The biggest banks grow even bigger. The regulatory environment has made it tougher for community and mid-tier banks to keep up with major players. Yet advanced analytics—which many refer to as Big Data—increasingly plays a key role in grabbing market share. For those banks leveraging advanced analytics, the technology can lead to greater profitability, increased market share, and improved customer service.
This three-part series will lay out the basics of this promising technology for banks that have not explored it yet. Part 1, here, will answer five key questions. Part 2 defines key terms and explains why understanding them is important. And Part 3 will explore the potential rewards of implementation.
Q1. What is “advanced analytics”?
Advanced analytics is the process of examining large data sets containing a variety of data types (both structured and unstructured, from internal data and external data) to uncover hidden patterns, unknown correlations, market trends, customer preferences and other opportunistic business information.
Research and advisory firm Gartner produced a report last year stating that advanced analytics is a top business priority and is the fastest-growing segment of the business intelligence software market.
Why? Traditional analytical tools only examine historical data. Tools for advanced analytics focus on forecasting events and behaviors, allowing banks to conduct what-if analyses.
Q2. Why does advanced analytics matter to your bank?
With the proper advanced analytics technology in place, these newfound analytical insights can provide a marked transformation for your bank in multiple areas. These can range from more granular targeting of marketing campaigns to quantifying the ROI of an action or campaign to better cross-selling and up-selling based on customer needs and history to greater risk and fraud mitigation.
The banks that are implementing advanced analytics technologies and building teams—or finding partners—to leverage it are gaining true competitive and profitable advantages. The more information and knowledge we have on hand about customers, the better we can deliver what customers want and need—exactly when and how they want it.
Community banks, in particular, have greater relationships with their customers and deeper roots within their communities. This, coupled with analytics that quantify and measure action, will result in best practices with which larger banks simply cannot compete.
Q3. How can advanced analytics produce profits?
The reality is, an advanced analytics program means very little without an action plan in place to help the bank take data insights to the next level—tracking and managing the actions of not just the sales and marketing teams, but of your customers.
When banks act on what advanced analytics tell them, the results can include increases in efficiency, retention, and profitability. Taking action starts with having clean, segmented data that provides the bank with a complete view of customers, loans, deposits, and profit performance. By using advanced analytics tools, the bank can identify specific customer segments where there is an untapped potential for new business.
Here’s an example: Imagine having the opportunity to cross-sell and up-sell mature mortgage holders who don’t have an equity loan. Advanced analytics tools establish multiple data groups and compare results over the long-term, helping you understand which campaigns, sales opportunities, or cross-sell initiatives have the biggest impact.
Over time, the bank will be able to identify other segments of opportunity by applying statistical models to historical behavioral data. With predictive analytics, the bank can prescribe recommendations to help create a new action for an identified group of customers and further track the impacts of those actions.
Overall, this shifts the focus to the most promising opportunities, resulting in higher ROI and sustainable boost in revenues.
Q4. What are the intangibles of advanced analytics?
A vibrant workplace culture and healthy employee relationships are byproducts of advanced analytics. Why?
Improved analytics help align employee and management goals. They can unite efforts, helping to attract new business, enhance customer experience, and improve franchise value.
Advanced analytics can reduce flawed results and skewed answers to goal-setting and attainment. When employees analyze and trust the bank’s data, they then focus on what attracts and retains customers.
Q5. Is your bank ready?
Well-known author and motivational speaker, Zig Ziglar stated, "You can't go back and start again, but you can start right now and make a brand new end."
This statement holds true for those banks still in the contemplation stage of advanced analytics programs. Understandably, bigger banks have bigger budgets to invest in data talent and advanced technology. However, community and mid-sized banks can catch up by adopting an advanced analytics strategy with the low-cost scalability of outside analytics partners with expertise and tools that fit their institution.
About the author
Steven Simpson is senior vice-president—financial institutions at Saggezza—a global solutions provider that develops and implements leading analytics products. He can be reached at [email protected] or at 786-859-4100.