Using Data and Analytics to Measure and Drive Profitability
Community Financial Institutions need to measure and understand customer and product profitability in order to better serve their customers and improve their bottom line.
We will discuss how data and analytics are used to drive these profitability measures, and the challenges FIs face in getting these insights.
Once a measure of profitability is established, an FI can get a deeper understanding of the following:
- Relationship value of individual customers and households
- Profiles of customer segments and the products they acquire
- Market value by a branch location and relationship manager book of business
- Product value for accounts, loans, and services offered
- Overall profitability by products and categories.
Armed with these insights, the FI can invest into the appropriate product types and consumer segments that increase revenue, improve the bottom line and improve customer experience.
FI Leaders understand that within their banking systems, they have the data required to derive profitability insights. However, they are constrained by some of the following factors:
- Integrated data is not always available in order to derive insights
- Data extractions are manual and sporadic, preventing insights from being ‘always-available’ and refreshed monthly
- Limited resources create bottlenecks, sometimes due to ongoing initiatives or internal skill levels, while external consultants are cost-prohibitive
Role of Data and Analytics
There are three major components for creating profitability measures:
- Product level income generation through measures such as cost of funds, interest rates, activity fees and more
- 360 View of the customer’s complete relationship with the FI
- Fixed expenses such as staff allocations, incurred property costs, investments in technology and more
To overcome challenges of getting profitability insights, an FI can deploy pre-built solutions that integrate data and derive operational insights that are refreshed regularly and stay up to date, enabling leadership to make the right strategic decisions.
Appropriate insights into an institution’s profitability are critical factors in its ability to grow and succeed. By leveraging this data effectively, profitability metrics enable the FI to withstand negative economic conditions, create long-term stability, and allow for more efficient operational decision making.