Techno functionality is the most powerful tool in the arsenal of financial services employees today.
Banks and financial services companies today are facing increasing pressure to stay ahead of the curve. Understanding customer needs and preferences thus becomes a critical success factor for these organizations and data analytics can help them greatly in achieving these goals.
The Indian financial sector is definitely ripe and needs to leverage data in order to aid business transformations. But there are many challenges, which needs to be addressed at this stage.
Customer profitability: Personalized offerings are expected to play a big role in attracting and retaining the most profitable customers. It is important to understand the behavioral economics of each customer and find ways to gain wallet share in the most profitable segments.
The challenge is, studies show that a small percentage of banks have strong capabilities in this area and they need to leverage on industry patterns rather than looking at patterns emerging solely out of individual Bank/FI data.
Risk Management: By applying data mining and predictive analytics to extract actionable intelligent insights and quantifiable predictions, banks can gain insights that encompass all types of customer behavior, channel transactions, account opening and closing, default to thus arrive at potential risk trends.
The challenge is analyzing data that encompasses the complete gamut of all the transactions and understanding the interactions of causes and effects.
Operational efficiency: While financial institutions have trimmed a lot of fat over the past few years, there is still plenty of room for improvement, including reducing duplicative systems, manual reconciliation tasks and information technology costs
The challenge is to leverage data to ensure that reports are tools to draw insights rather than just automated trends being shown on periodic basis to business units.
Regulatory reform: Major legislation such as Dodd-Frank, the CARD Act, FATCA (Foreign Account Tax Compliance Act) and Basel III have changed the business environment for banks and financial institutions. Given the focus on systemic risk, regulators are pushing financial institutions to demonstrate better understanding of data they possess, turn data into information that supports business decisions and manage risk more effectively.
The challenge is that, banks need to start transforming their business models to comply with a radically different regulatory environment and include variables which give an industry view rather than giving an individual bank view.
While these are critical challenges to tackle, there certainly are a few things banks can prioritize. Effective use of Technology should certainly be the first priority for them. All teams in financial institutions need to adapt to and adopt technology. Techno functionality is the most powerful tool in the arsenal of financial services employees today.
Here are a few more takeaways that comes from our combined market understanding and constant customer interaction.Empowered and integrated data and analytics teams – analytical functions cannot be made of scientists alone and domain expertise is imperative to this team. Analytics teams need to be integrated with the business teams.
- Use of external data like bureaus – this is very important to ensure that there is a 360 degree view of the customer rather than the just an internal myopic view.
- Hardwire analytics to production – unless analytics is put in production and tracked on business metrics, the belief will never get embedded!
- Top down approach - analytical adoption cannot be driven by one team or one leader. Every decision at the highest level needs to be powered with data and information and dependence on gut feeling needs to be eradicated. The top team needs to drive this relentlessly and most successful companies drive change top down. Transformations need to be evangelized and it needs to start at the top.
The author is SVP--Data and Analytics at Equifax India.