In banks and financial organizations three departments count sales: contact center, retail network, digital team. If the contact center reports about 300 new clients, retail about 200 issued loans, and digital tells about 400 applications in the app. We check the month’s results, see 200 loans.
Each of the departments counted the same people. The client left an application in the app, talked with the contact center, came to the branch and signed the contract. One person, three records in reporting, three bonuses for an issued loan.
This is not a very good situation, in which the bank develops blindly. It’s unclear which channel brings real profit, which department’s budget is spent effectively, what is the real unit economics of clients.
Sales funnel in advanced banks is a financial model that connects the source of client acquisition, service channels and profit on the timeline of the entire unit economics.
Why Everything Is Confusing in Banks
In internet retail the path is very simple: ad → click → website → click → cart → click → payment. To the bank a client can come from anywhere: a banner on the street, a call from warm base, walk-in to a branch on the first line, from a partner car dealership, or from somewhere else.
Different channels and different departments can process the first touch. For example, call center operator, form in banking app, conversation with manager in the branch. And then the most interesting begins: the battle for the client.
The app sends a push to the client to congratulate on a birthday by script. In a week the client comes to the offline branch and takes a loan. Who made the sale? The digital team says: we warmed up the client. Branch says: we closed the deal. Bonuses of departments depend on the answers.
In such cases arbitration over the client can arise. Review of each call: was it sales or service. Which touch to consider first. Who to record the bonus to. Without clear rules the funnel turns into a fight between departments.
Even more complicated if the transaction happens in one channel, and service happens in another. The client issued a loan online, and the bank spent small money on his attraction. But then the client comes to the branch to deposit cash, loads the cashiers, regularly calls support. Cheap acquisition turns into expensive service. Unit economics becomes unprofitable.
Six Stages of Advanced Banking Funnel
First stage of advanced funnel: lead collection. Partner network, agents, website, base for calls, lead generators, advertising. At this stage the cost of attraction is calculated.
Second stage: application processing. Who first communicates with the client? CC operator, chatbot in the app, manager in the branch. This stage is critical for conversion calculation. My experience suggests that contact in the branch works best. Then goes voice communication with the contact center. And digital instruments don’t work for any somewhat complex products.
Third stage: scoring and offering. The bank checks what it can offer to the client based on risk scoring. Part of clients drop off themselves here, because they either don’t pass the check or don’t agree to the conditions.
Fourth stage: contract. Where physically is the deal concluded? Electronic contract in the branch or electronic signature in the app or agent comes to home. Cost for the bank differs strongly and it’s important to distinguish and count each of the options.
Fifth stage: product service. In which points does the client generate costs after the sale? Deposits money in an ATM, comes to the cashier, calls support, uses only the app. If the client took a credit card for 5 thousand dollars, and then is serviced through branches and call centers, then costs on infrastructure eat a significant part of the margin.
Sixth stage: client churn. Why and where do clients leave? Too expensive services, unpleasant experience with CC, better competitive offers. Understanding the reasons helps not only to fix the funnel, but also not to attract clients who cost the bank too much.
All these six stages ideally should be calculated and attached through a single golden client ID. Otherwise this information will get lost in parallel contours of adjacent departments.
Why the Funnel Is Critical for CLTV
Customer lifetime value is calculated as gross margin minus cost of acquisition and service. But there is one more factor that is usually not accounted for in this formula: pressure on capital.
Every loan in a bank presses on capital differently. Let’s say, regulatorily, for a hundred dollars of loan the bank must hold a reserve, depending on jurisdiction, but let’s say 10 dollars. But in reality, the reserve should also depend on the quality of clients and for some fast and common products the reserve can reach, in our example, 40 and 60 dollars.
Let’s say, two clients with completely different scorings take identical loans in the bank. For the first client the bank reserves 40 dollars, for the second only 10. With identical loan conditions the second client turns out to be 4 times more profitable, because the bank frees up capital for other deals.
Advanced funnel, calculated by the principles I described above, should show which channels bring clients who press less on capital. This way, with marketing instruments you can improve the economics of the portfolio.
It’s clear that attracting ideal clients costs more. Leads from banners, organic internet traffic and partner networks cost differently. But a configured funnel will help here too, to find not only ideal, but also the cheapest possible clients.
What Gets in the Way of Building the Funnel
I have already configured such funnels several times in several places, and my experience says that configuring the technical solution is only 30% of success. 70% of success is agreeing with people.
A simple technical solution here can be the following. If the bank still doesn’t use a unified ID for clients, and in CRM there is one identifier, and in scoring another, and the processing and credit department built their own client accounting systems, then the cheapest way of unifying client data will be creating a pseudo-golden record. This is a technical gluing of data from different systems, which will allow not to rebuild working schemes of departments, but will straighten the client path for the analytics department.
But the main problem of introducing the advanced funnel is coordinating the new funnel with all participating departments. The rules of attribution of client data across different stages of the funnel cannot be handed over to the analytics department. They need to be named and coordinated with top management of all departments. If the primary system works in favor of the retail sales department, then this imbalance needs to be removed at the coordination stage.
One more thing I haven’t mentioned yet is time. Time lag is critically important. How much time passed between the call and the meeting. How long the client waits in the queue in the branch. How many days passed from application to loan issuance. Delays affect conversion and cost of service. Time between funnel stages must be part of the analytical part of the funnel and its calculation should not belong to any of the departments.
How to Use the Funnel for Profit Growth
After successfully building the advanced funnel and analyzing it, new opportunities for increasing profit appear. Here are the main three.
1) Partner management. For example, the funnel will show: partners bring large traffic, but clients drop off at scoring or pay off the loan early. Conversion is low, CLTV is small. In such a situation you can easily find an ineffective partner. This will reduce pressure on the contact center, revenue will barely fall, since these clients gave little marginality. Costs on applications are reduced, profit grows.
2) Balance between channels and churn. In searching for solutions to reduce costs it is very easy to redirect all clients from offline to online. This helps to save a lot. But at the same time leads to high client churn. Funnel analysis will help find the balance, to use expensive offline resources only for high-margin products and the right clients. Moreover, some products can be closed for expensive channels. For example, small loans and credit cards can be serviced online only. Because of this part of clients will leave, which will reduce the cost of the portfolio and lead to profit growth.
3) Source prioritization. The funnel will show, for example, that clients with high CLTV, let’s say mortgage clients, often come through brokers. In this situation the bank can remove the commission for brokers and offer brokers new and faster processing of their deals. From this the volume of traffic from brokers will grow, as it will reduce their costs. Portfolio revenue increases without growth of the acquisition budget.
The Funnel as a Financial Instrument
Building an advanced and end-to-end funnel is hard. This is a project complex both technically and managerially. But it is the only way to move from reactive management to investments and growth.
When the funnel connects acquisition, service, product mix and pressure on capital, through a unified client identification system, it turns into a new instrument that didn’t exist before. Now you can cut off channels that bring unprofitable clients, and redistribute budgets to growth points.
Banks that know how to calculate the full unit economics of a client from the first touch to the real load on capital, win the competition for margin. While the rest continue to guess from scattered metrics of departments.
