March 10, 2014

Jon Deutsch, Information Builders
Jon Deutsch, Information Builders

When talking to banks and financial services organizations about big data, the question every executive asks is, "How is this going to help us?"

Banks want to know how data can help them earn more, spend less, identify fraud, and design better processes. While these are all admirable goals, some can forget to ask the more important question: Where does the customer fit in all this?

As customers grow increasingly aware of the value of their personal information, they will begin to demand more for it.

Recent consumer data breach scandals have instilled fear and financial uncertainty in the U.S. remains palpable. Financial institutions must also contend with their reputation as detached from the consumer and this -- alongside the rise in financial comparison services, competitive offerings from regional banking organizations and reduced longevity among consumers who can switch banks with ease -- is chipping away at customer loyalty.

However, banking customers are still some of the most loyal around, with banking relationships on average lasting longer than most marriages. So why should banks care?

Younger demographics are particularly pessimistic and cynical about the motives of financial institutions and their financial products. This mistrust reduces the impact and value of banks' communications and advice.

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It's no use deploying big data to analyze and segment customers for marketing if the resulting communications are ultimately met with weary skepticism.

Banks need to care.

So how do banks go about eroding skepticism and instilling trust? They need to show the consumer they are on their side. Banks can use big data and analytics to better understand the customer, provide highly personalized service and deliver greater transparency.

A recent study from CEB reported that satisfied consumers buy twice as many products from banks than dissatisfied consumers.

But what satisfies a consumer? A good place to start is the consumer experience.

For many years, a positive financial services experience meant a great face-to-face interaction with a helpful financial professional. But with branch visits and transactions dropping by as much as 10 percent annually, that engagement is more likely to take place online or via a mobile app.

Effective use of big data will enable these digital experiences to become more than a substitute for in-branch transactions. By using freely available, open data sources, along with existing customer data, banks can make these tools invaluable to the end user.

They could, for example, use geolocation to offer discounts for preferred products and services in the immediate area, or combine transaction history with inflationary information to offer investment guidance.

Banks are in a unique position. Many know more about their customers than their own families do. They know everything they've bought, earned, spent. They may know their savings goals and aspirations, and what their retirement will look like. There are few secrets kept from the bank. Banks that want to use customer data will need to make sure they are perfectly open about what they're doing with that information, and how it benefits the customer.

By creating a transparent relationship, banks can secure a better understanding of their customers as well as build loyalty and trust.

After several years of economic uncertainty, banks and financial services companies need to position themselves on the side of consumers.

While many may be using consumer data for marketing or fraud prevention efforts, they can use that same wealth of data to advise consumers on the best time and day to buy flights, help organize household budgets and spending strategies, or offer discounts on specific financial offerings.

Personal financial management needs to become more than an attractive pie chart telling consumers where last month's paycheck was spent. Data and analytics present the opportunity for banks to become indispensable to daily life. Banks and financial services institutions can become a resource where consumers look for smart, trusted advice to use every day.

For now, banks and financial service providers have the data advantage. If they want to stay competitive, they have to learn how to use it.

About The Author: Jon M. Deutsch is Vice President and Global Managing Principal for Banking, Financial Services & Insurance at Information Builders, a New York-based software company that brings smarter decision-making and streamlined processes to leading organizations in banking, capital markets, brokerage and payment processing, worldwide. Nine of the 10 largest banks in the U.S., the five largest banks in Canada, and 85 percent of the world's most important financial institutions rely on software solutions from Information Builders to analyze and manage their data.