Tag Archive for 'Financial Services'

Lender Research: Show Me the Money

Published on February 24, 2010 in Eric Steckling. 1 Comment Tags: , , , , , , .

by Eric J. Steckling, Pitney Bowes Business Insight

Pitney Bowes Business Insight has seen a recent increase in interest by lenders to perform analytical research on real estate for which they are considering lending money. This analysis typically involves a determination of the concept’s fit with the surrounding customers, site characteristics, competition, and market strength. The increased emphasis on research reflects a riskier market for retailers/restaurants and associated need for prudence on behalf of lenders, many of whom have seen substantially elevated levels of defaults in the past several years.

Historically, the lending community has focused on past success of the borrower in determining whether to lend. Current market conditions dictate the need for greater diligence to understand not just the concept’s attractiveness or the borrower’s creditworthiness, but the viability of the specific proposed site to successfully support the concept. That is, the ability of a retailer or restaurant owner to repay a commercial loan is directly tied to the quality of the real estate, considering how location impacts sales performance. The most critical assumption a lender will make is the gross sales for the proposed location.

Varying degrees of sophistication exist in forecasting sales for proposed sites, often they are dependent on the availability of comparative data. The more robust the data, the higher the confidence can be. Generally, the research and associated data should address key questions, such as:

1. Is the site located near its core customers?
2. How competitive is the market?
3. What is the strength of the concept-is it well understood by market consumers?
4. How favorable are the characteristics of the specific site?
5. How far will consumers drive to reach the site/concept?
6. What is the market size?
7. What factors drive sales for the concept?
8. Are there negative external factors that will limit sales?
9. Are there nearby retailer/restaurants that will create synergy?
10. How will traffic patterns affect patronage?

Ideally, a proposed retail or restaurant operator will have current sales evidence from proximate sister stores which provide a basis for new sales forecasts. Macroscopic analysis can be used to compare the site to a “chain average” metric, which can give a general feeling if the site is above or below the benchmarks set by existing units. When existing unit performance is not available, in-depth market and site specific research is required to develop an understanding of the site’s potential – and potential pitfalls.

While lenders have always examined the character of the borrower and the soundness of the business model, they are now adding scrutiny to the location of the business. After all, it is the revenue generated by the business, not the integrity of the borrower that will repay the loan.

Cross-selling equals customer retention…but who’s buying?

Published on November 20, 2009 in Brian Diepold. 0 Comments Tags: , , , , .

Brian Diepold, Pitney Bowes Business Insight

It’s pretty well recognized that the deeper the relationship with the customer, the more valuable it is for the bank and the customer.  For years we have been preaching cross-sell as the way to build relationships, gain lasting customers, and run a profitable bank.  It’s also generally regarded that cross-sell leads to customer retention.  There may have been a bit of chicken and the egg with this part, but I think that has been resolved by looking at the timing of most cross-selling.  As we all know very well by now, the great majority of cross-sell takes place within the first 90 days.

I’m willing to take that as evidence of causality – cross-sell does in fact lead to customer retention, not the other way around.  The luxury of having millions of customer data records is that one cannot find themselves bored.  It seemed like a worthy endeavor to quantify the actual impact of cross-sell on customer retention.  And with that, enter 80MM customer account records.  By quantifying this relationship, we can see the direct impact of a firm’s strategic initiative and diagnose the types of households where cross-sell is more important to strengthening the relationship and increasing the probability of retaining the household.  The analysis uses a logistic model to determine the impact of cross-sell on the probability of retaining a household.

The bottom line is that regardless of how you measure cross-sell ratios, you can find the intuitive relationship that more products per household lead to a higher probability of retaining that household.  We also find a diminishing marginal return – i.e., the first cross-sell is the most important to establishing the relationship.  While each additional product does increase the likelihood of retention, the biggest jump is with the first cross-sell.  Rather than rewrite the research paper, I’ll just highlight some of the key findings:

  • Moving from one product to two for the household yields the greatest increase in the probability of retention.
  • Households with low deposit dollars yield an 8 – 10% increase in the likelihood of retention through cross-sell.
  • Households with mortgages or interest-bearing deposits as the lead product also yield an 8 – 10% increase in the likelihood of retention through cross-sell.

If you have the luxury of focusing your resources on certain types of households, these are the ones where you can make the biggest impact.

Attack Back With Financial Literacy

Published on November 11, 2009 in Brian Diepold. 0 Comments Tags: , , , , , , .

