The Intersection of Financial Institutions and Technology Leaders

How Data Helps Banks Create a Balanced Portfolio

By Tom Collins

Even the most optimistic outlook on today’s economic environment is uncertain at best.

Interest rates are at a decades-plus high, loan demand is slowing and talks of a recession mount. Recent market volatility and threats of deposit run off have heightened the need for banks to adopt a balanced segmentation and portfolio management strategy — one anchored by data — that can help banks both attract and deepen relationships with their most valuable customers and mitigate deposit loss.

An environment of high interest rates and economic uncertainty amid heightened public perception concerns means banks must be able to assess critical aspects of their portfolio, including identifying their most loyal customers, early warning cues to signal deposit runoff and exposure to concentration risks. Answering these questions with data-driven insights will enable banks to manage risk immediately and gain customer engagement, retention and value realization over the longer run.

The Need for Data-Driven Segmentation
Using customer data can provide executives with insights on where potential revenue streams may lie within the existing customer base. Segmentation efforts that assess wallet share can also direct banks’ attention to cross-sale opportunities. Reaching the right audience within the current customer base and leveraging this information to acquire the right clients can result in long-term growth and high customer retention. Banks already have relationship primacy as an advantage — but current market forces threaten to diminish it.

The number of banking relationships per customer has increased exponentially; the downstream impacts can to be acutely felt on bank balance sheets. Customers are already divvying up their funds between traditional banks, digital currencies and wallets, and even retailers.

Leveraging Segmentation for Growth
Data fuels segmentation activity, but it also plays a critical role in driving exceptional client interactions. Bank customers are seeking more personalized products, services and experiences via multiple delivery channels. While digital tools and omnichannel experiences continue to deepen their hold, banks are still mapping out a nuanced experience for retail and commercial customers that balances digital and traditional interactions.

But that’s only half the battle. Regardless of the setting — digital or traditional — commercial relationship managers need data-driven insights on customer interactions and engagement to know the best way to interact with their client to deliver an exceptional, personalized experience.

For banks seeking to better understand customer lifetime value and quantify revenue potential, data analytics can:
• Identify and quantify the propensity of buy, upsell and cross-sell opportunities to accelerate revenue realization .
• Understand the revenue durability and create forecasts to improve lifetime value.
• Evaluate customer acquisition, retention and conversion rates to reduce churn.

Lending teams must shift strategies to offense and find new ways to identify, expand, capture and preserve existing customer relationships. Doing this successfully requires lending teams to continually identify growth opportunities and then focus relationship managers’ time on the clients that represent the greatest areas of growth.

A Balanced Portfolio, Optimized for Growth
Banks are facing amplified threats and increased scrutiny to their financial stability in the wake of recent turmoil spurred by deposit concentrations. While customer segmentation is likely accessible when it comes to borrowers, is it as accessible for banks with their deposit customers? Targeted data insights enables banks to proactively identify potential weaknesses, withstand uncertain market conditions and capitalize on opportunities for expansion.

Amid high interest rates, economic uncertainty and heightened public concerns, banks must also answer:
• Who are my stickiest and most loyal customers?
• Are there early warning cues that indicate attrition or runoff?
• Is our portfolio exposed to concentration risks?
• What channels are most optimized to bringing in stickiest deposits?
• Do we have an overconcentration of customer base in a given vertical or industry segment?

There’s an increasing sense of urgency for organizations to have a clear approach to finding and sharing data; current macroeconomic conditions, industry fragmentation and the outflow of customers to non-traditional institutions only further that need. But when these data elements work in concert with one another, banks experience increased upsell of products and services, reduced customer churn, decreased cost to serve, enhanced customer lifetime value and mitigated risk of deposit runoff.

Bank lending teams can expect to be asked to grow their portfolios in response to slower loan demand. Knowing your bank’s customers and predicting their needs is more important now than ever. Just as crucially, the ability to leverage data and segmentation, which is often reserved for lending, should be applied to deposit management as banks seek to outperform competitors and serve clients and stakeholders.