Data Analytics Can Help Banks Gain Market Share While Minimizing Risk

By Garry Capers

Banks may look back on 2020 as an unprecedented opportunity to build their market share. A 2020 Greenwich Associates study reports that one in three small businesses are likely to switch banks. In an environment where businesses’ banking relationship becomes critical to survival—from the Paycheck Protection Program to forbearance and loan modifications—businesses will be more sensitive to a perceived lack of service.

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Digital capabilities plays into this scenario, too. The same Greenwich study found that access to better online banking capabilities is the top consideration for businesses when switching banks.

If millions of businesses switching from one financial institution to another was the totality of the situation, the solution would be relatively straightforward: Pour more dollars into marketing and online product development, and then sit back and reap the benefits.

Of course, nothing is that easy.

Experts at Barlow predict that 15 to 35 percent of small businesses may fail in the pandemic’s aftermath.

From these two reports, we can assume millions of small businesses—many of which are struggling to survive—may be changing banks in the months ahead, creating a tremendous opportunity and risk for banks. Identifying healthy prospects to grow profitable business relationships—while weeding out others—will be a critically important and herculean task.

The challenge is broader than just marketing. In addition to fine-tuning client acquisition efforts to find the right new business opportunities, banks need to take a closer look at their own client roster to understand where pockets of risk exist. The importance of this work will likely elevate risk management teams within banks, expanding their importance and influence.

Advanced technology can help banks make better decisions

The scale of this problem and opportunity makes it ideally suited for a technology-enabled solution. Using data analytics, including multiple measures of a business’s health, banks can make better-informed decisions. Factors including geographic location and industry sector—along with traditional financial measures—can all be analyzed together to score a company’s value and risk to a bank.

For banks looking for this type of solution, below is a list of five critical components that should be part of any technology-driven campaign to increase client acquisition and manage risk.

1. Multi-sourced data lake

The starting point for this marketing approach is an effective data lake: a huge collection of information with insights aggregated from multiple general and specialty data providers. It’s vital to verify data across sources to create a comprehensive 360-degree view of specific businesses.

Because data is typically fragmented and error-prone, specialized skills are needed to decipher good sources and pieces of information from those that are not. Once solved, you can move ahead with accurate audience data, develop hierarchies and use algorithms to prioritize and combine records. This provides powerful signals to determine which businesses you want to convert into customers.

2. COVID-19 index tool

One of the biggest challenges now for winning market is the unknown COVID-19 timeline and its ongoing impact on whether businesses will survive and thrive. During the pandemic’s “first wave,” business failures were predicted to increase by 250 percent. It is debatable as to whether we have entered the second or third wave, but the concern regarding business health is just as great today. In response to this, Deluxe developed a specialized data lake tool, the COVID Index, that assesses a business’s likelihood to persevere. The Index score allows financial institutions to select healthy targets and remove severely distressed businesses from their outreach efforts. This evaluation combines three layers of data to determine a business’s viability:

  • Business-specific data such as business-level trade credit assessment, evaluation of accounts in collection, liens, days beyond terms, deteriorating payment history, credit shopping behavior and indicators of distress pre-pandemic.
  • Industry-specific overlay of relative COVID-19 effects (e.g., restaurants, retail and hospitality are heavily affected sectors).
  • Geographic-specific overlay of relative COVID-19 effects.

3. Advanced AI-powered analytics

Of course, a data lake by itself is not actionable until you understand and interpret it. Overlaying sophisticated analytics powered by AI enables you to advance the process of qualifying targets by answering three crucial questions:

  • How financially healthy is a business now, and will it be around in the future?
  • How large is the wallet: Is it worth the time and cost to acquire this relationship, and will it be a win-win for both the small business client and the financial institution?
  • Would this business currently consider switching financial services providers?

Beyond these measures, AI can also obtain valuable product-level revenue projections and propensities for every marketable small business. Another critical piece in superior programs is the continual updating of the data lake which enables changes in data to train the analytics to be increasingly accurate.

4. Multi-channel expertise

Multi-channel expertise is another success driver because a small business owner’s journey is not linear; it can be online, offline, digital and in person. If a business is searching digitally for a new financial services provider, banks want to inject themselves into the conversation. Similarly, they need to engage with businesses receptive to traditional channels like direct mail and email. Being present across multiple channels allows cumulative touchpoints that add credibility and attract potential clients. This approach helps fill the communication gap since COVID-19’s disruption has made face-to-face discussions less feasible.

Another area of opportunity is thinking of business owners as “consumers,” which is an important pivot as professional and personal lives increasingly overlap and merge together. Banks need to consider messages and offers that appeal to the “consumer mindset.”

5. Deep analysis of results

Many marketing programs fall short in the analysis phase because they do not accurately measure the success of the campaign or identify which channels are most effective at generating new qualified leads.

Attribution channel controls enable you to determine the incremental benefit versus the cost for each channel. What is the added value, for example, of layering digital touchpoints on top of direct mail, or having relationship managers make phone calls to a targeted list of businesses?

The analysis provides not only the number of new relationships acquired, but the composition, account mix, balances and, most importantly, the return on investment and profitability of business generated. With this information, banks can fine tune the marketing program with the most effective channels.

Sequential optimization of campaigns: Keep in mind that the quality and size of your data lake enables greater training of the models and algorithms, and the attribution helps you create greater learning and enhanced campaign strategy.

To get better with each successive campaign, you can use your AI platform to assess how well you did and feed all measurement and attribution results back into the analytics platform to drive smarter decisions. This matters: The world changes, so do businesses and banks. If you’re not adjusting your targeting approach, you’re left with a tool that doesn’t reflect the real world.

Implementing marketing campaigns with these key attributes can attract quality business relationships with long term upside for clients and financial institutions. At the same time, you can achieve impressive returns on marketing investments and customer portfolio profitability. While this overall approach is relevant during normal times, adoption is accelerating in the wake of the pandemic to help banks win their “best” small business market share.

Garry Capers is division president of Cloud Solutions at Deluxe Corporation.