Brian Diepold, Pitney Bowes Business Insight

You couldn’t go ten minutes at BAI Retail Delivery without hearing about – or talking about – NSF fees. It’s natural that it would be a hot topic as it is certainly getting its share of media and congressional attention these days. Richard Davis made a great point that the industry needs to educate Congress and the public that these fees are not necessarily immoral – after all, as he so nicely pointed out, we are providing a service for the consumer and we are charging for that service.  I agree, and we need to take Mr. Davis’ advice that we need to tell the story in a more positive light.

I also think it’s important that we do more to educate our consumers. This economic crisis is very tightly linked to the lack of economic education and financial literacy in our country. We don’t do enough as a society to arm our population with the necessary tools to think about the world the same way we do as bankers, financial advisers, and economists. Not everyone needs to have a passion for these topics, but they certainly need to have a basic understanding in order to manage their personal finances. The national and state councils on economic education do everything they can to support these initiatives for our youth, but we also have an adult population that lacks this knowledge.

Let’s take it upon ourselves to help solve that problem. Banks could generate goodwill by offering simple educational programs at the point of sale. Let’s take 15 minutes to teach a new customer how to use their checking account. This may just allow them to avoid the extra fees down the road, while at the same time allowing you to guide them to being a profitable customer in other ways.

Not only is it good for the customer, but it would have to go a long way to convincing Washington that we are serious about addressing the issue ourselves – without Congress imposing their own solution.

Worst case – you are the only bank in your market that makes this effort. In that case, it should allow you to differentiate your offering and build that goodwill or brand value with the market. It’s a win-win.

Cutting Through The Noise – The Value of Location Intelligence in Relevant Customer Communications

Published on September 28, 2009 in Leslie Nogue. 1 Comment Tags: , , , .

The September issue of the ABA Banking Journal includes an article titled “Cutting Through The Noise: Combine Location Intelligence With Account Data to be More Relevant” contributed by Hal Hopson, managing director, industry solutions for Pitney Bowes Business Insight. In this article, Hal highlights the role predictive analytics and location intelligence play in facilitating the creation of “targeted and personalized messages that grab and hold the customer’s interest.”

Hal first discusses the importance of analyzing customer behavior, arguing that marketers can and should leverage demographic and behavioral segmentation data associated with the customer’s geographic location to consumer discern age, income, stage of life, leisure activities, and shopping preferences. He also notes that marketers need to recognize the importance of convenience. The physical location of a branch matters to consumers when they are making their banking decisions, and savvy marketers should take that into account when defining their service offerings.

Hal concludes the article with a sample study summarizing the results of a Location-intelligent statistical model created to assess the likelihood of a given household to purchase a checking account, money market, time account, or home equity loan. The results demonstrate how marketers can harness the power of predictive analytics and location intelligence to narrow their universe of customers to those with the highest propensity to purchase specific service offerings. In doing so, marketers can significantly reduce their marketing spend by targeting their mailings to only those households, improving their baseline ROI. To view the full article, please visit the ABA Banking Journal.

The New Normal in Branch Activity

Published on September 22, 2009 in Brian Diepold. 1 Comment Tags: , , .

Brian Diepold, Pitney Bowes Business Insight

Among other effects, the current recession is likely to have an immediate and lasting impact on the branch deployment strategies in our industry. The immediate impact is fairly easy to predict. That is, net branch growth rate will decline significantly, most likely with some contraction over 2009 and 2010. But, what should we expect to see happen after the recession?

In the period just after past recessions, we have experienced a short-term spike in branch growth, likely due to some catch-up effects, followed by a return to the normal trend. It would be easy to assume that we could be in for the same kind of response after this recession.

But, I think there are several factors working against a return to the old patterns of branch growth. Most importantly, we have the ever-present alternative channel argument. While the maturing of remote banking may play a role in future branch growth, I believe that the dominant effect will be driven by overall residential development patterns.

If we look at the pockets of high branch growth over the past decade, much of the net new branches have logically followed the suburban development patterns. With every new McMansion development, branches followed to serve those communities. Unfortunately, many of those communities are being hit the hardest by the collapse of the real estate market. Prices are dropping much faster in the outer fringe development than they are in the urban core in many places. One could argue that these developments represent much of the excess inventory in the residential housing market today. As a result, it’s unlikely that we will see more of these developments popping up any time soon.

