By: Ramzi Yakob, Chief Product Officer at Upside Saving
The Covid pandemic and the resulting drop in high-street retail has pushed many retailers to move even more towards e-commerce, or at the least, speed up plans they already had in place. It seems however that this has had a demonstrable and negative impact on profitability due to the complexities of the ‘final mile’ according to some newly reported research from strategy experts JP Castlin and James Hankins.
Simply put, having to be expert and efficient in the logistics of both high-street retail and e-commerce is no simple feat, and as the pendulum has swung farther and faster towards e-commerce in the last year – there is a gap in margin creation that marketers will be attempting to plug.
From this starting point, I now direct our attention to Open Banking. Whilst seemingly a non sequitur, it is in fact a possible route to a solution for the above. And as I’ll come to explain, isn’t something you’ll have to build expertise in to benefit from. As a very fast introduction, Open Banking is a set of regulations and technologies that allow people to share their personal banking data with businesses (the assumption being that they get something significantly valuable in return).
This data could be a route to finding some of that margin. It represents actual human behaviour rather than claimed behaviour or a FLoC (Federated Learning of Cohorts) made up of thousands of signals in the opaque and fraud-hindered ecosystem of cookie tracking and programmatic marketing.
Here’s just three of many ways in which retailers could improve the margins they’re achieving from their marketing by using Open Banking.
New customer acquisition – Banking transactions can tell you who’s spending a lot (or a little) in your category, but not with you. You can spend marketing dollars on targeting those people, and provide specific incentives based on their spend potential.
Re-engaging lapsed customers – Not every customer is worth ‘winning back’, some simply aren’t active enough in your category for any marketing spend to produce a positive return. Open Banking data highlights which lapsed customers are worth spending money on to re-engage, and help save you money where they aren’t. You could even find patterns in the data that are predictive of customers lapsing in the first place, enabling you to develop strategies to defend against churn.
Consolidating category spend with you – Two different customers that spend £20 each month with you are not worth the same. Person A only spends £20 each month in your category, Person B spends £100 in your category, but only £20 of it with you. While your POS (point of sale) or internal loyalty program data won’t tell you which is which – their Open Banking data will. Spotting that difference and having different strategies and marketing investments tailored to each will help you recoup profitability.
There are a lot of opportunities and new technologies competing for your attention. To get started with Open Banking, the best bet is to find a strategic partner that can help you test these different approaches and get your own data on whether or not it’s worth exploring in more detail. Even over the longer term, you may find working with strategic partners is the more sensible choice given there are some barriers to a DIY approach.
Adoption of Open Banking is low with only about 2.5m UK adults having engaged with it so far. Giving businesses such close access to your banking data is a big ask and the value exchange to people has to add up. Right now, the offer back to consumers isn’t as strong as it could be, but we expect adoption to accelerate as more businesses offer propositions that people find more valuable.
It’s a commitment. On top of increasing your exposure to GDPR, dealing with the raw Open Banking data is a regulated activity under the Financial Conduct Authority (FCA). The data itself requires a significant amount of processing to be valuable, so you’ll need a healthy amount of Data Science expertise available to you to do that processing.
The Competition and Markets Authority (CMA) will put you under scrutiny. Imagine Sainsbury’s having a perfect view of how much their customers are spending at every other supermarket, how often, where and when. The CMA might see this as being anti-competitive.
The good news is that strategic partners already exist to help you make the most of the value of Open Banking without having to become an expert in it or taking a DIY approach. So make sure it’s an avenue you have on your list to explore as you consider ways to recoup some of the margins that have suffered as a result of the shift towards e-commerce over the last year.