The High Cost of Curiosity in Your Financial Institution

Have you ever been in a leadership meeting and had a question about some of the information being presented? If you are just looking at a report or presentation, there’s often no way to instantaneously answer the question behind the question What’s driving that number?

Usually, the answer is deferred until a subsequent report can be prepared. This extended process can delay or even diminish the ability to make a decision. The cost to the organization both in personnel and opportunity can be significant. This is what we call the “Cost of Curiosity”.

The Difficulty of Getting Actionable Information

The lack of an actionable Business Intelligence(BI) platform with consolidated trending information is deficient in most financial organizations, which creates manual obstacles to getting the information. It’s difficult to find trending information that is consistent across operational departments. So, why do institutions have such difficulty using BI in a timely fashion? Because banks are typically organized into cross-functional departments, the leadership depends on each area to provide specific information. The result of this scenario is that decisions are often based on what leaders think they know, but their information is days or weeks old. Key performance indicators are reviewed monthly at best, which reduces their effectiveness.

Curiosity Carries a High Cost

All this means that the curiosity above, i.e. the question behind the question, comes at a high cost, compared with the benefits of having timely and relevant data at your fingertips. Then there’s the cost of making the wrong decisions. Your executives may not even realize they have done so until a cycle or two later because it takes so long to get the right data needed to change tactics.

Here are two examples of financial organizations that made this approach work:

#1: Bank A was preparing to raise $10M in CDs by offering a special rate but was concerned that they would cannibalize their current portfolio, which had $8M renewing. By utilizing a BI platform, the bank determined they could start the offering on the 8th of the month, which in turn would only expose $500K to the “special offering” pricing.

This enabled the bank to renew existing accounts at market rate, then add new money at a high rate to match funding for their commercial division. The action saved the bank 50 basis points over two years and avoided potential interest expenses of over $75,000.   

#2: Bank B used BI to study the discounts its private bankers were offering to customers, according to this report by McKinsey & Company. Bankers claimed that they offered the discounts only to valuable clients, and that they more than made up for them with other, high-margin business. The analytics showed something different, however, with patterns of unnecessary discounts that could easily be corrected. After the unit adopted the changes, revenues rose by 8% within a few months.

As seen above, when Information is readily available you can adjust your strategies rapidly and reduce the overall cost. Most banks spend a significant amount of money on trying to recruit the right people to solve this problem, but that doesn’t change where the data comes from or how they access it. It’s not a fixed cost, either, so as your organization grows, the problem increasesand so does the expense.

The Benefits of Being Data-Driven

The way to resolve this issue is to become a data-driven institution, with:

  • Consistent reporting across all systems, delivered in the format you need.
  • Good productivity and data integrity, through reduced manual data entry at all levels.
  • Performance analysis through trending, based on multiple criteria.
  • Data usage to predict the impact of market changes.
  • Decision-making based on real-world, up-to-date information.

Do you want to reduce the high cost of curiosity to your financial institution? Contact us to find out how we can help you be better informed, make better decisions and reduce your costs substantially.


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!