Alternative Data You Can “Take to the Bank” to Help Improve Performance
Like any major industry, retail banks have faced a number of key challenges in recent years. Here we discuss a few of those challenges and how today’s advanced alternative data tools can help your organization win in today’s highly competitive financial services industry.
Checking/deposit accounts, revenue and efficiency
One of the largest issues facing banks is how to grow more primary checking households and increase deposit balances. An FDIC National Survey released in September 2012 revealed that in 2011, 8.2 percent of U.S. households, or 1 in 12, were unbanked, and that 20.1 percent, or 1 in 5, were underbanked. Additionally, 10 percent did not even have a checking account. And in the first half of last year, total domestic deposit balances at institutions insured by the Federal Deposit Insurance Corporation fell by $31 billion, according to Market Rates Insight data released in August 2013.
Fraud exposure/losses and charge-offs
Fraud exposure/losses and charge-offs are another pressing challenge banks are facing. The 2013–2014 Kroll Global Fraud Report states that two-thirds of U.S. companies were hit by at least one instance of fraud, and globally, three-quarters of financial services companies experienced fraud.
Depending on a bank’s size, effective strategies and treatments to meet these challenges include the use of either internal data and proprietary models, a combination of internal and third-party data or other analytic solutions. An additional solution, however, is to source alternative data, such as cell phone, pay TV and utility payment information, and combine it with proprietary credit data. That’s where tools such as the Insight Score for Retail Banking (ISRB) come in to play.
Account performance and POS insights
Consumer risk assessment tools are limiting many financial institutions’ success at the point of sale, relying heavily on negative information that can be dated and unreliable. As a result, customers that could present significant revenue opportunity are walking out the door, and customers that may ultimately charge-off are being approved. The DDA risk assessment is the first and most important step for creating profitable households.
Insight Score for Retail Banking helps banks assess their charge-off risk. It leverages a powerful combination of credit file and proprietary alternative data to more accurately predict checking account performance in today’s highly competitive market. The validation results provided by ISRB provide hit rates and score range breakdowns, allowing charge-off dollars to be predicted in the bottom 20 percent of the vigintiles.
ISRB enhances insight at the point of sale in order to help maximize demand deposit account values, grow portfolios and mitigate risk. Its scoring allows for different treatment strategies at opening and insight for potential augmentation and retention strategies afterward. It helps empower banks to reduce future charge-offs and helps optimize the account opening process in order to open more accounts.
Providing Greater Access to Checking Accounts
ISRB also helps provide complimentary treatment strategies to enroll new segments like the unbanked and underbanked. By integrating positive and negative data available in the traditional credit file and proprietary alternative data, Insight Score for Retail Banking can help identify and serve more households. For banks to survive and better compete in today’s highly competitive market, they must embrace powerful new alternative data tools like ISRB.
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