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Data’s growing role in nurturing banking relationships

In this month’s BAI Executive Report, we examine how banks and credit unions can better use the customer information they have collected.

Jul 21, 2022 / Technology
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There’s seemingly no end to the data that banks and credit unions collect about their customers. The trick is refining that vast stockpile of raw material into a valuable asset to drive deeper relationships and other business opportunities.

This can be a significant challenge for a variety of persistent reasons. Data silos are a major hurdle for banks seeking to develop personalized experiences across channels. Banks’ data is often dirty, and making it usable requires time-consuming efforts. Putting together a long-term data strategy can also be difficult, as can scaling up successful test runs. And in today’s ultracompetitive talent market, finding (and keeping) people who have the necessary data-compilation and analytical skills can be challenging as well.

In this month’s BAI Executive Report, we examine the growing importance of data for banking institutions and how they can better use the information already in their possession as they vie with each other and against fintech upstarts built on leveraging data effectively.

Our lead story, by contributing writer Dawn Wotapka, examines how banks and credit unions are using data to derive a competitive advantage across the full customer journey. The strong growth of digital self-service in banking is generating copious amounts of data that can be analyzed to yield deep insights on customers’ behavior and needs at different stages of their lives.

“To genuinely stand out, banks must think beyond the build-it-and-they-will-come mentality,” one industry expert tells Wotapka. Banks have long built and nurtured relationships largely through transactions, but many customers today (particularly younger ones) are seeking an emotional connection. Data can help banks deliver on that.

Broader use of data is also viewed as key to bringing the underbanked into the financial system. Contributing writer Katie Kuehner-Hebert explores the rise of “alternative data,” which includes indicators like spending habits and bill payment history, and its growing role in promoting more inclusive access to credit. She speaks with several banks to learn about how they combine this type of data with traditional data sources to make lending decisions for individuals and small businesses.

While alternative data is lauded for its ability to expand access to the estimated 100 million Americans who live outside the banking mainstream, it also has the potential to reinforce existing barriers to credit when data is poor quality or a bank’s algorithms are improperly calibrated. “Having a good data-governance process is important for all types of data used,” one banker tells Kuehner-Hebert. “The same practices should be applied to alternative data.”

Complementing Kuehner-Hebert’s overview article is my conversation with Lisa Fischer from credit-focused fintech Mission Lane, which relies heavily on alternative data when assessing the credit risk of applicants. Fischer says technology advances make it more feasible for banking institutions to compile and analyze full data sets—instead of depending on data sampling—to gain a deeper understanding of would-be borrowers.

Also in this month’s Executive Report:

Five must-dos for banks to delight customers: Nick Beil from Tableau at Salesforce compiles a compact but powerful action list for banks and credit unions seeking to develop data-driven strategies for deepening their relationships with customers. He writes that the steep upswing in digital adoption during the pandemic is generating more data for institutions and, at the same time, pushing them to employ this data in new and innovative ways.

Fueling the data analytics engine: Joe Labbe from KnowledgeLake and Bob Browne from Cedar Creek Consulting team up to discuss how financial institutions can use intelligent automation to efficiently extract value from the data troves they possess. In addition to providing many customer-focused benefits, they write, this technology can contribute to a stronger compliance-reporting platform.

Gaining an edge with a preemptive data strategy: Ajay John from Apiture tells us that community and regional banks can deliver a more personalized customer experience by using the information at their disposal more effectively. In his article, he discusses how institutions are advancing beyond the commonly used dashboard approach and embracing data intelligence solutions with greater autonomy and flexibility.

The many and varied benefits of digital IDV: Christina Luttrell from GBG Americas writes that a robust identity verification program can unlock insights for financial institutions and allow them to provide better, safer service and in turn reap higher revenue. She says the combination of technology and human ingenuity is key to making sense of customer data and putting it to work.

Terry Badger, CFA, is the managing editor at BAI.