Use data to slow customer.

• Author: Burgelman, Luc

Banks need to proactively identify customers likely to leave long before they actually depart. These customers are more likely to remain loyal if they are targeted with individualized retention offers.

THE DAYS OF THE NEIGHBORHOOD BANK are OVER. In the movie "It's a Wonderful Life," you may be struck by the idea that George Bailey approved Ernie Bishop, a cab driver, for a loan for the simple reason that he could vouch for the man's character.

To many in today's banking industry, this may seem more far-fetched than other occurrences in the movie, which involve time travel, guardian angels and parallel dimensions. That level of personal knowledge of customers--and the loyalty it inspires--simply doesn't exist in the same way today.

There may have been a time when a banker with a sharp suit, a firm handshake and a few questions about your family could curry favor with the local customers, but those days are long gone. In the increasingly data-driven and digital world of banking, many customers go months or even years without even stepping into their local branch.

In other words, the George Baileys of the world are few and far between, and there are very few chances to interact with them in today's hurried world. At the same time, globalization has given customers options beyond the branch down the block. For years now, many customers have viewed retail banking as a commoditized market. When rates are similar across the industry, there's only so much that banks can offer to distinguish themselves from their competition. Free checking and a toaster when you sign up may have helped banks attract and hold onto customers in the past, but that's no longer the case. Not everyone wants a toaster, and in many cases, making the same offer to thousands of dissimilar customers is akin to shoving a square peg in a round hole. Quite simply, that approach is no longer good enough. Instead, customers want to know that their bank understands them as individuals, and that the customer service will reflect that knowledge.

Competition to attract and retain customers is at an all-time high. Banks across the globe are beefing up their technological war chests to develop a deeper understanding of customers and to present them with more relevant and timely offers--and to do so faster than the competition. Competition is also starting to creep in from new places, including technology companies such as Google, Apple and Amazon that are jumping in with their advanced...