Householding with Analytics in Financial Institutions

Financial institutions are fully cognizant of the need to leverage customer data to help drive the client experience, if they want to maximize their ROI. At the same time, a client-centric approach to financial business helps build customer loyalty. By combining householding with analytics, these two criteria aren’t mutually exclusive.

The Basic Premise

The concept of data householding is simple: to collate information from several sources and incorporate it into complete records. This could include connecting names with accurate addresses, or transactions with matching accounts and addresses. This becomes more complex in the financial institution environment, however, where a household is a decision-making unit.

Defining a Household

The definition of a household typically means a family, which can have multiple addresses based on members’ locations at different times of year. Students might live outside the primary residence while at school, for example, or seniors could live in warmer climes during winter.

The 360-Degree View

The essence of householding in the financial context is to get a 360-degree view of each customer with all their financial accounts and relationships, and to view this at the household level. A classic example of the need for this view is the teenager who gets turned down for his first car loan, when the entire or extended household has a mortgage, checking, CDs, and savings accounts with the institution. That’s not a recipe for brand loyalty or customer retention, obviously, and could end with the loss of several clients in one hit.

Getting it Right

Using householding to build a comprehensive picture of your customers requires consideration of several factors:

  • First, it’s essential to define the components of a household. At JOHO, we attach a unique household identifier to all accounts belonging to a connected group of individuals. A household can have both many accounts and many individuals, but each account and individual only belongs to one household.
  • Second, keeping abreast of the changes to each household is essential, with marriages, divorces, births, and deaths all playing a role in growing or shrinking the prospective pot.
  • Third, you need a comprehensive “bird’s eye” view of the financial behavior of the household, including loan-related and deposit-related activities.

Combining Input Sources

The common denominator needed to achieve these is a range of input sources, both internal and external. The secret sauce, however, is an analytics solution such as JOHO OneSource™ that combines inputs to deliver a clear picture of the entire household and to continuously review it over time. By applying the household dimension across all reports in the institution, you can determine whether the unit is growing or shrinking, and from a marketing viewpoint you can predict future needs. An example would be the requirement for a new mortgage when one individual marries and leaves the nest, or student loans when children reach a certain age.

At first glance the concept of householding seems fairly innocuous, but financial institutions are paying attention because of its correlation to Customer Relationship Management. Any methodology used will have to work in multiple situations such as constant and incremental householding. This will also satisfy the need for overall risk mitigation of changing customer and household demographics through analytics.