7 Ways Banking Analytics is Improving the Financial Services Industry
In the second it takes to say “data,” people around the world generate about 10,000 tweets, make 1,805 Skype calls, upload five hours of YouTube video and send more than 2.4 million emails. Globally, we produce 2.5 exabytes (or 2.5 billion gigabytes) of data in a day, and IDC predicts we’ll generate 40 zettabytes — that’s 40 trillion gigabytes — of data by 2020.
Among this trove of data is information to help banks analyze and fine-tune business processes, create targeted marketing campaigns, efficiently compile reports, comply with regulatory requirements and, in turn, remain competitive and profitable. But how to get at it? This useful data doesn’t generally come neatly packaged in databases.
That’s where business intelligence comes in. BI employs tools to gather those ever-growing volumes of disparate data types from various sources, process them at record speeds and analyze and use that data to gain new business insights. The concept of BI has been around for decades, but it has been reborn, with new, more powerful tools to harness today’s data explosion.
Banking leads most industries when it comes to Big Data analytics, according to a recent Strategy Analytics survey of 450 companies worldwide. Banks use BI to contain costs, boost profits and compete locally and globally. What follows are some of the areas in which BI can help banks.
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Data Analytics as a Risk Management Strategy
The banking industry is built on risk, so every loan and investment needs to be evaluated. BI tools can give banks new insights into their systems, transactions, customers and environments to help them avoid certain risks. For instance, a bank could analyze regional weather data and match that with the age and integrity of the area’s buildings to help determine whether to offer insurance in that market. Regional economic data and historic sales data can help determine when a housing market is poised to rebound and where to offer low-interest loans or invest in rebuilding. Banks can analyze the factors that cause borrowers to default on loans and craft new programs to circumvent those factors. BI can also make systems more transparent so that institutions can detect internal or external fraudulent activity and identify past patterns to prevent future fraud.
Marketing and sales automation:
With the volumes of data available today, banks can gather previously unimaginable information about each of their customers. This gives them a better understanding of customers’ needs and helps them to address these needs proactively. It also allows different departments within a bank, such as marketing, sales and IT, to work more cohesively as a single unit. For example, rather than pushing out products to all customers, banks can now merge BI and sales force automation tools to market products tailored to customers’ current situations, whether they’re building new homes, opening small businesses or starting families. In fact, financial services firms using BI reported a 7 percent improvement in cross-sell and up-sell revenues.
BI also gives banks up-to-date information on their most profitable customers and the banking choices they make. Banks can use that information to retain high-value customers, market the right products to them and decide which products to invest in for the greatest return.
Performance analytics, budgeting and product innovation:
Banks can use BI to measure business and employee performance and then create branch budgets and employee goals based on past achievements. In addition, they can target training and education of these employees for off-peak times and monitor progress toward goals in real time. Banks can also use performance data about products, features and services to create new offerings designed around current customer demand.
Looking at past internal and external data, banks can plan for the future. BI can help them spot patterns, address issues going forward and set goals that improve upon historic metrics.
Using graphs, charts and animation, customizable interfaces help users visualize data. Managers can run queries and pull reports based on their needs. They can analyze the percentage of loans by type, monthly operating expenses or profit and loss by region.
When asked to name their greatest business concern, 68 percent of bank executives cited regulatory compliance. Many of the Dodd-Frank Wall Street Reform and Consumer Protection Act rules took effect in 2014, and the Volcker Rule came into play in summer 2015. Business intelligence can help banks gather, organize and analyze data, compile reports and comply with requirements.
To learn how analytics tools gather and make sense of relevant information, download the white paper "Better Data Through BI."