The financial services sector is putting more emphasis on customer retention, and one analyst says the best way to make this happen is through the use of business intelligence software.
James Sharp, director of vertical markets and customer segmentation for Toronto-based IDC Canada Ltd., said financial services firms, at the end of the day, don’t actually make anything – all they really do is skim transactions.
“So, the more intelligently you can skim…the more money that you can make It’s basically the handling of data and packets, and how efficiently they do that has a real impact on their bottom line,” Sharp said.
IDC Canada recently surveyed “50 or so” financial services executives, asking about their propensity to adopt a whole range of business solutions, Sharp said. Business intelligence (BI) and data warehousing are consistently at the top of the list.
The financial industry is starting to look more closely at client profitability, which Sharp said it hasn’t done historically. “They are looking more at who is profitable and who is not and in what context they are.”
Sharp used the example of a student: loaning him or her money is generally not profitable. But the banks realize from doing predictive modelling through BI, data points and customer data, that there is a lifecycle value to students.
“For the banks, it’s about building smarter segments, custom products and custom pricing,” Sharp said. “If you build products for top line statistical averages, you’re guaranteed to satisfy nobody.”
Jay Slade, manager of client intelligence and analysis for RBC Investments in Toronto, is using BI to lessen customer turnover. He noted that in the investment field, the problem is that “each person that leaves us really hurts.”
Because a long-term process is required to get people involved with one of RBC’s investment advisors, someone turning around and leaving negates the investment of time and process, he added.
RBC Investment’s financial advisors each have a book of clients that can hold up to 800 people, Slade said.
“We found that when we broke down the client book, using SAS (Institute Inc., a business intelligence solutions provider) as our BI tool, we were really able to uncover opportunities for each client and a road map for the investment advisor (IA) to consider,” he said. “It gets interesting when you…identify stylistic differences and can say that if we’re really honest with ourselves, this IA has the same style or risk tolerance as 500 people and the other 300 people, who are very valuable clients, might be better served by another IA of a similar style.”
The competitive advantage for financial services, according to Slade, is centred on software rather than people. “It’s not so much that there are technology barriers anymore. Every company has data storage techniques and, to a certain extent, the OLAP and reporting tools to do some things. The advantage comes from using tools to drive it from there.”
SAS Canada’s Michael Turney, program manager for BI solutions in Toronto, said many enterprises, regardless of industry, are moving from a growth-based business model to a value-based one, by focusing on revenue from existing customers.
Turney said that to be competitive, organizations have to look beyond having a plan, getting access to data, storing the data and being able to report on it, and seeing where they are and where they’ve been. “This is not enough to be truly competitive and have that intelligence about how to retain and acquire customers. The extension of all that is predictive intelligence.”
Sharp said the financial services sector, and others, can use this predictive intelligence to craft a custom product. “Using BI and attributes and behaviour and history, this is core to bringing out products that are drilled down to be appropriate.”