This article will focus on Cloud-Based analytics for Banks in the Era of Data Hackers.
Getting to know all about you – A $1 Billion Credit Union recently approached me wanting to know my methodology to Corporate Performance Management (CPM) before they wanted to see a product demonstration. Their ultimate goal is to have me perform a Data Analytics Assessment to see how good their current CPM process is before recommending any improvements.
I thought about my approach to CPM and realized that it ultimately comes down to instrument level profitability. The DNA of any good measurement system has to start at the most basic level which is at the individual product level.
For Banks and Credit Unions, that level of granularity is at the individual loan, deposit, wealth management, safe deposit box, and any other product or service offered to their customers. Once you have these building blocks in place, you can then perform CPM at the customer/household, product/business line, branch/geography, or relationship officer/department levels. The sky is the limit of the types of analytics that can be performed once you have all your data collected in one place.
You will know which products are profitable and come up with better marketing campaigns. You will be able to segment your customer base by Life Time Values and come up with better retention and cross-sell initiatives. You will be able customize the pricing of your various loans, deposits, and services, customer by customer.
To get started on this grand initiative, you will need just a few things in place.
- Easy-to-use Data Warehouse – I have seen many data warehouse projects over my career result in absolute failure due to the massive complexity of the project and solution set. The key to success is to keep it simple. All you need on a monthly basis at the instrument level are the balances, interest amounts, fees/services charges, and various counters of certain activities. Associated with the account numbers will be alternate keysets tying them to customer, household, branch, GL, branch, etc. so that the data can be aggregated many different ways. Modern, out-of-the box data warehouses make this task simpler and less expensive than designing your own database from scratch.
- Funds Transfer Pricing – For deposits, you will need to capture some type of investment income associated with the amounts collected for each account. For loans, you will need to capture the associated borrowing cost or alternative safe investment income associated for each loan that is lent out. The most basic and simplistic approach I have seen is to use the average daily Federal Funds Rate plus 150 basis points for both the loan and deposit side of the equation. A more sophisticated approach would be to add the average U.S. Treasury Yields for like maturities for your term loans and deposits. The goal here is simplicity. If you cannot explain FTP to your relationship officer, they will never understand the value of Customer Profitability.
- Activity Based Costing – Origination costs are first and foremost what need to be calculated. By now, most Banks and Credit Unions already have these costs for loans for SFAS 91 purposes (SFAS 91 allows you to amortize these costs along with origination fees over the life of the loan). They will need to come up with the same origination costs for each type of deposit, wealth management, safe deposit box, etc. as well. Servicing costs can be broken down into a handful of activities to get started. Teller items, ATM transactions, online banking/bill pay activity, and ACH’s/wires are some of the activities that need to be tracked. The most basic approach is to measure the average time (in hours) it takes for each activity multiplied by the average hourly rate of the person performing that activity multiplied by a factor of two to account for overhead. Again, keep it simple! If you have a staff of twenty people, then you can invest the time of taking stop watch time measurements of over a hundred different categories to be much more precise (I actually oversaw this process for a $29 Billion bank). The goal here is to recognize that an online banking transaction will cost about $1 while the cost to originate a Commercial Loan could be as high as $1,500.
- CRM/MCIF – Armed with all this instrument level data over a series of months or years, you will need to be able to aggregate that data at the customer/household level. Having a decent Customer Relationship Management (CRM) system or Master Customer Information File (MCIF) will be key to tie everything together. From there, all of your marketing efforts will begin to take shape.
CRM and Data Hackers – A Match Made in Heaven! – One of the coolest things about the online dating site eHarmony is that it collects 29 different data points about each participant. Based on sophisticated algorithms, it will then match your scores with that of other participants that have similar scores. The odds of success of finding your match, according to eHarmony, are greatly increased.
Likewise, a CRM being loaded with instrument level profitability and activities is a treasure trove of information for data hackers and identity thieves. Even if the profile does not have all 29 facets of your financial profile, these crooks can do great damage with just some of the information.
