Customer-Centric Banking Analytics Scares Me


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?

Point / Counterpoint, Editor in Chief

Beth Schultz has more than two decades of experience as an IT writer and editor.  Most recently, she brought her expertise to bear writing thought-provoking editorial and marketing materials on a variety of technology topics for leading IT publications and industry players.  Previously, she oversaw multimedia content development, writing and editing for special feature packages at Network World. In particular, she focused on advanced IT technology and its impact on business users and in so doing became a thought leader on the revolutionary changes remaking the corporate datacenter and enterprise IT architecture. Beth has a keen ability to identify business and technology trends, developing expertise through in-depth analysis and early adopter case studies. Over the years, she has earned more than a dozen national and regional editorial excellence awards for special issues from American Business Media, American Society of Business Press Editors, Folio.net, and others.

Counterpoint: Train for Data Visualization Skills

Chances are you've already got good data visualization experts on staff, even if you don't know it yet.

Customer-Centric Banking Analytics Scares Me

Banks have tons of customer data at their disposal; unfortunately not all will use it scrupulously.


Re: How much do they really know?
  • 2/7/2013 4:48:27 PM
NO RATINGS

Hi Cordell, ah, yes -- THAT question. I've never looked into an answer, but perhaps should one day. Too low a priority, perhaps? Too many bilingual-speaking banking customers whose preferred spoken language might differ from preferred written language? What's your guess as to why we still get the option?

How much do they really know?
  • 2/7/2013 2:20:27 PM
NO RATINGS

I will ask the question that was asked 20 years ago in a credit card forum I attended and it's still unresolved.  If my bank knows so much about me how come it can't figure out what language I speak when I go to the ATM?

Re: Other Applications
  • 2/7/2013 2:16:07 PM
NO RATINGS

Kicheko

Rest assured this absolutely happens but it doesn't have much to do with your personal withdrawal patterns, more likely aggregate withdrawal patterns at the bank.  You'll never see it come out of you're statement or online balance but you're money isn't just sitting there.  Banks make money but investing the money you deposit (as well as other sources of capital) in loans, mortgages and yes sometimes currency.  If you're not using it they're going maximize their investment.  Sometimes that means moving funds overnight.  By law they are required to keep a percentage of it in the bank in case you want to withdraw it but you're money is not sitting in the bank waiting for you.

Re: Some good some juudgement
  • 2/1/2013 8:33:14 AM
NO RATINGS

The fact is that many of the offers are pre-selected -- which is not the same as pre-approved. So a customer may accept an offer - complete the application -- only to discover she does not qualify for the stated offer. All she is left with is an extra inquiry on her credit report!

Re: Other Applications
  • 1/31/2013 8:11:42 PM
NO RATINGS

@kicheko.

Are the banks you are talking about located in Africa or in Western countries? I wonder if things happen that way in the US or Europe. I've never noticed that with my bank accounts.

Re: Some good some juudgement
  • 1/31/2013 11:44:32 AM
NO RATINGS

Beth/Sandra-I thought it was a fluke the first time it happened, then it happened a few other times. I finally had to call the bank and ask them to let me conduct my business without announcing my personal business on the loudspeaker. They had many options a note, a flyer about a service sent out with my receipt, an offer sent out in the tube. As a marketing person I was certainly surprised at their judgment and their ability to alienate a consumer based on their actions.

Re: Other Applications
  • 1/31/2013 10:10:57 AM
NO RATINGS

kicheko, that sounds complicated and risky. Have you seen any documentation on this? I'd love to read more about it for a better understanding of how this works.

Other Applications
  • 1/30/2013 8:25:55 PM
NO RATINGS

But i'm told of another way banks use customer analytics. By finding out a customers withdrawal patterns and knowing for example that customer x doesn't make withdrawals at midnight, they can borrow your money at night for trading in foreign markets and then return it by morning. i don't know how much fact is in that, but i have queried my bank account after midnight on occasion when i'm still up and working and sometimes the balance read zero! and when i queried again in the morning the balance was correct i.e. not zero.

Re: Consume within limits
  • 1/30/2013 8:24:12 PM
NO RATINGS

Banks make money by selling loans to customers. thats their bottomline and not protecting us as we may want. So then we should understand banks from that perspective and i agree with you that we don't need to take up every offer they give to us.

Re: Consume within limits
  • 1/30/2013 12:47:47 PM
NO RATINGS

Ah Sandra, spoken like the well-educated, well-informed woman that you are. Sadly, not all bank customers are as wise as you --  hence the reason for my concern. Perhaps banks should offer credit counseling services along with these extra offers...

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