TORONTO — For Royal Bank of Canada, generating a wealth of customer data can be a mixed blessing.
“”Data has grown exponentially over the last 10 years,”” said Jay Slade, the bank’s client intelligence and analysis manager for RBC
Investments. “”As technology develops, what people tend to forget is that means more data on the back end.””
To sort through the morass of data and turn it into credible information that can be used in the service of customers requires some deep analysis. “”We want to make sure we’re monitoring your choices and make sure your options are understood. That’s where SAS comes in,”” said Slade.
RBC Investments has been using SAS business intelligence tools for the past six years, he said. Slade made his comments Wednesday during a panel discussion hosted by SAS Institute (Canada) Inc. at the company’s Toronto headquarters.
One of the most important functions of the analysis software is determining when best to approach a client with a financial product. Slade likened it to dining in a restaurant. If the waiter doesn’t hand you a menu and just ignores you, you’re going to leave. If he reads the menu’s contents over and over, you’re just going to get annoyed.
The presentation of banking options is very much tied to the customer’s life stage, said Slade. A large contingent of the bank’s customer base is under 40 with less than $25,000 in assets — those customers don’t generate a lot of income for RBC Investments. “”Between 40 and 55, you start exploring other options. . . . Something between 40 and 70 is our sweet spot.””
According to IDC Canada Ltd. data, 45 per cent of RBC’s banking clientele aren’t profitable to the bank. But “”all of these guys can be profitable,”” said James Sharp, a consultant in IDC Canada’s financial institution practice. “”It’s not (the customer’s) fault, it’s just that the product is not matched with the right person.””
In some cases, losing money on a customer may be an inevitable part of banking, but long-range planning can turn that negative into a positive. Student loans are a net lost at first, said Sharp, but university graduates tend to be the highest earners down the line.
Insights such as these are the reason to implement data mining or analysis tools, said Sharp. “”The more granularly you can mine data, the more complex conclusions you can draw.””
Realizing the importance of customer data, RBC recently created a diversity council to address different ethnic groups of customers. Slade said that the bank hasn’t been able to turn this data to its advantage yet, but has taken ethnicity to heart at a geographic level. For example, RBC’s branches in Toronto’s Chinatown are equipped with both English language and Cantonese.
Slade said that RBC chose SAS as its data analysis tool for its ease of use. It’s a tool the banks analysts and statisticians can use without having to “”spend time understanding 15 different programs . . . that’s an absolute disaster.””
Cost was also an issue, since RBC Investment’s IT department is working with limited a budget and resources, he added.
Financial institutions, however, represent Canada’s largest technology segment. According to Sharp, they will spend more than $6 billion on IT this year — roughly 18 per cent of the total IT spend in Canada. (Government is second with 14 per cent.)
The IT spend is necessary because financial institutions need to distinguish themselves from their competition, which is becoming more furious through deregulation and more complex through partnerships, said Sharp. Distribution channels, for example, are becoming more disparate because some financial institutions are selling non-proprietary products.
The Canadian banking sector is turning its focus to customer retention rather than customer acquisition as a result of competition and market saturation, said SAS solutions for CRM program manager Michael Turney. The acquisition cost of new customers has been reduced in recent years due to advances in technology, he said, but still it’s vastly more expensive than retaining an established customer.
Organizations across many industries lose money in the first year of a new customer, he said. “”You could bring in 10, 100, 1,000 new customers in one year and its not enough to make up for the cost of losing one customer who’s been with you for two to three years.””
Used business intelligence tools or “”predictive intelligence”” may help a bank like RBC determine how many of its clients are about to retire in a given year. “”It’s not just looking in the rear-view mirror,”” said Turney.