The Importance of Loan Categorization and Segmentation for Financial Institutions

loan categorizationLoans are the lifeblood of financial institutions. While a healthy loan portfolio is the primary source of an institution’s revenue, it’s also the most challenging to manage. To operate a successful lending division, institutions need to know where they are earning and where they incur costs. This requires sophisticated loan categorization, which enables staff to view—and report on—their loan portfolio in more meaningful ways. With JOHO OneSource™, it’s now possible to achieve greater insight into this critical information.

Standard Views are Inadequate

Most analytics methods offer fixed, standard loan portfolio views, but, in many instances, these are inadequate for providing management with a true “birds-eye” viewpoint. For example, a loan portfolio purchased from another institution might be profitable, but by using it as an entry point for growing your base of deposit account holders, you can maximize profitability several-fold. Software that isolates accounts according to criteria avoids wasting time and money approaching people who don’t match your ideal customer profile. This can be invaluable for institutions that are obligated to track and report acquired loans separately until their maturity.

Importance of Trending

Then there’s the concept of trending. It’s great to know you purchased a loan portfolio that’s performing, but wouldn’t it be better if you could identify account holders in the portfolio who shifted their banking to your institution? If so, what are common criteria between those who moved and those who haven’t? This will enable you to understand trends affecting customers, and where to spend your marketing dollars.

What about market trends? When you know what your customers use loans for, you can apply business intelligence to marketing as well as new product development. If a notable percentage of your portfolio used loans of a certain value to purchase RVs during summer, for example, you might develop a new loan product aimed at RV buyers and target them with your promotions.

Those Difficult Questions

Financial boards, too, are typically populated with directors who ask difficult and diverse questions. These range from “What about those loans we bought two years ago? Did we get any new customers from them?” to “How much profit are we making from loans to RV buyers?” Regulatory reporting doesn’t allow for many of these distinctions in the data, and questions like this often give rise to frenzied efforts to track down numbers manually. In the time it takes to obtain, check and extrapolate the data, it’s already out of date!

Solutions that Serve Your Interests

Data warehousing using sophisticated technology offers the capability to “break out” different types of loans, pull reports based on almost any filtered criteria, and to discover the right questions to ask when segmenting the portfolio or performing other analytics tasks tailored for your business. It takes a particular type of data management, however, to deliver a solution that enables a financial institution’s executive team to create additional loan category views that serve the organization’s interests, rather than settling for standard reports delivered by their operational systems.

It’s time to ditch the spreadsheets and develop loan categorization and data warehousing systems that are commensurate with your performance in your market. Or, at least, with the way you want to perform!

Banking Analytics Tailored to Your Business

banking analyticsIt’s no longer a secret that personalization is key to improving your customers’ experience. Whether it’s supporting existing clients, cross-selling and upselling to them or sourcing new ones, the more you know about them the better you’re able to reach them. In the financial industry, however, much of the available data comes in sets accessed via analytical tools that operate in silos.

Here’s how to find a tailored system that helps you get the most out of your analytics by giving you the specific information you need, when you need it.

Be Flexible

Analytics products aren’t all created equal, and most core system vendors offer fixed solutions that consist of the analytics they believe will be most useful to your financial institution. In many instances they are correct, but for institutions offering a range of products with unique attributes like yours, fixed solutions often miss the mark on the data you need. Look for a flexible solution such as JOHO OneSource™, which pulls data from across departments to build a customer profile focused on the questions you need to have answered at the time.

Skip the Silos

Financial and purchase data is typically stored in silos, which means the average analytics deliver information based on those same silos. To get banking analytics tailored to your business’s primary activities, you need to sidestep the silo trap. Avoid buying core and ancillary system tools with a single analytics focus, which could eventually result in your needing five different analytics tools to cover various focus areas. Implement a tool with a single-source analytics platform that draws data from multiple sources, combines it, and produces intelligence that’s usable and interpretable for your specific purposes.

Minimize and Simplify

To remain competitive, modern financial institutions need business information for marketing, reporting and regulatory purposes. Just as having a lot of data can become overwhelming and render the intelligence useless, having too many analytics tools can end with reverting to manual processes (such as Excel) to check for delinquencies and other issues.

You can overcome the conundrum of “too much useless information” by installing a simple, cross-system platform that functions as a data warehouse. This type of system incorporates information from multiple sources, performs complex queries, and delivers reports based on a single source of truth. It also eliminates the need to have several specialists who each pull data from a particular tool, simplifies deployment, and reduces the training requirements for users across the institution.

Take a Consultative Approach

Instead of settling for a standard analytics package that provides information the vendor thinks you need, look for a system based on a consultative approach. Find an expert in enterprise systems who listens to your pain points, helps you to ask the right questions and find the right answers.

At JOHO, we take the time to get to know your business needs and goals, develop a solution to meet them, and help you assess whether you’re ready to implement it.