Predictive analytics is the use of a computer model to predict a future event. These sophisticated platforms rely on data mining and artificial intelligence to look at a massive amount of information. Then the software uses those resources to predict what happens next if the current conditions remain the same in the future.
The software models are unable to know everything. Predictive analytics does not always reach the correct outcome.
Even with its inaccuracies, banks embrace predictive analytics because it makes their services more efficient. Customers can complete their banking tasks quickly while institutions reduce their overhead. The data that consumers generate also create machine learning opportunities that can make the AI more accurate in the future.
Benefits of Using Predictive Analytics in Banking
According to Deltec Bank, Bahamas- “Banks that use predictive analytics can improve their user experience in a variety of ways.” Some customers might feel a little unsettled by the idea of giving an institution a lot of data, but there is also the advantage that software built to avoid bias will not discriminate against someone they do not like.
Several benefits become possible with the implementation of a predictive analytics approach.
1. Improved Credit Scoring
The FICO credit score uses predictive analysis to determine the risk for an institution that a customer misses a payment in the next 90 days. It is data that is partially based on how users in similar situations have performed in the past. These models then predict one’s creditworthiness for a lending product. That is why you can receive credit decisions in seconds instead of days.
2. Fraud Prevention
Banks use predictive analysis to find transactions in a customer record that see out of place for their usual behavior. AI can spot problems faster than humans, preventing the unauthorized use of a debit or credit card. This technology might even reduce check frauds that cause consumers to lose money. Even if an identity thief has all of the information needed to create accounts or access funds, this benefit works to eliminate that advantage.
3. Budgeting Assistance
Predictive analytics can help users manage their finances more effectively. It identifies when income reaches your account while showing the destination of outgoing cash flows. That means if you have a reoccurring bill that hits in the middle of the month, your bank can recognize this issue to send you an alert. That means consumers can avoid late payments, overdraft charges, and similar issues.
4. Financial Management
Banks can use predictive analytics to make long-term financial decisions for consumers. AI can look at the advantages of making extra loan payments, analyze stocks, or look for ways to start eliminating debt. It could even help some consumers learn how to earn a higher rate on their savings accounts.
Lenders are learning how to do more with their data as consumers expect free access to financial products. The use of predictive analysis reduces overhead needs while increasing the number of available services a customer may desire. That means banks can make more money while customers get to save more – and that is a winning combination.
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.
About Deltec Bank
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.