Digital Migration in Banking

A major goal of most retail banks is to migrate customer channel behavior from expensive agent channels (teller, branch banker, and phone agent) to less expensive self-service channels (ATM, digital and chat), a strategy known as “digital migration”. To resolve banking tasks, customers generally prefer the convenience of self-service channels over agent channels, provided that the customer experience in the digital channel is sufficiently intuitive so that consumers can get it to work!   

The adoption and usage of digital banking channels is influenced both by the bank’s ability to deliver higher-order functionality in the digital channels and by the appetite of customers to manage their accounts through a digital channel. The migration of customer service activities from physical channels to digital channels is an act of co-creation, enabled by the maturity of the bank’s digital banking application and by the customer’s technological savviness, a phenomenon known as “customer efficiency”.  

The key to successful digital migration is the ability of the bank to design and deliver a customer service strategy that can effectively resolve a customer’s banking task while minimizing the customer’s expenditure of time and effort. Influencing customer channel behavior requires the bank to invest in several capabilities. First, the bank needs to pursue a disciplined approach sequencing channel data by customer via the flexible database architecture of Teradata Vantage™. Second, the bank must develop predictive models for key portfolio behaviors, such as for product purchase propensity, customer attrition risk and estimated customer lifetime value. All of these “customer dynamics” models can be developed and deployed via Teradata’s ClearScape Analytics™. 

To measure the impact of the bank’s “test and learn” program to drive digital channel migration on key performance indicators like customer retention, the bank will need to deploy analytical methodologies such as “differences in differences” – an approach designed to infer causality by comparing the focal customers targeted for migration to a reference population not exposed to the targeting. The marginal impact on customer attrition for the focal population is compared to the reference population, after controlling for the baseline propensity of the customer to attrite. 

To measure and manage the impact of digital migration more effectively, a large U.S. bank created 25 mutually exclusive customer efficiency segments via the cross-tabulation of physical channel versus digital channel usage at the customer level. The customer efficiency segments efficiently describe the heterogeneity in banking channel usage intensity across customers. The bank leveraged the customer efficiency framework to predict future period channel activity by developing a hidden Markov model to simulate customer transitions across the customer efficiency segments over time to generate a forecast of activity by channel within geography. These simulations allowed the bank to determine the impact of actively promoting the migration of customer activity to digital channels by geography and support the rationalization of the bank’s branch and ATM distribution network in every city that it serves.  

The outreach programs that are determined by evaluation in ClearScape Analytics to be the most effective in nudging customers toward digital banking channels can be instantiated as targeted direct marketing programs, such those supported by Teradata partner ActionIQ. Successful tactics to promote the migration of activity to digital banking channels focuses on the displacement of traditional paper-based payment instruments with digital payments.  

One successful strategy is to feature the ability of customers to deposit paper checks via the mobile banking application remotely rather than waiting to visit a branch or an ATM. Another approach is to promote the adoption of person-to-person digital payment modalities, such as Venmo or Zelle, as a replacement for currency or paper checks. Successfully promoting the migration of banking activity from in-person to remote channels requires a rigorous approach to measuring, monitoring, and incentivizing customer payments behavior.