One-third of Millennials don’t think they will need a bank at all in five years. From big internet giants such as Google, Facebook and Amazon to small, innovative startups such as Square, CreditKarma and TransferWire, traditional banking is being threatened from all sides. How is the banking industry responding to these generational changes and competitive threats? Data Science.
Traditional banks are already using big data analytics in almost every decision regarding revenue generation, controlling of expenses and mitigation of risk. Where is the opportunity to use data science beyond what they are already doing, and how can they do that better than internet giants that aren’t too bad at interpreting data themselves?
Simply having been in business longer than the emerging FinTech companies and internet giants means banks have massive stores of day-to-day transactional customer data. Every banking transaction is a gold nugget in a bank’s Fort Knox of data. If they can take this store of data and look at their customers more holistically the marketing opportunities are almost endless. Toos Daruvala, Director at McKinsey, in an interview gave the example of a bank that “took a 360-degree view of their consumer and then appended some external data around social media to figure out what’s the right next product to buy for that consumer and then equip the front line to make that offer to that consumer when they walk into the branch or when they call into the call center. The efficacy of their predictor models on next-product-to-buy improved dramatically.”
Brick and Mortar
No, they aren’t just costly real estate. Even tech giants are realizing that binding customer experiences are built on both physical and digital touchpoints. ( Apple Stores and Amazon’s purchase of Whole Foods) Dataiku, a data science software company, is “seeing a real evolution as bank’s physical branches morph into advising centers for customers, with one regional M&T manager noting a swing in service activity underway from 80% transactions and 20% expert advice to 20% transactions and 80% expert advice.”
Physical locations add to consumer’s sense of security about the safety of their assets. In an IBM survey, “70% of respondents indicate that they trust traditional banks more than non-bank competitors.” Another survey asked which institution they trust more to safeguard their personal information and privacy, consumers ranked traditional financial institutions higher by a wide margin over new online providers.
Traditional banks have long been employing professionals with advanced degrees in statistics and math. They have a hard-to-find in-house workforce ready to compete analytical with the best of the internet giants and fintech competitors. Banks commitment to continue to train and upgrade their analytical capabilities will keep them at the forefront of the data science revolution.