ANAHEIM, Calif.–Credit union CFOs were given six different business cases for where they need to commit to making an investment if they haven’t already: big data and analytics.
Panelists at CUNA CFO Council meeting.
The ROI is clearly there, the CFOs were told, while they were also cautioned that it’s highly unlikely they will be able to build out a full data analytics function on their own due to costs.
During a pecha kucha presentation—a Japanese-model presentation in which 20 slides are shown for 20 seconds each, for a total of 6:40—at the CUNA CFO Council meeting here six people representing vendors, credit unions and CUSOs made their arguments, offered up some data “gems,” and shared their stories related to why big data and analytics are critical. Here’s a look at what each had to say:
1. Big Data: What’s The Big Deal
John Best, president, Best Innovation Group
Best said one mistake too many credit unions are making when it comes to analytics and business intelligence is “jamming” those functions into IT.
“Big data is a discipline, not a product,” stressed Best, who urged CUs in getting started to figure out who is on their analytics team, to travel lightly and to jettison all that is not needed.
Best said too many credit unions have worked to engineer risk out of every aspect of their operations, and noted that some risk is necessary. He told his CFO audience that it’s time to “disrupt your egos.”
John Best speaking to CUNA CFO Council.
“It’s not about disruption of you. It’s about water seeking its own level. Collaboration is going to be key,” said Best, a point echoed by other presenters. “Big data is not about going it alone. To succeed, we are going to have to collaborate as an industry. If we don’t, extinction is on the table. Credit unions were the ultimate disrupters.”
Best cautioned that with big data comes a big, emerging caveat: the growing importance of privacy.
“If you stay in the Google Hotel, it’s free, as long as you’re willing to have them film you while you go to the bathroom and post it on the Internet,” said Best, referring to the lack of privacy in an Internet world. “We’re seeing the rise in the importance of privacy, the right to be forgotten. What should you do with the data? Act in the interests of the member and don’t’ be creepy.”
Using analytics means looking for intelligence, Best said. “Intelligence is the ability to adapt to change, and change we will.”
During a Q&A, Best was asked by one CFO about the ROI.
“There are lots of simple quick wins. There is big money to be had right off the bat,” said Best. As an example, he cited members who have digital subscription accounts with services such as Netflix or Hulu. “Card not present profit is amazing. There is so much low-hanging fruit, your data is so raw. Right now you’re sitting on a lot of unrealized money.”
2. Your BI Playbook
Jason Bedworth, managing partner, CFS Consulting Group, Oak Brook, Ill.
Given his audience, Bedworth acknowledged the need to ensure every investment a CU makes shows value. With business intelligence, said Bedworth, it’s much like a road: “It’s the payload that goes across that road that is the value.”
Big data, said Bedworth, is defined by four values: volume, veracity, variety and value.
“Infrastructure deals with the first three, but it’s analytics that brings the value,” he said. “If you look at credit union revenue today, you can get a detailed view of individual products or a macro view of the credit union. But what happens in-between? Can you look at revenue on an ad hoc basis? It’s not easy, because revenue is dispersed. It’s not easy to slice and dice. If you think about looking at total revenue and clicking and drilling down to see where the value is coming from, down to what member is driving particular value, you can do some interesting things.”
As an example, Bedworth pointed to Michigan State FCU, which found that just 5% of its members were representing 45% of its revenue. Analytics showed that 5% are what it now identifies as DAVE members: that is they have a debit card, auto loan, Visa, and e-statements. MSUFCU tripled the number of DAVE members in the first six months of a new initiative.
Another credit union used analytics and found $14 million a month was going to other financial institution via mortgages. It was able to address that issue by targeting members who may be in the market for a mortgage.
“We all have scarce resources,” said Bedworth. “The challenge is to take those scarce resources and maximize the value to the most members possible. How to use analytics to do that? One credit union found that 7% of members were taking home 70% of the dividend. It asked itself, ‘If we gave a little less would they still be members? And if we gave that to other members, would they become better members?’”
Analytics, said Bedworth, can help every credit union improve members’ financial lives. “And isn’t that why you are here?”
3. Data and Visualization: One CU’s Journey
Dave Schiffer, finance director, Oregon Community CU, Eugene, Ore.
Oregon Community CU has built a larger business intelligence team than most credit unions, with five full-time analysts and two interns.
“Data tells a story, and if we can visualize a story, that story becomes even clearer,” said Schiffer. It’s those stories, he said, that have helped it to get its “arms around” big data and to better serve members.
Schiffer said the OCCU business intelligence team is focused on three foundational pillars: reporting, analysis, and automation.
“We all do reporting to some extent; we have piles and piles of data,” observed Schiffer. “Our job is to pull it out and see what’s in our hands. We do daily loan production, and all branches get to see it. We’ve added some visualization so they know right away where they are.”
