Seven Ways Data is Transforming the Financial Services Industry

According to McKinsey, more than 90% of the top 50 banks around the world are using advanced analytics. Like the retail industry, financial services has experienced significant changes in a relatively short period of time, as consumer expectations have quickly risen with regards to fast, easy, personalized, in-person, online, and mobile experiences.

With a wealth of data at their disposal (and in their care), financial service enterprises have many opportunities to optimize, innovate, and transform. Here are seven ways data and analytics are transforming the financial services industry.

1. Marketing. Data and analytics allow financial services brands to use information about customer accounts, preferences, loyalty, and recent actions to tailor product and service offerings, proactively connect with timely cross-sell or upsell offers, and know what offers and messages do not resonate or should not be sent at a certain time.

2. Customer service and retention. Financial services brands can leverage data and analytics to optimize the customer journey and personalize the customer experience. With chatbots and robo-advisors, they can reduce effort and time while providing added value and information. Recommendations based on advanced algorithms can also help customers better manage their money (by reducing or cutting out certain spends) and portfolio. Data and analytics can also help in recognizing and rewarding customers for their loyalty or actions (a home purchase anniversary and five years of on-time mortgage payments, for instance), and assist in predicting and reducing churn by looking at customer actions or inaction, monitoring customer sentiment, and proactively recommending the next best action.

3. Risk reduction. Data and analytics provide a number of benefits in this area, such as more accurately determining loan amounts and credit limits, delivering automated real-time credit recommendations based on application and customer data, and recognizing signals that could lead to payment delinquency.
    
4. Collections. According to the Federal Reserve Bank of New York, more than $620 billion of household debt in the U.S. is delinquent as of March 31, 2019. Of this amount, more than $410 billion is delinquent for more than 90 days. Analytics can assist organizations with process improvements and fast debt recovery with information like who to contact, how to contact them, and when to contact them.

5. Operations. With automation and the optimization of resources, staffing, and even hold queues (according to Velaro research, 60% of customers on hold will hang up after one minute), analytics can help organizations discover and take action on ways to save money and improve the customer experience.

6. Security and fraud. In 2016, banks lost $2.2 billion in total to fraud. Recent research shows that 61% of fraud losses for major banks stem from identity fraud. As those who commit fraud get smarter, financial institutions must, too. Analytics helps in the detection and prevention of fraud by identifying anomalies or suspicious activities using customer, geospatial, transactional, and other data.

7. New Revenue Opportunity and Business Model Creation. As innovation and digital disruption accelerates, no industry is safe. Financial services organizations must look past just using analytics for incremental improvements or information on what happened and why, and ask questions of their data to discover and act on new products and services, as well as transformational and differentiating customer experiences.

Tricia Morris is Director of Content Marketing and Social Media for MicroStrategy.