The Data Analytics Experience

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1 The Data Analytics Experience By TMG Senior Directors of Client Relations Matt Flynn, Dan Lozier & Sam Sassen Data analytics is a long-term strategy. Results can take many months to appear. Yet the financial institution (FI) leaders who have recently tapped into the power of data analytics will tell you there s value even in the preparation and practice of business intelligence strategies. These leaders report it s an eye-opening experience that has the potential to change an FI s entire culture of decision-making

2 Regardless of their expectations going in, these FI leaders say they ve learned new truths about their cardholders, members and customers. They ve absorbed the value of mining data from new sources, practicing solid segmentation strategies and holding back control groups. And, they say there s a powerful affirmation from having hard numbers to support the extra investment and sometimes the added risk required by their marketing campaigns. What follows are the early impressions (and some early results) from three FIs that have recently engaged in data analytics programs with TMG and our strategic partner IQR Consulting. IHMVCU Turns to Analytics for Help with Aggressive Growth Goals You can be aware of how stagnant your portfolio is. You can know full well you are not growing. But seeing the numbers really wakes you up, said Curt Johnson, AVP of Mortgage and Card Services for IH Mississippi Valley Credit Union (IHMVCU) in Illinois. You have to be humble when you work with data analysts. For every affirmed suspicion, there s a new truth that will save you a ton of money in marketing. CURT JOHNSON IHMVCU AVP of Mortgage and Card Services Johnson and his team recently set an aggressive goal to grow the $840 million credit union s credit card portfolio by 25 percent within one year. Data analytics, he knew, would play a critical role in achieving that goal. To provide the analysis, Johnson turned to TMG s partner IQR Consulting, calling their analysts in to provide an in-depth assessment of and recommendations for growth of the portfolio. Some of the findings were a surprise to Johnson. Others were not. But, advised Johnson, You have to be humble when you work with data analysts. For every affirmed suspicion, there s a new truth that will save you a ton of money in marketing. And even those findings that confirm something you already suspected provide important, data-backed reinforcement. Johnson knows firsthand the cost-savings benefit of data analytics, specifically of segmenting a cardholder base prior to issuing a campaign. His team recently offered two promotions to credit cardholders, including cash advances and balance transfer deals. They went against the grain with their strategy by offering deals only to those cardholders IQR identified as most likely to respond. Whereas the card team had previously selected cardholders for promotions by looking at one or two criteria, IQR analyzed data from a multitude of sources, including credit bureaus, credit card statements, prior campaign results and checking account histories. Combining that data with IQR s proprietary modeling techniques, analysts were able to recommend which categories of cardholders should receive which types of offers. 2

3 At press time, IHMVCU s promotion had yielded more than $2 million in cash advances, which according to Johnson, makes up about 10 percent of the credit union s entire portfolio. Full results of the campaign will be available in upcoming months. As the credit union awaits final results from the cash advance campaign, Johnson is already preparing for several additional data-driven projects. Specifically, he is excited about working with IQR to better understand the cardholder journey, or more specifically, how the credit union can move cardholders from entry-level cards to platinum-level accounts. He is also keen to allow IQR to flex its cardholder-level muscles by testing campaigns that offer custom rewards based on a certain set of cardholders purchase histories. Our plan is to use data analytics to really dial into the people who use our cards to understand better what they need from us, said Johnson. Let s say, for example, IQR identifies a cardholder segment of members who really like electronics. Can we then offer them double points on all electronics purchases or perhaps a Best Buy gift card? We will go where the numbers tell us we are going to be successful. That s where we ll get the biggest bang for our marketing buck. IHMVCU has also been working with IQR to better understand its members propensity to open checking accounts. With a healthy crop of indirect members, the credit union is looking to grow from within. To help the checking account team achieve its growth goals, IQR began by merging multiple data sets and creating additional data elements to give them a good picture of IHMVCU s current membership. Analysts then identified key trends and differences between members with and without checking accounts to help them build out a final candidate model. This model, which was tested for precision and usability, is now able to score individual members to determine how likely they are to respond to marketing. When building IHMVCU s candidate model, IQR analysts considered these factors among others. Number & Order of Loans Number of Accounts Age Total Service Balance & Level of Engagement Presence of Children 3