Similarly, it has added visualization to its income statement (“We’ve used it to make some hard decisions) and data around membership growth (“We include other data, too, in addition to new members, such as closed memberships, and members who have gone dormant. We want to know where we are losing members”).
Analysis
Schiffer said OCCU looks at transaction counts not just as a look-back, but also a look forward at “whether we have the resources to accommodate growth in the future. We also look at what products members have and what will they need or want next. That creates value for the member.”
Automation
Schiffer said Oregon Community has worked to automate as much as it can and to refresh and push out the data daily.
“It’s paramount to find ways to clean your data,” emphasized Schiffer. “We have an in-house data warehouse. Once you do that you can set any type of reporting on it that you want. We can look at where our members live, where our members live by age, where our profitable members live, we can compare to per-capita income in those markets… That gives us the ability to know them and serve them better.”
4. Managing Risk
Matthew Court, VP-sales and marketing, Visible Equity, Salt Lake City
Calling it a “revolution,” Court noted that there are 2.5 quintillion bytes of data being created every day, and that it is only with analytics that what is buried in all that data can really be discovered.
“When you are thinking of what to do with all this information, just know there are methodologies out there that can help you,” he said. “You can use mathematics and statistical modeling to understand what is going on.”
That includes identifying member propensity to make a purchase. He said his company had used data to identify people with an above-average chance of purchasing a car, and 80% of them did so. It has also been able to identify loans that have a higher probability of going into default.
“Buried in all of this are the hidden gems,” said Court. “There is absolutely great information in this data, and as you analyze it you’re going to get so much out of it.”
Among the hidden gems it has discovered:
- Borrowers with a residential real estate loans are four times more likely to originate an auto loan with that same borrower.
- Variations in credit scores have a 4.5 times impact on defaults than other environmental factors that a CU might be looking at.
- Variance in loan pricing doubles as the probability of loan default doubles. “(Credit unions) are taking a lot of risk and at same time leaving a lot of money on the table for taking that risk,” he said.
5. What Are You Getting From Big Data?
Greg Wempe, EVP-client value, Kasasa
At end of the day, said Wempe, the big question is what does a credit union get from your big data besides a big bill.
The answer, he said, can be found in three buckets: consumer insights, profitable products, and data-driven marketing.
It’s no secret, said Wempe, that members want everything for free, and on top of that want big rewards. Millennials actually want all of those things by a factor of two.
“If you can get members incentivized with rewards that matter to them, that changed behavior will pay for those rewards and your members will love you for it,” said Wempe. “You will see more non-interest income, less risk, more members buying products, etc. The key is it doesn’t just stop with great products. It’s not the field of dreams. You have to market effectively, and that means knowing your market: income, media consumption, etc. Once you know who is out there you have to know how to talk to these prospects. And after that you have to build all the ads and creative and messaging.”
Wempe said his company has learned that the marketing experience is “actually a journey of building a relationship with your members. What we have found that when done right, and combined with highly profitable products, this is amazingly effective.”
Similarly, it’s no secret that getting noticed requires great creative to grab prospects’ attention, but that only works with a “message that makes sense to them and in a channel where they actually are. It might be events, direct mail, TV, social media, or any of a million channels,” he said.
“Once you do that you have to introduce yourself and what you might potentially do for them. Once you have them coming in your doors and talking to your MSRs you have to make sure (the MSRs) can continue the relationship. Seventy percent of journeys now start online. But whether online in branch, you have to get the right message and right products in front of them. The worst thing you can do for a new member is go quiet on them. You have to take a light touch but let them know you’re still there and still care. And finally you’ve go to continue to build the fandom. Members love to talk about a new, positive experience, and this is social media, and—CFOs—social media is quantifiable.”
Wempe stressed that marketing must be ongoing. “It’s not one and done. As soon as you’re done, someone else will jump on the opportunity to have a discussion with your member.”
6. Business Intelligence Opportunities
Paul Ablack, founder/CEO, OnApproach, Minneapolis
Ablack agreed the “data tsunami is definitely here,” but that should keep any credit union from going swimming and taking advantage of opportunities with both new and current members.
Paul Ablack speaking to CUNA CFO Council.
“Credit union CEOs are challenged with many regulatory and compliance challenges that consume their time during the planning process,” said Ablack. “But their number-one priority is how to become more attractive to prospective members who spend the majority of time on their phones. There has to be organizational urgency around analytics.”
Ablack said that developing an analytics competency is all about change in process, people and technology, and all are equally important. He said credit unions must overcome the departmentalization of data and he urged every CU to hire a VP of data analytics. That person, he said, must ensure “data governance. If managers don’t trust the data, they won’t engage.”
According to Ablack, there are four pieces to data analytics:
- Data warehouse
- BI software
- Predictive analytics solution
- Expertise for guidance
Ablack stressed that credit unions are going to need to take a cooperative approach to data and analytics due to the costs involved. “You should be budgeting $2 million over the next three years if you plan to do this yourself. Given that, this is best solved by a CUSO,” he said. “