In the age of customer centricity, Asia’s banks are no stranger to the priority of offering differentiated and personalised customer service. Sruti Rao speaks with FICO’s analytics officer Andrew Jennings to understand how banks in APAC can use optimise their use of analytics to enhance profitability
At long last, it seems that banks can start to focus some of their energy away from their post-crisis fixation on the challenges of compliance and cost-cutting.
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Whisper it, but the conversation in retail banks is slowly starting to shift back towards talk of revenue growth and increased profitability.
The Ovum Business Trends survey 2014 highlights that banks spend on compliance and risk management functions is set to decrease, while product development and mobile banking channels investment will increase in the year.
According to FICO analytics expert Andrew Jennings, bringing the use of data and analytics into this discussion is needed. Jennings tells RBI:
"Profitability can only be driven so far by reducing bad debts, and reducing costs. Banks are getting back into the revenue growth frame of mind. Data is important in that it allows you to understand the customer in making lending decisions."
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By GlobalDataExternal and internal data
As Jennings admits, the distinction of external and internal data comes into effect when looking at accurate product suitability for each customer. Though analysis of external sources such as Facebook, Google and other social media features is useful in understanding the segment better, its use only extends to understanding the customer sentiment in a general sense.
Says Jennings: "The use of external data in the big data context is limited to letting the bank understand what people think about them, but not as much in driving lending decisions."
He adds that engaging with the customer individually is most effectively complemented by the use of internal analytics.
Prescriptive action
The use of internal data is increasingly used in product and pricing strategy, according to Jennings, and this is a trend that is migrating into the developed markets of Asia to a large degree. "Migrating from predicting something to actually using data to prescribe an action, has become growth opportunity for the use of analytics.
A significant level of detail can be achieved in effectively using internal data to enable banks optimise their product and pricing decisions. This concept has been embraced quite extensively in sophisticated markets like Australia, where FICO has worked with major banks to implement accurate pricing models.
"You can be as prescriptive as saying this price is applicable to this customer. If you give them this price, how will they react? This cause and effect concept can be driven by analytics to validate the right decisions to be taken on the individual or group of customers."
Data analysis fits into the final enhancements of profitability says Jennings, and the product range and capability still holds paramount importance for the customer.
"Ultimately, you do have to give the customers what they want, and so your products have to suit the needs of your customer." The use of analytics to fine-tune more effective decision making essentially helps in the final stages of maximising profitability.
Sophisticated v developing markets in Asia
In the current market environment, the benefit of such micro analysis lies in sophisticated markets, where the saturation of the market allows for profitability only through marginal differentiation. With customer loyalty playing less of a role in the banking relationship, the need to innovate in product and channel propositions is vital to remaining relevant.
The use of analytics to understand these intricacies of customer preferences holds much more regard in markets where a unique proposition is needed by the bank, says Jennings:
"In places like Singapore and Hong Kong, which are fairly saturated, most people already have the products that they need. The opportunity is really a very marginal build-up of products, so it’s really a tight fight between banks."
Grouping like-minded customers with similar characteristics, into peer groups is another trend developing in the analytics capability across the industry. Understanding the investment trends, behaviour patterns and preferences of similar customers can further enhance the advisory and cross-selling potential of the front-end. This trend, as explained by Jennings, is more apparent in Asian markets such as Australia, China, Hong Kong, and Singapore.
Less mature financial markets however, remain focused on building their basic capabilities in retail banking, before venturing out into more sophisticated analysis. "In the less mature financial markets like Thailand and Philippinnes, much of the focus there is on getting the basics right. It’s fair to say they have a way to come in dealing with capital regulation."
Emerging markets have certainly validated a great deal of opportunity in banking, but premature regulatory infrastructure and product suites still in need of further development, remain the core priorities of banks in this realm.
The opportunity still remains for banks to cross-sell to large degree in such markets, as customers are limited to a smaller range of products that are available to them.
"In places like Singapore, it is not like the opportunity is to take people from six financial products to twelve, it may go from six to seven perhaps. Whereas in a market like Philippinnes, there is such opportunity to take people from three to five products."
Leap-frogging to greater heights
Where the opportunity does lie for developing markets is in using analytics solutions to stay ahead of the industry curve. As Jennings comments "emerging markets can benefit from the existing solutions available in the sophisticated market" in bringing in a more sophisticated service standard. Challenges still remain in facilitating this operationally, however, the potential for analytics to impact the service proposition of banks in such markets is still sound.
In an increasingly competitive landscape, where processes, propositions and demands are becoming more standardised, differentiation is a key strategy focus for retail banks across the region. Understanding the customer in a deeper way is of growing importance to industry players, and the use of extensive analytics to enhance this analysis is a trend that will only become more firmly entrenched.
