Why Business Intelligence is Mission Critical for Winning Against Your Competition. By Stan Cowan Senior Solutions Marketing Manager

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1 White Paper Business Intelligence Why Business Intelligence is Mission Critical for Winning Against Your Competition By Stan Cowan Senior Solutions Marketing Manager

2 Why Business Intelligence is Mission Critical for Winning Against Your Competition Leveraging business intelligence (BI) within your financial institution has become more and more important with the accelerated rate that our landscape is changing. Earnings pressures, searching for new income opportunities and regulatory change are top of mind today. Because traditional barriers are now broken, competition from non-traditional industry disruptors are capturing niche markets that are more in tune with new financial technology solutions. Know Thy Customer we ve all heard it time and time again. As consumer preferences and competitors become increasingly complex, it s more important than ever to deliver relevant products that resonate with your most profitable customers and members. To do that, you need a holistic understanding of consumers and where your greatest opportunities for growing and strengthening relationships lie. A recent study asked consumers how well their primary financial institution (PFI) knew them. Comparing their PFI s answers revealed some gaps. Closing these gaps in perception, however, requires a holistic approach organizationally, not just within the IT or marketing department alone. Strategic Goals & Consumer Expectations How many of your strategic goals effectively leverage business intelligence data? How many should, but do not? Acquisition, attrition and organic growth certainly are linked to overall success organizationally. By knowing your customers with highpowered analytics through segmentation, targeting and placing your messages and offers at the right time in their preferred channel, the impact of marketing and sales becomes evident. Are you planning to grow through branch expansion? Business intelligence solutions can help you determine which geographical areas are under-served and ripe for the picking. Analytics will also tell you what existing branch areas are underperforming and succeeding or even overly saturated. Although consumers haven t completely abandoned the branch for other channels, their reliance on physical channels still exists. Are you beefing up your digital presence? Focusing on digital channels for key generational segments proves to remain increasingly important as well, especially since mobile customers are much more loyal and profitable than branch-only customers. Ensuring channel management with consistent functionality remains key and more important moving forward. This can be accomplished with a multi-channel strategy (focusing on delivery on multiple platforms), with an omnichannel strategy (focusing on delivery through all channels equally) or with an opti-channel strategy (giving consumers the best experience through their preferred channel). Gen-Y is rapidly moving to non-traditional delivery channels. Delivering the right experience during the right lifecycle segments and within the right channels will increase acquisition, cross-sell ratios and overall retention of this ever-increasingly important segment of the population. Fee income and expense reduction may be in your list of metrics to improve. Data analysis will show you which clients are costing your organization and who is contributing more to the bottom line. Developing ways to effectively manage fees and expenses through business intelligence while staying competitive will pay off in the long run. Lending Payments Core Channels

3 White Paper Business Intelligence Third-party data analysis Some core systems do not house all relevant data, so gathering and importing third party information provides for a more complete picture of all household relationships. Who has a large investment portfolio but no deposits at the FI? Who owns a business without an indication within your business intelligence systems? Who s never deposited a check or paid a bill using the mobile app? From recent credit pulls, where can you save your customers money by refinancing you re your FI? Which segments are most likely to purchase an insurance product? When as many products and services are included, business intelligence becomes more so. More BI Benefits Down at granular level, business intelligence offers views that provide insight into the client at the household level including actionable data (limited only by the number of time periods) such as: Product penetration analysis Who are you most loyal customers? What consumer segments do they represent? Developing a profile allows you to seek out other existing segments who look like them, but who are missing a key product or service with your FI. Geographical mapping analysis Graphically representing your customers can tell many stories about not only your strongest areas of success but also those most challenging. Which areas have a propensity for deposits? For loans? For self-service offerings? For financial education opportunities? For alternative investments? For business accounts? Migration channel analysis What penetration levels exist for each channel offered? What trends do you notice month-to-month, year-to-year? Understanding channel preferences and usages allows better understanding of where to focus internal investments strategically. Trend analysis Looking at changes over time gives insight into product and service adoption, channel utilization rates, consumer segment changes, even pricing and fee structural opportunities. Demographic and psychographic analysis Although some demographic fields exist such as age, address and income (from loan applications), purchasing and incorporating additional information provides clearer focus for strategic initiatives. Psychographic behavior modeling (offered by some BI software solution providers) delivers advanced research capabilities. The table above combines profitability propensity and life stage. When combined with a financial institution s geographic footprint, targeting the right segments becomes much more scientific allowing you to match opportunities to your goals. Campaign performance tracking analysis One of the most basic functions of a business intelligence solution is tracking campaigns and reporting direct marketing results. But are you doing it correctly with control groups? With

