AI Key for Helping Banks Enhance Customer Lifetime Value

Understanding and maximizing Customer Lifetime Value (CLV) helps banks become more profitable, and AI is key to enabling this.

This is according to experts participating in a webinar hosted by Microsoft Gold Partner Mint, in partnership with ITWeb in April. It focused on building customer value with Microsoft Dynamics 365 and reducing customer acquisition costs with the help of AI.

Dennis Lupambo, Mint Africa executive at Mint Management Technologies, said the traditional tools and metrics most organizations use are insufficient to adequately measure and improve CLV and customer profitability.

He explained that CLV is the value of future net cash flows associated with a customer. “Traditional metrics such as income, demographics, behavior and personas are inefficient tools for segmenting and marketing to customers based on CLV,” he said.

“Predicting expected CLV tells banks which customers will come back, how often they will return, and how much they will spend. So instead of marketing blindly to customers, banks can segment customers and adapt how they market to high value and low value customers,” Lupambo said.

Understanding CLV also shows what customer acquisition spend should be by segment, helps marketers evaluate campaign ROI, and informs sales forecasts, he said.

“With the bottom 80% of customers bringing in only 20% of business value, it is crucial for banks to identify their most valuable customers. However, no bank has only high value customers, you will always have a mixture and the paradox is that as much as you want to focus on the high value customers, you have to manage the entire mix properly,” he said.

Properly understanding and managing CLV also enables personalization and prediction. “These are key for banking today, and AI enables them,” Lupambo said.

AI for Insights

Charl Amin, director of Financial Services for Microsoft Africa, noted: “Without insights, bankers can’t effectively and proactively engage customers and prospects in the moments that matter.”

Disjointed customer experiences don’t work, and when insights aren’t actionable, customers suffer, she added.

Customers want to engage across channels on their own terms. Financial organizations must understand and predict customers in an actionable way; offer connected digital, physical and human experiences; engage in the moments that matter; and be secure and compliant, she said. She said organizations needed to reduce resource strain between marketing, sales and data science teams and work towards becoming a data driven financial organization with the ability to integrate data at scale and improve IT productivity.

Amin said: “It isn’t just about technology and breaking down silos, it requires a change in culture.”

Charl Amin, Director: Financial Services, Microsoft Acfrica.
Charl Amin, Director: Financial Services, Microsoft Africa.

“We are yet to understand the impact of generative AI, but the requirement for us to be more human and human-like will be important in future,” Amin said.

She outlined banking use cases for Azure OpenAI generative AI including virtual agents, contact center insights, fraud detection, empowering advisors, NLP document analysis and compliance monitoring, and accessibility and language translation.

“My advice would be to start small and build muscle around generative AI,” she said.

For traditional banks wanting to harness AI to maximize CLV, she recommended: “Transform one customer segment, and test the model with that segment. Decide on the moments they want to create, then plot out the customer journey and reorganize the processes and look at how technology can create this new capability. Fail fast, get it right and iterate.

Simplifying CLV Management

Speaking on how Microsoft Dynamics tools make maximizing CLV simpler, Mint customer Anesu Vere, executive head, Customer Insights at ZB Financial Holdings in Zimbabwe, said the organization’s CLV management capabilities had been a key focus of its broader transformation.

“Microsoft 365 Dynamics brought a lot of change in our organization. We have been going through an organizational transformation programme, and wanted to address challenges in pinpointing which customers we should allocate most resources to,” he said.

Vere said: “Our challenges are now over since we started implementing our new strategy with the backbone of 365 Dynamics. We have been able to unify customer profiles across our divisions and segment customers for cross selling and upselling, giving better value and service to our customers.”

“Ever since we adopted it, our international virtual service center can greet customers personally, and develop a closer relationship with customers. Once customers develop stickiness with your brand, you are with them for the long haul, and in addition, their social networks unlock more value for you,” he said.

The bank also implemented the sales module, making it easier to track sales, get feedback and improve shareholder value.