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KPI: A must-have tool for financial institutions


Key performance indicators, or KPIs, are becoming an increasingly important tool for financial institution executives as they move into the future. True to their name, they offer a measurable, quantifiable look at how well a financial institution performs over time on key drivers of revenue and profitability. Examples of KPIs include, but certainly aren’t limited to new accounts opened, products per customer or net promoter score.

With more data available than ever before, it’s important to understand the power of KPIs. Specifically, managers and coaches should have a firm grasp on what harnessing and measuring KPIs can do for their financial institutions, and what they can’t do.

What can KPIs do?

Show revenue streams by performance. A good example of a KPI is the total dollar value of an individual revenue stream, and executives use KPIs to answer questions about their incoming revenue. What are a financial institution’s total account holdings? What portion of their loans are car loans versus mortgages? Understanding the performance of these different revenue streams helps directors and executives know where trouble areas are and where opportunities lie. They can understand which elements of their financial institutions are most important to protect and have an accurate picture of their business priorities.

Encourage hypothesis. When executives look at their strengths and weaknesses, they can make inferences about why those strengths and weaknesses exist. This is particularly important when a KPI trends up or down, which opens the door for next steps of research and insights. For example, if the amount of new accounts opened is dropping each month, executives should try to understand the root cause. Are fewer customers coming through the door? Do local competitors offer a better interest rate? Are employees failing to convert prospects into customers? Executives don’t have a crystal ball, but guessing and testing these different hypotheses can help, especially to redirect faltering KPIs and mitigate lost revenue.

Highlight importance of customer relationships. Customer relation KPIs, such as loyalty index, net promoter score and customer relation feedback, help executives understand what makes their financial institutions better or worse than their competitors. Iterative scoring, along with qualitative feedback directly from customers, helps executives make sense of what is on their customers’ minds and what is important to them. Feedback gives context to the areas of the financial institution that are thriving or faltering, and often offers a recommendation for improvement.

What can’t KPIs do?

Teach employees how to interact with customers. Scoring alone can’t explain the interpersonal skills necessary for a successful customer experience. More feedback in the form of customer experience research is necessary to understand KPIs. For example, executives can use KPIs to learn that consumers are increasingly dissatisfied with a bank’s call center, but they must dig deeper to understand how to improve. Often, subtle interactions send strong messages about a financial institution’s brand. Customers need to feel respected by their financial institutions, and the institutions need to actively promote relationships and look for opportunities for growth. Coaching, qualitative feedback and close observation are needed to develop true mastery of customer interaction.

Create a strategy. KPIs are great starting places for developing a strategy for improvement, but they’re far from the final plan. They illustrate strengths and weaknesses, but coaches and managers need to work with their staff to create a plan of action. If a KPI is constantly improving, how can they expand that aspect of their business and seek out new opportunities? If a KPI is faltering, managers need to coach employees on specific actions for improvement, or look at their financial institution’s value propositions and understand where they might fall short compared to competitors. KPIs are wonderful diagnostic tools, but understanding a problem alone doesn’t offer a solution.

KPIs are becoming increasingly specific, and managers are working with partners to measure KPIs, understand them in an easy-to-digest manner and use them to direct the priorities of their financial institutions. These tools have limits, but their ability to direct attention and establish data-driven confidence makes them an important element of financial institutions’ decision making, and they will become increasingly utilized in the future.

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