I recently had the pleasure of hearing the thoughts of several community members concerning the state of analytics in their banks. Interestingly there appears to be a widespread sense that "it is tremendously underutilized due to lack of analytics resources". This came as a real surpise after the encouraging feedback we received in our Banking Analytics Survey conducted last fall.
So it sounds like there is a need to revistit the value proposition associated with analytics. No doubt folks in the direct marketing function haven't forgotten the efficiencies they gained by establishing target marketing 10 years ago. And I presume the business strategists in the community haven't forgotten about the impact that understanding customer profitability has had on acquisition and retention strategy.
So what's the problem ? Perhaps it is that the flood of data precipitated all kinds of focus on regulatory analytics instead of productive business analysis. I've seen a mountain of cash go out the door on Anti Money Laundering (AML) and Risk Captial models neither of which really adds value to anything. This is a tragedy - we are wasting the scarce analytics resources on unproductive regulatory applications instead of creating wealth.
Some good things have been moving forward - fraud detection analytics stands out as a good example - but the core value of customer data still remains largely untapped.
We have discussed in earlier posts that fundamental business metrics are still very weak in this industry. A lot of what passes for customer intelligence today is relatively primitive - customer segmentation and predictive analytics are built on top of weak information basics. Of course all of this was a huge improvement over flying in the dark with the lights off, but it is still the tip of the iceberg when it comes to value. Mining information (such as customer funds flows and customer profitability) instead of data (such as transaction files) offers a quantum improvement in effectiveness. Analytics has always been a good investment, but we haven't even gleaned a quarter of it's potential.
We believe bankers should take a second look at the role of analytics as a means to creating efficiency in marketing, sales, product management, distribution channel management and even performance management and compensation. This area is one of the last investments that should be constrained especially when times are tough. When we get the basics right, we gain the power of focusing on doing the right things, not just doing things right. We can't afford not to have these efficiencies in the current environment.
-DBM
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