4 Working more closely with segmentation and analysis, we have come to see the opportunity that s out there for not only our credit and checking accounts, but across the cooperative, said Johnson. For programs that have plateaued, this kind of approach will bump them up to whole new levels. We know we are just at the very tip of working with data analytics. Data Analytics Changes Culture of Decision Making at STCU Hailing from a national bank where data was king, Russell Palmer was no stranger to the value of business intelligence. Coming from the merchant processing side of credit cards, however, issuance was an entirely new adventure for the newly minted Spokane Teachers Credit Union (STCU) card services manager. Light on issuing experience, Palmer did not come into his new position with an instinct for card management. This made him even keener to wrap his mind around the state of the STCU portfolio. I wanted to guide our team to make the best possible decisions, but there was a lot I didn t know, admitted Palmer. Data analytics was my answer to getting up to speed quickly and sufficiently, and it has worked extremely well. Because I didn t have the background and was open to asking questions, we ve learned a great deal more about our cardholders and our portfolio than we ve ever known. In a way, my biggest weakness became my biggest strength. One of the questions Palmer asked was why the credit union only considered FICO scores when extending credit line increases. Additionally, why was the same amount extended to every cardholder? Were there some cardholders who were offended by the small-dollar extension? Were there others who received the extension and used it in a way that put themselves or the credit union at risk? STCU asked IQR to give its team a better picture of how credit line increases were being received and how they could be modified in the future. Engaging TMG s data analytics partner IQR Consulting for the answers, Palmer asked the analysts to give his team a better picture of how these credit line increases were being received and how they could be modified in the future. IQR s personnel went to work immediately, widening the scope of cardholder data significantly. While they still considered credit bureau scores, the team also looked at factors like delinquencies and write-off histories to build out more robust exclusion criteria. Armed with data and predictive analytics, Palmer s team was able to secure the necessary leadership buy-in to nearly double the amount of line increases. Our management team was comfortable with the additional risk because we were able to demonstrate in great detail that the extra line extensions were extremely calculated risks, said Palmer. 4

5 Although the promotion was still ongoing at press time, Palmer reported an impressive uptick in spending from those cardholders who received line extensions tailored to their needs. We really targeted our resources with this promotion, and we re already beginning to see proof that it works, said Palmer, who advises colleagues to prepare for a good six to eight months before the results of a campaign like this are available. Numbers will not be the only measure of the success of data analytics at STCU, however. Throughout the campaign, Palmer worked to share the lessons his team was learning across the cooperative. The result has been a complete shift in the way managers of nearly every department approach decision making. IQR showed us how to segment our portfolio in a lot of different ways so we can most intelligently leverage our marketing dollars, said Palmer. That strategy has made its way across the credit union, making segmentation something of a prerequisite now for all of our managers who are in the planning stages of their campaigns. What began as an immediate need to make more intelligent decisions for our credit card program has turned into a long-term commitment to be more informed in each of our campaigns, said Palmer. Palmer reported that growth of the STCU credit card portfolio balances is hovering around 18 percent. Compared to the historical average of 7 percent, this new level of growth has both his team and Palmer cautiously optimistic about the impact of data analytics. Certainly we need to be careful about attributing all of this growth to our data-analytics strategies, but we know focusing more on our relationships with IQR and TMG, as well has played a critical role in this new growth trajectory. Before doing the same campaign, ask yourself: Why do we do this? If you can t answer clearly or have the data and vision to back up your answer, that s a good indicator you could benefit from a shift in your decision-making culture. RUSSELL PALMER, Spokane Teachers Credit Union Card Services Manager 5

