Financial institution leaders can predict their way to profit
Predictive analytics expert tells 2016 TMG Executive Summit attendees even a little prediction goes a long way
DES MOINES, IA (June 28, 2016) — Eric Siegel, Ph.D., insists predictive analytics does not have to be 100-percent accurate. “Even a little prediction goes a long way,” the Predictive Analytics World founder told an audience of credit union and community bank leaders this morning at the TMG Executive Summit.
To demonstrate his point, Siegel showed that by deploying a targeted marketing campaign using even the simplest of predictive models, financial institutions can expect profits to skyrocket — all without a new product or new marketing creative.
A large amount of data is also not necessary for valuable, predictive insights, according to Siegel. He pointed to a one-time study by Chase that showed mortgage holders with interest rates higher than 7.94 percent were exponentially more likely to refinance with another lender than those with lower rates. “Already, Chase has value with just that one factor alone.”
Predictive modeling doesn’t always have to be about earning additional revenue from new customers, Siegel explained. Financial institutions can use some of the same methods for predicting those borrowers who are most likely to miss credit card payments, for example.
Two of what Siegel called “killer apps” will be particularly important for financial institutions to master in the coming months and years: target modeling for acquisition and churn modeling for retention. With regard to the latter, Siegel said it’s important to consider the “let sleeping dogs lie” method. This describes being careful not to deploy marketing, discounts or offers that may backfire, triggering a negative behavior, such as the canceling of an account.
Half the battle is getting raw data into what Siegel referred to as training data, which is essentially lines of data describing the attributes and behaviors of individual consumers over time. “This is often the bottleneck to leveraging predictive analytics technology,” he said.
Because of predictive modeling, which Siegel calls the next phase of evolution in the Information Age, each of our daily experiences is changing. Millions of decisions based on decision trees and other analytical methods are made by companies, law enforcement, government agencies and others every day. These decisions inform how consumers are treated, serviced and incentivized. And often they are based on both straightforward and unusual factors, such as the size of dog collar we buy at the pet store or whether or not we prefer curly fries to straight.
What’s important in this context is that correlation doesn’t always equal causation, Siegel said. In other words, just because your model indicates straight-fry fans default more often than those who prefer curly fries does not mean eating straight fries directly impacts one’s ability to pay bills.
This can create problems for some leaders. “You will have people in your organization who do not want to believe the data,” Siegel said. “When you see a connection between two things, be satisfied that it will help predict. Look at the link as a building block, not necessarily as an explanation of why something happened.”
Siegel ended his hour-long presentation by saying the world is a big, connected, messy place manifest in data. “And that’s the ‘big’ in big data. It’s not about the size; it’s the excitement. It’s predictive. It speaks if we want to listen, translate and do the analysis.”
TMG Executive Summit attendees received a copy of Siegel’s book, “Predictive Analytics: The Power to Predict Who Will Click, Buy, Lie, or Die,” which he also signed for several individuals following his presentation.
TMG is dedicated to creating customized, technology-driven card processing and payment solutions for credit unions and community-based financial institutions across North America. Innovations in fraud management, loyalty programs, alternative payment systems and analytic reporting, and the competitive advantages they create, have helped TMG forge a new standard in offering cutting-edge credit, debit, ATM, prepaid card products and a P2P payment solution. For more information, visit www.tmg.global.