Use Alternative Data to Improve Quality of Retail Banking Acquisitions
To attract a high-value pool of customers, retail bankers typically analyze financial data and credit profiles. But many professionals in the banking industry are beginning to realize that they need to take a new approach — one that goes beyond traditional credit analysis. Limiting data collections to bank history and credit reports doesn’t provide a complete picture of household finances. Retail banks are now turning to alternative data sources to broaden their view and improve both the quality and quantity of their banking relationships.
Hidden revenue opportunities
Lack of a credit history commonly results in a low credit score for the younger generation, as well as for households that have operated primarily on a cash basis. The credit reporting system could discriminate against those who have had little opportunity to establish their creditworthiness and those who choose to avoid paying for purchases on credit. Unfortunately, when retail banks limit their analysis to credit scores and banking history, they may miss a significant group of consumers in their marketing efforts — the financially responsible individuals and households who don’t fit the standard consumer mold.
Potentials risks in disguise
Just as typical credit data can exclude some financially stable consumers, that same data can, at times, present a false positive regarding risky customers. This is especially true of the credit-savvy consumer who understands what is reported and how. It is quite possible for individuals to hide their downward financial slide for a period of time in order to gain access to fresh financial resources. A retail bank can negatively impact the quality of its portfolio by limiting credit-data collection and analysis to a traditional scope.
Using alternative data to refine your target market
Broadening your data search to include data related to the unbanked and underbanked demographics in your area can be the initial step in refining your target market. A good place to begin is at JoinBankOn.org, which provides estimates of the unbanked and underbanked households in your local area. Once you’ve established the size of the market, the next step is to seek a reputable source for your alternative data and establish risk-assessment criteria. By filtering the data, you’ll be able to easily identify desirable consumers.
Take a closer look at current customers
In addition to improving the quality of your new customers, alternative data can and should be used to screen your existing customer base. The more personalized data analysis provides an opportunity to increase your level of service to current customers who may have been overlooked using conventional data analysis. At the same time, the closer examination may bring potential risks to light more quickly, which will allow you to minimize your exposure.
Retail banking can improve marketing efficiency
Demand-deposit accounts and profitable households can be more accurately identified using alternative data. With improved data-mining and analytical technology, retail banking has the opportunity to greatly improve its marketing efficiency.
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