Banks should leverage transaction data to carefully balance empathy, commerciality, and ensure business stability beyond COVID

Now more than ever banks need to be there for customers. But coming through the financial consequences of a pandemic, banks need to balance supporting the financial wellbeing for their customers with sustainability of their businesses.

By: Bernard Wilson and David Appelberg   

Throughout this pandemic, banks across the globe have prioritised the needs of their customers over shortterm performanceBut long-term, both customers and the broader community depend on the stability and profitability of the banking sector. It’s a delicate balance, and banks who can leverage their data assets – particularly their transaction and card payment data – have a significant head start in managing it.  

It was compelling to watch Australian banks respond proactively and empathically to COVID-19, given the prior public and regulatory focus on cases where banks had put profits ahead of the interests of their customers. Within two weeks of lockdown occurring on 13 March, every major Australian bank had announced payment deferrals of up to six months for eligible mortgage holders, and a number also moved to provide additional accommodations: for example, Commonwealth Bank refunding late fees for credit card customers.  

Australian banks weren’t alone in the timeliness or comprehensiveness of their response. Banks in Europe, the United States and elsewhere all moved swiftly to support the developing needs of their customers as the crisis deepened.  

Positive and negative returns on empathy 

This kind of initiative is to be applauded, and the benefits accrue both ways. For banks, the reward for empathetic engagement during a time which, for most customersmay be the most trying period of their lives to date, is the potential for building long-term loyalty. In the words of Jordi Gual, Chairman of CaixaBank: “In times of hardship, you respond to the needs of the client. They don’t forget that. It’s why they do business with you in the good times.” Mark Hand, the head of ANZ’s retail and commercial banking operations in Australia, recently reflected that many customers had not forgiven ANZ for failing to nurse them through the 1992 recession. 

In the short-term, however, the trade-off has been a significant financial impost, manifesting itself in both the impact to profits but also capital management responses necessitated by those adverse impacts, including capital raisings and dividend deferrals. In Australia, NAB reported its results almost a fortnight early to disclose a 51% drop in halfyear profit, cut its dividend by nearly two thirds and seek $3.5 billion in funding from investors to boost the bank’s common equity tier one ratio. Less than a week later, both Westpac and ANZ deferred their interim dividend as they braced for the financial impacts of COVID-19. Commonwealth Bank followed, reporting a 23% fall in cash profit over the latest quarter. Long term, the bank (and investors) hope that the capital management responses create long-term value for shareholders, but in the short-term, there will be pain. 

The Australian Banking Association reported in early May that the total value of all loans deferred by the banks was at least $200 billion. In total, Australia’s big four have put aside almost $5 billion for bad debts arising from the COVID-19 outbreak. 

The importance of prioritising customer welfare can’t be overstated, but at the same timebanks can’t just be passengers in this environment. There is too much at stake not only for their businesses and their respective shareholders but also for the broader community which depends on the stability of the banking sector. Yet any missteps in the name of protecting balance sheets and profits will be harshly judged by a long list including affected customers, the media, regulators, politicians and the public at large. Given regulatory pressures and increasing competition from challenger banks, this is the kind of exposure banks can ill-afford at the current time. 

Using transaction data to strike a balance 

The answer for banks lies in the rich data assets that sit under their noses. Of the myriad ways in which transaction data can help solve this problem, perhaps the most obvious is in distinguishing which customers genuinely need a payment holiday frothe opportunists 

In the United Kingdom, reports are that one in nine homeowners have taken advantage of offered mortgage deferralsIn Australia, more than 1.2 million Australians customers have asked to pause their mortgage repayments, which is closer to one in six. Have one in six Australians suffered material financial impact from COVID? Or are some of these applicants testing the boundaries of banks’ generosity?  

Customer spending behaviour is incredibly powerful in identifying whether a customer is in stress or hardship at any given time or diagnosing whether a customer is likely to need assistance in the future. Once cleansed and categorised from its unusable raw form, transaction data opens a clear and direct lens into customer vulnerability. For example, spend data can accurately and quickly identify: 

  • changes in discretionary spend over time that could indicate a customer tightening their wallet, or entering financial hardship; and 
  • spend (including frequency, amount and history) on brands considered as risk indicators, such as payday loan providers and debt collectors.  

Similarly, the ability to accurately classify salary and other income means that a bank can identify customers that have suffered a financial impost, and also those whose income is related to sectors or even businesses at risk in the current economic climate. Based on this level of insight, proactive lenders can even reach out to customers who might require support but are yet to apply.  

We don’t know how long this thing will last, nor how many waves are yet to break over our health systems and our economy. It’s critical that banks accurately target their assistance to the customers who need it most. Depending on the size of the bank, separating those customers from those exploiting the bank’s goodwill could help to protect more than US$50m of profit. Across the sector, it will ensure that lenders can support the financial wellbeing of their customers without undermining the sustainability of their businesses – which is ultimately the best outcome for all of us. 


Our Q.Refinery product is uniquely positioned to help banks balance empathy with vigilance and support those vulnerable customers in genuine need of support. With its unique AI-based approach, it delivers unrivalled coverage and accuracy across salary and income credits, as well as expense category, brand and location. It also unlocks thousands of rich customer features to better identify changing customer behaviour and proactively manage financial hardship.  

Please feel free to contact us if you’d like more information.  

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