Where Should Banks Consider Making their Analytics Investments?Deloitte Debates |
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Both risk analytics and customer analytics will require significant investments, forcing a tough choice for many banks. So which is it – risk or customer analytics?
While analytics isn’t exactly new to the world of banking, plenty of banks are gearing up for their next big analytics push, propelled by a load of sophisticated new tools and technologies, not to mention a wealth of data. For many, one question is where to focus their efforts to get the most return from their analytics investments.
Major regulatory reforms such as Dodd-Frank, the CARD Act and Basel III have reshaped the business environment for banks, making risk one of the most important issues of the day at the enterprise level and within business lines. A targeted analytics approach can help turn up valuable insights to help your bank pick the desired/tested path through the minefield of new risks.
At the same time, new restrictions on fee income and interest rates have made it more important than ever to understand the economics of each customer and find ways to increase the wallet share of the most profitable customers. Analytics can play a big role in creating the elusive 360-degree view of customers, as well as improving how the bank communicates with different customers.
Here's the debate.
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| If we don’t address risk now, our customer insights won’t mean a thing. Up until 2008, it was about growth, growth, growth. And then we learned what happens when you grow without maintaining an equal focus on understanding and managing risk. |
If we can’t keep our customers, who cares about risk? Surveys show that the financial crisis has had a negative impact on how customers view banks. And changing economics aren’t helping – you can’t expect rising monthly fees on checking accounts to improve their perceptions. We need to understand our customers better and act accordingly. |
| Our ability to manage risk affects our ability to grow – or not. Let’s face it – banks that are able to quickly master the risks of the new regulatory environment will be on a faster path to growth (e.g., via risk based pricing of products or segment customers based on risk and value, etc). This growth can be profitable if banks are able to distinguish between good and bad risks at least as good as their competitors. |
Growth is about attracting and keeping more customers. And our competitors are already fighting that battle. Take a closer look at our customer base and you’re likely to find that many of our “high potential” customers are also customers of our leading competitors, whether in mortgages, deposit accounts, or credit cards. Don’t think for a second that those competitors aren’t trying to cement and expand their relationships with analytics. |
| We already know plenty about our customers. We’re just not doing enough with the insights we have. That’s a different problem. Let’s take on risk next. |
If we do know our customers, it sure doesn’t show. How are our customer insights affecting how we acquire them, or how we manage those relationships? How are they affecting the bottom line? We’re guided by reactions, not insight. We have more work to do here. |
My Take
Omer Sohail
Director & Financial Services Analytics & Information Management Lead, Deloitte Consulting LLP
I believe a choice between investing in risk analytics and investing in customer analytics is a choice that you cannot make; making investments in both areas is essential for the future viability of your bank. Neither can be deferred.
Effective risk management and analytics is critical for profitable growth in the more difficult business environment within which banks now must operate. Increasing regulator expectations and reporting requirements will also make integrated risk analytics necessary just to remain in business.
Customer analytics investments can greatly improve performance … both profitability and market share in critical high-potential market segments. While some enterprise type investments may take several years to realize a return, such investments can often be coupled with shorter-term, one-time initiatives that can provide a payback in matter of months through improved segmentation (to better target marketing dollars), through an enhanced understanding of price sensitivity (to more effectively set prices) and through better identification of high-value at-risk customers (to more effectively focus retention efforts).
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Where should Banks Consider Making their Analytics Investments?
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