From how much cash I withdraw weekly, to the bills I pay, funds I transfer, and credit card charges I incur monthly, my bank is privy to all sorts of information about me, how I spend, and how I manage my finances.
Heck, if it's applying advanced analytics, it might even know me better than I know -- or at least care to admit knowing -- myself.
Such deep understanding of me -- and you -- comes as banks shift from a product orientation to a customer-centric focus. Getting to know us has been purposeful and deliberate. They've turned their analytics efforts outward, toward the customer. Whether they've maximized the opportunity yet or not, they understand how much value lies in all that customer data they have at their disposal.
Indeed, as Sandra Gittlen, longtime IT and business journalist, notes in her Counterpoint, expecting that banks wouldn't try to capitalize on the data would be foolish for anybody. I'll add to that that a failure to employ advanced analytics to gather customer intelligence would be downright destructive for the financial institutions themselves.
Emmett Cox, a banking and retail analytics expert who recently began blogging for AllAnalytics.com, addressed this issue on our message board last year: "An important point that seems to be left unspoken, [is] the fact that banks… are in place to bring a ROI to their shareholders."
That's to say, the better a bank understands its customers, the more capable it is of predicting their behavior, optimizing marketing campaigns, and boosting services uptake. It is about the bottom line.
As much as I applaud the use of advanced analytics in banking, I worry about it, too. Banks aren't always the most forthright of institutions; for a here-and-now example, read any one of the myriad financial stories on zombie mortgages to hit the press lately, like this one at MSN Money. The customer insights banks glean through analytics might result in more profitable outcomes for them -- but at the expense of the very customers whose data they're using to make those gains.
In her Counterpoint, Gittlen uses her personal experience as an example of why she's OK with banks using advanced analytics to create customized offers for customers. As she recounts, she suspects an analytics engine flagged increased credit card activity, analyzed the purchase data, and prompted a boost in her credit card limit and a great promotional offer on the interest rate to accommodate her spending on a new recreational pursuit. But Gittlen, who seems a savvy and disciplined customer, didn't take the bait.
Remembering that this is about a return on investment, the customers that banks often will want to target are those who will spend more with them -- even if they shouldn't be -- but not put them at risk. Let's use college funding as an example, since we're heading into that time of the year when students and families are assessing financial aid and financing options.
Meet Joe, a bank customer who holds an upside-down mortgage with the bank, as well as tens of thousands of dollars in credit card debt. Joe meets the monthly payments on both accounts, but no more, and regularly brings checking and savings account balances to their minimum, in part through automated bill payment handled by the bank.
The bank knows all this but, through predictive analytics, also anticipates Joe's need to help finance a college education for a dependent child. Joe is the custodian on a college-savings account, and the bank knows from its records that the child has hit college age and is likely to be searching for financing options. The customer may be tapped out financially, but what's to stop the bank from promoting a private student loan anyway? As long as the bank receives its minimum monthly payments, which its data shows is likely from this particular customer, does it really care whether or not the customer can really, truly afford the additional service offering?
Obviously it's incumbent on Joe to think through the decision to take on additional debt with great care, but I fear that many customers who receive promotional offers from banks take those as an implicit nod, "Hey, you can do this!"
You could argue, and rightly so, that some banks will use customer insight for good, too -- offering refinancing deals to reliable mortgage holders, for example. But financial data is among our most private. And the thought that some banks might not be so scrupulous with their use of it leaves me feeling a bit unsettled. What about you?