Case in point. A couple of weeks ago, my house phone rang with a caller ID of Kohl’s Department Stores. Once the guy started leaving a message saying that someone was trying to use my debit card with the last four digits ending in ####, I immediately picked up. The guy said that he was trying to receive a wire from Western Union and needed the full Debit Card number to receive the funds.
Obviously I hung up on the guy. What bothered me was that he had my phone number and the correct last four digits of my Debit Card. A couple of days later, multiple charges starting showing up on my Debit Card. It was just dumb luck that I was reconciling my online account that I caught the activity. I quickly cancelled my card and was able to mitigate the damage (I think).
Imagine the carnage that would be done to your customers if these thieves were able to hack into your CRM. They know which customers to go after. These thugs often belong to syndicates that quickly resell the stolen data to many other criminals. The damage to your institution would also be tremendous. Who would want to bank with you if they lost all their money due to week data security.
But I love My Mobile Device! – I remember growing up and eating supper with my brothers and sisters. We were all sweaty from playing outside and would talk about how our day was. Today, I see whole families at a restaurant with each of them on their mobile device checking out social media. Our smart devices are with us everywhere we go.
I order the latest and greatest supplement from Amazon, look up what “disintermediation” means on Wikipedia, and check out how many likes I get on LinkedIn all on my iPhone. But if I want to find out who my most profitable customer is at my branch, I have to go to the office, login to that clucky desktop, authenticate myself multiple times, and then navigate through several screens to get the information.
If you want to view your CPM and customer data on your mobile device and not have to endure all the hassle, you will need a few things in place.
- Web portal – The beauty of a web portal is that all the applications are loaded onto the web server and not your mobile device. It could be MS Excel, CRM, data warehouse, and whatever else you want. You simply click the mobile application that will take you to the site and it will remember your user ID and password. You can simply swipe one screen to the next to get all the data you ever needed.
- Public or Private Cloud – Microsoft Azure and Amazon Web Services are two great ways to host all of your data in a Public Cloud setting. They are spending millions of dollars a year to protect the data from hackers. Problem is, one hack and you are toast. Putting all the applications on a Private Cloud may make more sense for Banks and Credit Unions as access to the data will be much more restricted. Setting up the Private Cloud or an on-premise web server behind a Bank or Credit Union’s firewall may make even more sense.
- Data Masking – If you are going to put your CRM and CPM data on Cloud, the use of data masking would be prudent. General information regarding your customer’s address, phone numbers, date of birth, SSN, etc. should not be in your CPM data warehouse. It is not necessary for what you are trying to accomplish. In addition, account numbers, salary, credit scores, and other sensitive financial information does not need to be stored.
- Risk Mitigation – If you are putting your CRM and CPM on Cloud, you will need to use information security technologies to mitigate and control the risk. On the list will be user authentication and access control, network perimeter defense, intrusion prevention and detection systems, and antivirus systems. If using a Public Cloud, make sure that your provider has all the appropriate Security Certifications.
So who can take my CPM mobile? There are a few vendors that can aggregate all of your data into a data warehouse. They also have additional tools that apply Funds Transfer Pricing and Activity Based Costing. IBM offers Cognos, TM1, and other tools to accomplish your CPM endeavor. Oracle offers OBIEE and Hyperion and SAP offers Business Objects and BPC along with other pieces to do the same. These solutions are often very expensive, involve many different modules, and can take a long time to implement. They are all offered on Cloud or on-premise with a web server to allow you to view everything on your mobile device.
If you want all the tools combined in one solution with an easy to navigate Web Portal, you may want to consider BI360 by Solver, Inc. BI360 provides a complete Excel and web-based suite, comprised of Reporting and Budgeting, Dashboards and a pre-configured Data Warehouse. Your CPM via BI360 can be up and running in just weeks as opposed to months and is available on-premise or in the Cloud. Don’t let hackers cloud your vision of CPM. Partner with someone today that will let you keep your data safe and enable you to manage your business with your mobile device.