6 Analytics Generates Organic Growth Opportunities for UICCU Experiencing healthy and steady growth, the University of Iowa Community Credit Union credit card portfolio was an asset many credit unions would be happy to report. Senior Vice President Dick Noble, however, challenged his team to want more. Our outstandings were around $60 million, and we were experiencing average growth around 15 percent, said Noble. While impressive on the face, all that growth was on the front end. We were opening new accounts and activating new cards at a good clip. For our portfolio to be truly successful, though, we needed to focus on growth from within. Already successful at campaigns that attracted new cardholders to the program, UICCU set out to develop a plan better designed for top-of-wallet achievement. Already successful at campaigns that attracted new cardholders to the program, Noble set out to develop a plan better designed for top-of-wallet achievement. To get started, Noble engaged TMG s data analytics partner IQR Consulting to conduct a portfolio analysis. This would give the card team an overall view of the program s health, as well as how it compared to competing products UICCU s cardholders may consider (or already own). According to Noble, IQR s analysis was exhaustive, pulling in metrics on utilization, revolving rates, effective yields, expenses and more. The team of analysts then compared their findings to industry averages. After providing the analysis, IQR took the project a step further, providing the UICCU card team with a list of priorities in terms of strategies for achieving organic growth. Each of these strategies which ranged from simple spend campaigns to more complex repricing strategies required the team to consider the program from a cardholder-level. By segmenting the portfolio and providing offers tailored specifically to each cardholder, the strategies would ultimately earn increased activity from those UICCU members who already owned the credit union-issued card. There was a very long list of strategies we could try, said Noble. But that s the exciting part. Once you really look this deeply into your portfolio, you begin to see how much opportunity you really do have and how much you re leaving on the table. To get their feet wet (and to assess the viability of these new data-driven strategies), Noble and his team conducted a test based on its traditional once-per-year credit line increase campaign. Each year around the holidays, UICCU has given out credit line increases to a select group of cardholders. After the IQR analysis, though, the card team allowed data analysts to choose a small sample of cardholders based on their analytics. Noble and his team then chose their own group based on how they typically ran the promotion. 6

7 Six months after the two groups were given their unique credit line increases, IQR s hand-picked group of accounts had outperformed UICCU s hand-picked group 8:1. What this demonstrated to Noble and his team was that IQR was able to successfully predict, based on analytics, modeling and their in-depth understanding of cardholder behavior, which of UICCU s members was most likely to respond positively to different levels of credit extensions. Impressed and a little surprised by the results, Noble set out on a plan to execute additional data-driven segmentation strategies. Following an intensive brand change project, the card team plans to apply some of the lessons learned to its nearly 60,000 debit cards, as well. IN CONCLUSION Segmentation is quickly becoming the magic word in credit card marketing. As demonstrated by these three stories, data analytics allows for successful segmentation, which is quickly becoming the magic word in credit card marketing. It s about getting the right offer to the right cardholder at the right time in a manner that is most profitable for the portfolio and creates the longest term loyalty possible among cardholders. Data analytics is not reinventing the wheel; it s reshaping it. Often these strategies simply boost the results of programs a card team is already familiar with, like balance transfers, holiday promotions or line increases. Similarly, much of the data that experts like those at IQR need to jumpstart these boosted results is already there; it just needs to be mined. Things like previous purchases, current balances, payments and utilization rates, when analyzed over even just a few months, can reveal valuable behavior patterns. Combine that information with external data, such as credit bureau scores and competitive analyses, and you have an entirely new perspective on even successful portfolios. Data analytics strategies are still emerging in the community FI space. As they continue to find a home with savvy credit card managers, more departments within these FIs will experience the value firsthand. Consumers, too, will begin to feel more personalized attention as their credit unions and community banks begin to deliver the kind of high-caliber, competitive and tailored products they love. ABOUT THE AUTHORS Matt Flynn is a member of The Members Group s client relations team as a senior director of client relations. He has been with the company for nearly twelve years, working with financial institution clients to help manage and grow their payment portfolios. Matt has also managed TMG s rewards products for eight years, as well as been responsible for many other TMG sales initiatives and projects. He can be reached at mattf@themembersgroup.com. Dan Lozier, also a director of client relations, has worked with hundreds of community financial institutions nationwide, facilitating their success with various payments programs. Dan works closely with many TMG clients who are at the beginning stages of data analytics. He is a frequent contributor to industry conferences and reporting. He can be reached at danl@themembersgroup.com. Sam Sassen consults with credit unions and community banks every day, sharing best practices and portfolio optimization strategies that consistently move the needle for these financial institutions. Sam has more than 20 years of financial processing and customer service experience. Sam is a director of client relations for TMG, and he can be reached at sams@themembersgroup.com. 7