6 minutes
The idea that large amounts of data can be leveraged to better target and serve certain markets is not one that’s lost on non-traditional financial services competitors.
For example, did you know that Facebook has a financial institution division? With everyone “liking” everything from soap to music, just think of the information the social media giant has to potentially market financial services to specific population subsets. Facebook “knows” that 3 million couples in the United States are engaged to be married. These couples make a great target for financial offers, since major life financial decisions (joint checking, investments, home ownership, autos, etc.) are about to take place.
Likewise, Canadian Tire Bank, something like a Walmart bank in Canada, “knows” that people who buy Mobil 1 oil (a premium motor oil for cars) are much better credit risks than people who buy generic oil for their cars. Why? Because there is a correlation that people who buy premium motor oil and “care” about their cars also “care” about their credit.
It is true big data can mean many things. In a nutshell, big data can be anything that relates various trends and patterns to human behavior. For a financial institution, big data is about discovering patterns and how they relate to your operations. Examples include: ATM transactions and patterns by age group; website statistics, fraud detection; even population, household income, and other demographic shifts in your market over time.
The Value of Big Data
It is important to understand why using big data for the credit union is important. As competition increases, or better documentation is required for the regulators or to support expanding into new markets, we need to rely on certain aspects of big data to see what we can learn.
There are many, many examples of how big data can help credit unions gain a better service and competitive advantage in their marketplace. This does not mean a credit union needs to go out and buy very expensive access to databases around the country or large data marts for its internal big data. Many times these sources exist already and can be accessed immediately. For example:
- The management of one credit union turned to several sources of big data (census data and demographic movements, competitive and peer statistics, membership surveys, website usage, etc.) to convince its board that building a large branch was not in the best long-term interest of the credit union. Potential savings? Well into the seven figures over the next 3 years.
- At idea5, we discovered in 2006 a very close relationship/correlation between local unemployment, loan delinquencies and loan demand in the Tampa/St. Petersburg metropolitan area. We found this existed not only for the market as a whole, but many local banks and credit unions as well. This is very valuable information for supporting allowance for loan and lease loss decisions, and also for projecting loan delinquencies and demand as part of the local credit union’s strategic planning.
- Also at idea5, our research revealed that credit unions are much better at the use and effectiveness of websites as a delivery channel than most community banks. And in our “Power Rating” study, 5 out of the top 10 Power Rated websites are credit unions located near major universities with a much younger membership base. The implication? By using big data, these credit unions can optimize their delivery channels over the next several years in terms of physical branches and electronic service delivery.
Case Study: Using Big Data Pays Off
Recently a bank noticed a rise in home banking account logins between 2 a.m. and 4 a.m. The chart below starts at 1 a.m. and goes through noon in the middle. The afternoon and evening activity are depicted on the right. As an example on how to read the chart, over a quarter, approximately 8,100 logins to customer accounts occurred at 2 a.m., and 7,900 logins at 3 a.m.
Investigating further, the bank discovered the reason there was a “blip” in home banking activity during the wee hours of the morning: Some customers literally could not sleep at night because they were worried that certain checks might be clearing and they would have an overdraft situation – and heavy overdraft fees.
The solution and outcome? The bank marketed specific ads for overdraft protection in the overnight hours on its website once the customer logged in. The bank’s “insomnia” customers took advantage of the offer – over 400 customers signed up for overdraft protection online over a 90-day period. Fee income increased over $28,000 for these customers during the year. Not a bad discovery! We are all searching to serve our members and increase fee income at the same time. This bank was able to do both.
The CFO is Key
Recently I had lunch with a just-retired CFO of a Fortune 1000 technology company. He has been a long-time friend and mentor, a fellow CPA, and we were catching up. He made an observation that the CFO’s role has greatly evolved, especially since the Great Recession.
The board and other members of senior management at many organizations are now relying on the CFO to go way beyond dealing with the financial statements and regulators. The CFO is now the “go-to” person for most things numerical – and how they relate and impact the entity’s business model.
This business analytic “insight” is not only for the past, but also the future. In other words, true business intelligence. Beyond just the numbers, many members of the board and C suite will ask the CFO, “So what does this mean?”
The opportunity for today’s credit union CFO is to truly be the person to help with business intelligence. I have seen several credit unions in which a VP of “strategic development” falls under the CFO’s reporting structure. With complex regulations, product and pricing mixes, ALM, enterprise risk management, and strategic planning issues, it makes sense the CFO also understands why things are changing, and what the impact of potential change could be for the credit union in the future.
To paraphrase a speaker at a recent national CFO conference, “It is time the CFO gets invited to the ‘party’ and becomes a major part of the future direction conversation.” I could not agree more.
Bill Goedken, CPA, CMA, CGMA, is CEO of CUES Supplier member idea5, a business intelligence and research company for financial institutions that offers Stratezy. He has an extensive financial institution background; was the founder and former CEO of Profitstar Inc.; and is a frequent CUES speaker and contributor. Goedken is a member of three credit unions, including Westerra CU, Denver, where he is the former vice chair of the supervisory committee; Grow Financial FCU in Tampa, Fla.; and HawaiiUSA FCU in Honolulu.
