Thursday, March 24, 2011

Banking: Data hungry and decision challenged?

I had lunch today with a client's regional manager. We discussed many things, but one thing he told me stuck... they used average balances to determine their highest priority customers. Many of my comrades in the community FI blogosphere feed on data, some good, some bad. But using average customer balances to determine your best customers is unfortunately very common... bad use of data.

Similar to the above, a client of ours requested that my firm identify their top 100 customers by coterminous spread. We distributed the list. They reviewed it quizzically. The senior management team did not know half of the customers on the list. Their perception of their best customers also revolved around balances.

Financial institutions have in their possession more information about their customers than any other industry, with the possible exception of medical. How do we collect it, parse it, and use it? My guess is we don't do a very good job of harnessing this information to identify top customers, profitable products, or strategic opportunities.

I teach at the ABA School of Bank Marketing Management. One of my courses is Profitability & Strategic Issues. I distribute a questionnaire to determine what information students' FIs use to make strategic decisions. The below chart identifies their response to one of the questions.

Forty three percent of respondents reported that their institution did not use marketing data for strategic planning. Another 11% reported using it sometimes. This is astounding but consistent with past years' responses. Marketing data about customers, products, and markets should be critical to strategic decisions. Yet frequently, this data remains within the confines of the Marketing Department. Trapped as bits and bytes in the FIs MCIF or similar system, only to be busted loose to help with the next product promotion.

Aside from information trapped within our core processing and ancillary systems, there is ample data available for strategic decision making in the public domain and primary research conducted by industry professionals. Are we identifying the necessary data points to make important decisions?

For example, if considering branching, one would think the key data points are as follows: Are their enough of the types of customers within a certain community that we typically target and have success with? How many competitors are in the community and what is their branch size? Are branch deposits growing or declining in the community? Are businesses growing and in what industries? Are new housing developments on the horizon and are average home prices increasing? Are branch sites available in locations with adequate traffic?

Most if not all of the data mentioned above is either publicly available or can be obtained from private sources such as local realtors and from the FIs own marketing databases. But if your experience is similar to mine, you understand many branch decisions are made based on anecdotal data or because somebody we know owns the prospective branch property.

As succeeding in financial services becomes more challenging, making informed strategic decisions will be critical to our success. The days of throwing grass into the air to determine wind direction is no longer adequate. Important information need not be out of our reach. Much can be obtained freely via public sources, or can be mined from our own systems. When making decisions with long-term impact, FIs must identify the information needed to make informed decisions and collect and analyze it. Successful execution of the strategies to lead us into a successful future depend on it.

How does your FI use data to make strategic decisions?

~ Jeff


  1. If you cannot measure it, you cannot improve it!

    Maybe the lack of data-driven analysis, in part, explains the dearth of focused marketing campaigns that result in measureable impact to revenues and profits. Maybe it is this same problem that leads banks to focus their marketing programs on "free checking account" offers rather than pursing customer segments that actually drive growth and profitability.

    Admitting to a problem is the first step. Now FIs should take measures to address the challenge and act to turn it into an enermous opportunity.

  2. Further to your comment Serge is this may contribute to the product pushing we often see in FIs.

    Product driven strategies in banking would be hard-pressed to deliver a long-term competitive advantage because products are so easily replicated. Focusing on customers or customer segments requires good data to identify the niche and to pursue it, in my opinion.

  3. Jeff -

    I also see these issues consistently in both prospective clients and some existing clients. It's disappointing to see the wealth of information available to banks/CUs that is either discounted or completely disregarded.

    Regarding your comment about the "top 100 customers" incident. I've done a similar exercise a few times with new clients and shown them a list of their top 20 most profitable clients. I try to do it with all of the management team together so that I can ask how many names on that list they recognize...current record is 14 (70%). Most are less than 50%.

    I don't know of any other industry that doesn't identify and track their most valuable relationships (value=profit).

  4. Mike,

    I'm glad you commented because your company focuses on this issue. Could it be that systems are "owned" by different areas of the FI, such as MCIF/CRM in Marketing, the core in IT, g/l in Finance, etc.?

    ~ Jeff

  5. Jeff - unfortunately, I believe there's a huge element of truth in your comment. I still see FIs that refuse to share the different information sources across departments. As a result, only Finance uses the G/L or Profitability systems, Marketing ends up using the MCIF for list generation only, etc. This ends up in different areas discounting the value of the information in other disciplines.

  6. I love data. I have been around data my entire career spanning many industries working both in the client and vendor roles. Memory is a funny thing, but I can not remember ever working for or with a company where data was not freely exchanged. In fact, many of the companies demanded a close working relationship between marketing, finance, operations, manufacturing, etc. Cost accountants, controllers, and CFOs have been my friends. I do not think my background is unique. I think it is common place.

    After getting into banking, I would hear stories. Stories illustrated above by Mike Bartoo and Jeff Marsico. I do not believe them. Yet, I still hear the stories.

    Jeff posed the question "Could it be that systems are "owned" by different areas of the FI, such as MCIF/CRM in Marketing, the core in IT, g/l in Finance, etc.?" Excuse me! The data is not "owned" by these groups. They are a companies resources and should be used accordingly.

    Jeff's post also mentioned a survey question about a bank's use of marketing data for strategic planning purposes. To those 48% responders who said yes we use marketing data for strategic planning purposes I say "BRAVO!"

    Embrace the data.


  7. Dave,

    Great comment. I enjoy opposing opinions to my own. It makes for a more interesting read.

    Your comments remind me of a story when I was a branch manager. It was a new branch and I was hungry to grow customers. We had a home equity promotion going on at the time and I requested a calling list from marketing of "most likely's". The marketing department told my regional manager that they had no time for one off requests such as mine. The result: I went down to the courthouse to manually create a list of people that recorded their mortgage in high interest rate years. (16 years ago, hence the manually pulling courthouse records)

    You and I must travel in different circles Dave. If I lined up 10 community bankers and asked how they identify their most profitable customers, my experience tells me nine would not know or use customer balances to make the determination. I was at a bank yesterday where the CEO said he couldn't pull loan concentration reports.

    You are also correct that no department owns the data. All must work together to put the appropriate information at the finger tips of risk managers, administrators, and business developers.

    ~ Jeff