Understanding the Value of Analytics in Banking
Analytics can produce some incredible returns for the banking industry. It can also be a challenge to scale the benefits of big data in a way that makes the information useful to produce continued results.
There have been some success stories with banks using analytics in specific ways to produce intended outcomes.
Algorithms based on the activities of current customers could predict when and why there would be a reduction in business. This process reduces churn through the use of targeted campaigns that worked to correct potential problems.
Machine learning can study discounts that private bankers offer to customers to determine the use of unnecessary offers to correct revenue declines.
It has proven useful in the recognition of service similarities or a lack of microsegments in the targeted demographics to encourage more products per customer.
Why Analytics Is not Embraced Today
Some banking executives have concluded that analytics is not a valuable investment because there are challenges involved in scaling it up.
The preference is to stick with the traditional services of the industry that include transactions, payments, investments, and financing.
There is a certain logic to the idea that if a customer has an excellent lending experience that they will come back and tell their friends. Analytics takes this concept to the next level. When banks understand why consumers are using products repetitively, then the data allows them to emphasize even more of the strengths found in their offerings.
There is also some confusion when evaluating digitization and digitalization efforts. Banks are collecting and offering data by the terabyte in even small markets. If manual processes are still in place, then implementing advanced analytics would be virtually impossible. A digital revolution must involve more than a website or online banking services.
Banks must have the capacity to collect and evaluate data before the analytics that every consumer offer can become a usable asset.
How Analytics Improves Profits for Banks
The primary advantage that analytics provide is an opportunity to boost the traditional P&L levers of the banking industry. It becomes easier to accelerate growth, enhance productivity, and improve risk control.
Analytics can help institutions find new sources of growth as well. The data can show where gaps are in service offerings, reduce duplication, and pick out new market segments that may be untouched.
It can also help to deliver the digital bank to the consumer. By reducing manual processes, customers can control more of their money movements without the need for staffing to be present. More and more customers now use multiple online channels for their needs in this industry.
It was through the use of analytics that banks could identify options (like balance transfers) that consumers would want to have with that experience.
Even the largest banks in the world are finding that scaling up after a one-off success with analytics is a challenge, but it is only a matter of time before big data evolves into something practical and useful at all levels of the industry. Those who can embrace this change early will most certainly bring in the greatest rewards.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.