4 Why Business Intelligence is Mission Critical for Winning Against Your Competition A/B testing? With trigger-based event follow-ups? By also incorporating campaigns within a CRM system, frontline staff is better informed and enabled to meet targeted cross-sell goals. Profitability analysis Although sometimes controversial due to the many other ways of measuring consumer, household, product and service profitability, by using agreed upon assumptions and profit categories (A-E) one can instead focus on profit level movements (e.g. level B is more profitable than level C). utilization rates related to automated trigger-based marketing and optimization show the lack of understanding and focus of its worth. Competitors, as you read below, are quickly capturing a niche market with this opportunity. A Lack of Urgency Attracting New Consumers Think business analytics can only be used to grow existing households? Think again. Once answers from the above benefits of business intelligence have been defined, applying them to traditional advertising channels will also help you grow organically. Just ask your media rep for those statistics for each channel being considered. See more below. Business Intelligence Usage Today When looking at big bank, community bank and credit union usage by BI category, interesting to note is that determining the next best cross-sell product ranks #6 on the list. The low A recent State of Financial Services Marketing by The Financial Brand showed that only FIs over $10B ranked improving data analytics in their top three priorities (47 percent) compared to only 8 of community banks and credit unions. Additionally, only a little over a third of all FIs are planning to increase their investment in data analytics by more than 10 percent. This lack of commitment and urgency can easily give the competition the edge in the future, especially given how important the role of business intelligence plays in the consumer banking experience across all channels. Just think of the many non-traditional banking start-ups and competitors emerging today. By addressing consumers financial needs of today with solutions of tomorrow, today s start-ups are taking advantage of these gaps in consumer expectations and traditional financial institution market share may start eroding quickly. There are significant opportunities to build a stronger foundation for customer financial relationships. Simply providing channel access is not enough. Personalizing the interaction has become table stakes consumers say so. Lending Payments Core Channels

5 White Paper Business Intelligence New providers and non-traditional financial institutions continue to make inroads, particularly among younger generations, who studies show, will soon make up the majority of bank revenues. Consumer Expectation Report Card Anthony Jabbour, CEVP Integrated Financial Solutions Clearly, a stronger focus and resource allocation on business intelligence solutions and tools is necessary for continued growth. Top Strategic Technology Priorities The vast majority of these top strategic priorities can be addressed by employing focused business intelligence initiatives. Previously discussed areas such as marketing effectiveness, consistent channel deployment, profitability and predictive analytics along with branch transformation involve many functional areas within each financial institution. Many of the credit union vs. banking differences above are explained by overall size and the availability of resources. Where Banking Is Falling Short of Expectations The attributes in the FIS PACE Index are clustered in four ascending bands of banking service relevance and quality. Level 1 attributes are recognized as essential, foundational requirements in today s consumer banking environment (e.g., safety, security, fairness, reliability, transparency). Level 2 attributes are critical for successfully matching the current and future styles of banking competition required to attain and deepen customer relationships (e.g., being connected, omni-channel access, digital payments). Given the number of recent high-profile security breaches, it s not surprising that safety and security top the list of what s important to banked consumers. Unlike many other attributes, which vary in importance according to population segment, safety and

