capture categories and merchants from the transactions, providing a more accurate picture of the account. Moreover, because this data is easily referenceable, banks can now spend time meeting with more customers and creating targeted interactions, instead of dedicating valuable time to doing research.

It’s time for banks to explore additional ways to drive profitability. Establishing customer primacy can help community and regional financial institutions rise above the current economic pressures. While there’s still some industry education to be done around primacy, the good news is that it is a continuum. The closer a customer is to primacy, the higher the client and shareholder value.

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