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Role of Business Analytics in Digital Banking

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In the modern age of technology and data, the evolution of the banking sector has been noteworthy and commendable. It has been emerging with modern processes like providing Automated Teller Machines, online shopping, mobile banking, to name a few. However, with the ever-growing market volatility, unpredictability, market dynamics, and competitive environment, the banking institutions now need to rely on business analytics which gives them detailed insights into the need of the tech-savvy and ever-demanding customers.

Analytics can help banks to become smarter and efficient. By combining structured and unstructured data from their users, along with data filtering and mining techniques, analytics can provide a lot of valuable information to the banks. It can help to determine and predict customer behaviour or trends and also help in customising business models to provide a more personalised solution or experience for the end customer.

Research shows that 60% of the North American financial institutes believe Big Data Analytics drives competitive advantage. Over 90% believe Big Data initiatives determine winners of the future.

Although the primary focus of banks is on customer analytics, the banking industry also relies on business analytics in other areas like detecting fraud, identifying risk, applying credit restrictions, setting regulations, etc.

Here are a few areas where business analytics accelerate Digital Banking initiatives:

Digital Marketing

The consumer segment which the banking industry caters is generally becoming more technologically and digitally-savvy. Most of the banks have embraced advanced analytics techniques to gather information related to their customers via multiple digital channels which primarily includes the Internet, but also extends to devices like mobile phones, display advertising, or any other digital medium. This information is later used to strategies the directions in which banks need to invest in order to increase customer satisfaction and experience.

The major focus of the banks is to provide more and more innovative banking features via banking apps or websites, which the customers can access with ease from anywhere without the need to physically visit the bank for any transaction.

Customer Engagement

With the detailed study of customer data, banks use it to their advantage by coming up with multiple sales and marketing strategies. This helps them to understand what the end customers are actually looking for and use a proactive approach rather than a reactive one to meet the customers' needs.

Banks also integrate their systems with social media networks to get more personalised information about their customers. Using a combination of their transaction history and personal data, they come up with products that are tailored to the end customer requirements, e.g. a customer planning to buy a new car, house, or office space can be offered attractive and specific loans which can further be customised based on individual customer preferences. 

Risk Management

The banking industry is always at a high risk considering the fact that it provides monetary loans to the general public. At the same time, banking institutions also need to make correct strategic investments. In such scenarios, a thorough evaluation is a key aspect which needs to be taken into consideration before making any decisions. Business analytics provides in-depth insights to the bank’s IT systems, customer data, financial transactions, and environments to avoid certain risks. 

Few examples in this regard include -

  • Analysis of the historic sales numbers helps to determine if the housing market is strong or weak, or poised to rebound. Based on that, the banks can decide to lower the interest rate of housing loans or invest in re-development projects.
  • Analytics provides insights into internal or external frauds and provides trends and patterns to prevent repetitive frauds from happening in the future.
  • Banks also usually assess the factors which lead to default payments on loans and come up with innovative approaches to help mitigate the risk.
  • Bank also analyse geographical locations, socio-economic conditions, regional stability, weather data along with the integrity of the locations overall infrastructure to determine if it is apt to offer insurance in that particular market. 

Credit Tracking and Loyalty

Business analytics provides banks with the most updated information on their customers’ earnings, spending trends, and profitability. It provides information on customer loyalty. Banks utilise this information for retaining high-value and VIP customers. Analytics is being used to sell specific products or provide discounted offers or loyalty points to retain such customers. It helps them identify customers with consistent low credit scores who may default on loans or be potential candidates to terminate their accounts in near future.

Internal Performance Tracking 

Banks are using analytical data to measure employee and overall business performance. Such data is collated across several departments, branches, and locations. This helps in setting organisational and employee level goals and identify potential areas for training and R&D. 

Real-time Reporting 

Using animated techniques, charts, graphs, and GUI tools, real-time and dynamic reports can be built which provide the end-to-end view for the executive management. With analytics and visualisation, it is easier for the stakeholders get quick access to real-time information such as the number of loans sanctioned in a quarter, the list of defaulters or NPA accounts per region, profitability numbers of a particular region, etc. and take faster business decisions.

Regulatory Compliance

Compliance Regulators often require banks to aggregate data that is present across several systems, applications, databases, and multiple lines of business. Violations of these requirements have a high penalty and huge impact on the reputation of the bank in the market. Business analytics is helping banks to create effective compliance reports and perform regulatory tests. More so, it is helping the banks to reduce the overall cost of meeting regulatory requirements.

Several large banks in the United States have used business analytics to advantage. Analytics has been an instrumental area for Capital One, which has grown earnings per share by more than 20% each year since it went public in 1994, and has become the third-largest provider of credit cards in the US. Citi, for its part, is experimenting with new ways of offering commercial customers transactional data aggregated from its global customer base.

 

Data and analytics are fast becoming a huge differentiator for the banks. It is helping them drive business growth, better monitor the risk behaviors, and to reduce costs across the business.