Predicting the future in financial services

James Fisher is vice president of marketing for analytic solutions at SAP

Like most industries and sectors, financial services organisations are fully aware of the positive impact of better business insight and market understanding, writes James Fisher. As data volumes continue to grow and diversify, being able to make greater use of the information organisations are creating and capturing enhances competitive advantage. The industry is taking steps towards using predictive analytics technology to do just that.

A recent survey commissioned by SAP found that 41% of financial services organisations state that predictive analytics is more about minimising risk than exploiting opportunities, with bank fraud detection at the top of the list of list of valuable outcomes. Whilst minimising risk is obviously very important for these organisations, financial services firms now need to think beyond this and understand the wider benefits this technology can bring in terms of providing a better customer experience, driving opportunities and increasing revenue in a highly competitive market.

Improving customer service

Financial events in our recent history, including the crisis in 2008, have led people to lose faith in the industry as a whole and trust is at an all-time low, especially in the UK banking sector. This in turn has resulted in a lack of loyalty amongst customers, further driven by the ability to switch banks more easily than ever before. New market entrants offer competition and new services that appeal to a younger, more demanding generation that want instant access to information and a better customer experience. As a result, these new organisations have seen a rise in demand for their current account products, increasing the pressure on traditional banks to focus on customers.

When this lack of trust and loyalty is combined with the greater financial tensions in banks today, customer centricity has never been more important. In order to attract and retain customers in today’s environment, financial services organisations need to challenge traditional approaches and fundamentally change their existing operating models.

Banks, for example, currently tend to offer standard products and services and are unable to effectively tailor these for individual customers. Superior analytics and database technologies are critical to providing a single view of the customer across all product lines and will enable them to provide customer centric products and services targeted on individual and group behaviours. Banks can then more accurately anticipate financial needs and provide improved service; proactively offering a savings account bundled with a mortgage offer when a couple gets married is one such example.  Indeed, 73% of financial services organisations surveyed agreed that predictive analytics would help them to make better product recommendations and offers to their customers.

Looking ahead to generate opportunity

In a competitive market, making speculative decisions is not enough. In order to really differentiate, it’s important to think about the future; using historical data to predict market trends can help ensure decisions are made that best suit the business in the long-term. In fact, UK financial services organisations stated predicting market trends was the most valuable usage of predictive analytics technology.

For financial services organisations looking to drive new revenue opportunities, it comes back to being more customer-centric in their approach. These organisations have a huge amount of data on their customers but most are not currently using it to its maximum effect. Among other uses, a comprehensive customer database, combined with advanced analytics, will allow organisations to spot trends, identify cohorts, and micro-target discrete populations.

Regardless of the benefits, there is still reluctance among financial services firms to adopt new predictive analytics technologies. For many, this occurs where data volumes are too high (57%) and across disparate systems (45%), specialist skills are needed (55%), and ROI is unknown (35%). As with many new technologies, these concerns are not uncommon. However, the opportunity to obtain competitive advantage through increased customer loyalty and the ability to identify new opportunities cannot be ignored.

We are operating in a data-driven world where advanced predictive analytics needs to sit at the core of the business function if banks and financial services organisations want to remain competitive. As well as helping to minimise risk, it provides the opportunity for organisations to identify new opportunities, differentiate themselves by allowing them to be much more targeted in their product offerings and increase loyalty by improving customer service and satisfaction. As more and more organisations wake up to the benefits of predictive analytics the race is now on to harness data faster and more effectively than competitors.