6 Why Business Intelligence is Mission Critical for Winning Against Your Competition security are universal concerns. Delivering on those attributes therefore represents the price of basic entry for being in the banking business. Also ranked as important were the attributes of fairness, reliability and transparency that affect the very foundations of building a trusted relationship between customers and their banking service providers. Unfortunately, beyond providing reasonably easy to understand products and services, banking organizations fall short on the majority of these most basic (and important) requirements. Banking also fell well short of expectation on both the Level 3 and Level 4 attributes. The research found: Financial organizations don t help customers stay in control of their finances. Customers place above average importance on personal financial control as a factor that empowers them. Globally, banks fall short of enabling control. Don t Forget Gen Y By 2020, millennials will comprise more than one of three Americans and by 2025, they will represent as much as 75 percent of the workforce. Almost all millennials (88 percent) do their banking online and half use their smartphone to bank. This leads about three-fourths of millennials (73 percent) to be more excited about a new offering in financial services from Google, Amazon, Apple, Paypal or Square than from a traditional bank. Can banks and credit unions afford to ignore these trends? According to an Accenture survey of nearly 4,000 retail bank customers in the U.S. and Canada entitled, The Digital Disruption in Banking, consumers are more likely than ever to bank without branches and consider a non-traditional provider. The idea of convenience in banking is shifting away from branch locations and toward digital products and services that mesh with consumers mobile-empowered lives. Financial organizations don t recognize customer value through rewards. There is a wide gap between consumer expectations and bank performance in the area of recognition for bringing personal business to the bank. Banks are insufficiently focused on customization. Although most consumers indicate low demand for customized banking products, banks are still seen to be falling short in the area of tailoring products to individual profiles and needs. Banks don t do enough to help customers achieve their financial goals. Consumers have modest expectations for obtaining financial advice to help them manage their money or achieve the goals that are important to their lives. Unfortunately, banks are falling short of meeting even these modest expectations. Banks don t intuitively anticipate consumer customers future needs. Currently, consumers have low expectations that banks will actively support anticipating their future needs. Even with the bar set low, banks are not delivering in this area either. Key findings of the study: 27 percent of consumers would consider a branchless digital bank if they were to leave their current provider 71 percent of U.S. consumers consider their current banking relationship as merely transactional 51 percent of consumers want their bank to proactively recommend products and services (55 percent said it would increase their loyalty) 48 percent of consumers are interested in a spending analysis that is both real-time and provides a forward view 49 percent of consumers would bank with a company they currently use but that doesn t offer banking services (77 percent of millennials, 58 percent of those 35-54, 28 percent of those 55+) Lending Payments Core Channels

7 White Paper Business Intelligence Technology The Catalyst for Change any measurable improvement in the deepening of customer relationships or in consumer satisfaction. In fact, Accenture research suggests that about 34 percent of the total traditional banking products sold were from institutions other than the consumer s primary bank. The unplanned introduction of additional delivery and communication channels has led to a significant increase in operating expenses with very sub-optimal value creation. Customers want to transact with their financial institutions through multiple channels, wherever they are and whenever they want, based on their needs rather than conform to the operating model of their financial institutions. Consumers are adopting to new technology at record levels. The industry has experienced double- to triple-digit growth in mobile banking users over the last few years. The result is explosive growth of a hyper-connected customer base. Customers are connected to their financial institutions through multiple channels and devices. According to study by McKinsey & Company, more than 65 percent of consumers interact with their financial institutions through multiple channels. Unfortunately, this significant increase and shift in financial institutions total customer interactions has not resulted in And consumers expect their financial institutions to recognize them and acknowledge their real-time financial needs and status regardless of their choice of channel. However, many financial institutions have built incomplete operating models that improve service without significantly affecting sales resulting in stagnant customer satisfaction on the one hand, and deteriorating sales force effectiveness and branch productivity on the other. Positioning for Success To win against the competition, harnessing the power of business analytics becomes mission critical. Meeting consumer financial expectations starts with a solid data intelligence foundation. To truly be successful, however, substantial internal buy-in and adequate resource allocation must also match market demands of tomorrow.

8 D+H is a leading financial technology provider the world's financial institutions rely on every day to help them grow and succeed. Its global transaction banking, lending, payments and enterprise solutions are trusted by nearly 8,000 banks, specialty lenders, community banks, credit unions, governments and corporations. Headquartered in Toronto, Canada, D+H has more than 5,500 employees worldwide who are passionate about partnering with clients to create forward-thinking solutions that fit their needs. The company is recognized as one of the world's top FinTech companies on IDC Financial Insights FinTech Rankings and American Banker's FinTech Forward rankings. For more information, visit dh.com D+H USA Corporation. All rights reserved. D+H is a trademark of D+H Limited Partnership. All other product names or brand names are trademarks and/ or service marks of their respective owners D+H dh.com