As the real estate market corrects itself, one of the numbers that is going back up is the percent of the population that rents instead of owning a home. Renters tend to reside closer in to the urban core in more densely populated parts of the market. Coincidentally, banks already have mature branch networks in these parts of the market. That is not to say there will be no new branches built, but simply that the decisions may move towards relocations, renovations, and need-based in-fill of the network, rather than continuing to grow with the residential development.

This is a unique recession, and as a result there will be unique events that unfold during the recovery period as well. One of them, I believe, is going to be a modest transformation of residential development patterns. We should see a move back towards more densely populated residential development. I don’t expect this to be a radical change, but as it changes on the margin, that should have an impact on where we look for new branch opportunities.

The result for branching is a new normal that probably doesn’t include a return to steady branch growth. There will be some branch growth, but I expect it to be more in line – finally – with household and population trends.

Lenders contend with alphabet mandate

Published on September 3, 2009 in Ellen Hannigan. 0 Comments Tags: , .

By Ellen Hannigan

UDAP. Reg Z. DD. Regulation E.

Federal and state regulations are nothing new for financial services firms. This year, however, lenders must content with a series of sweeping changes that will impact nearly every customer communication, from applications and marketing materials to disclosures and monthly statements.

With compliance deadlines looming, operations heads are still dealing with budget cuts and the lack of staff resources they’ve been handed as a result of the economy – and now must come up with a cost-effective plan to implement substantial changes to document content.

To address consumer confusion, lenders will need to modify documents generated by a host of legacy and one-off applications, incorporate more variable content and do so in a systematic, automated way. Already, some market leaders have adopted best practices in document composition, implementing effective software solutions that make it easy to create, manage and deliver updated communications with greater control and flexibility.

Print stream engineering and on-demand document creation have become the new must-have capabilities for managers looking to step up the new compliance demands. With these tools, operations heads can handle changes in form design and content with word processing ease—customizing messages customer by customer. These software technologies do not require coding changes to your underlying legacy systems—often one of the biggest obstacles to document changes—and provide a centralized mechanism for executing compliance mandates so output can easily be formatted to support both print and electronic channels.

To learn more about these regulatory changes, the documents affected and how banks are responding in the most cost-efficient manner visit the Pitney Bowes Business Insight Financial Services regulations resource center today.

Location Intelligence Still Matters

Published on July 27, 2009 in Devon Wolfe. 0 Comments Tags: , .

Devon Wolfe, Pitney Bowes Business Insight

We’re sending our first son off to college this fall at the University of Oklahoma. We live in Michigan. So, as we’ve been looking at the various logistics of setting up a 17 year old on his own 1,000 miles away, we’ve had some decisions to make. One of those decisions has been where to set up his bank account. I think the story of how we made that decision has a lot to say about the changing dynamics of location in the Internet world.

Our thought process went like this: He needs a bank that has ATMs and a branch close to his dorm. So, we went to Google, typed in “banks Norman OK” and started looking around. Meanwhile, my son went to a new OU student site on Facebook and learned from other students where some ATMs were located that were not on the Google map (imagine that, incomplete data on a map!!). As it turned out, one of the ATMs not on the map belonged to a large nationwide bank that just opened a branch near our home in Michigan. Once we saw that, we took a few minutes online to compare account features, learned that they were all about the same, and decided to open an account here in Michigan at the large nationwide bank before he goes to school.

Now, here’s where it gets interesting. When we open that account, his account will be “domiciled” at the bank near our home address, which would on the surface seem logical since it’s quite close to our house—but the reason we made the decision is primarily about where he’s going to school—the proximity of a branch near our home was just an added bonus.

So what can we learn from a location strategy perspective? First, the old, time-honored location criteria about visibility and local media awareness are changing in our Internet-centered world. Today’s consumers use Web searches and social media instead of neighbors, phone books, and direct mail flyers to make their decisions about where to go. It’s still all about location, but the information is gathered in a much different way than in the past. Second, our example says a lot about the inherent advantages of a large network. The bank that got our business isn’t first in market share in either the Oklahoma City or Detroit markets, but due to its network coverage, it met the needs of a transient person. Does ubiquity at a lower metro market share afford an operating advantage that is sustainable?

I realize of course that most customer decisions are not quite the same as those of a college student going out of state. But, the fact is the consumer’s way of interacting is changing rapidly—which begs for more consumer research into the way that people make location decisions today.

Announcing PBBI’s New Predictive Analytic Solution for Network Performance Management

Published on July 22, 2009 in Brian Diepold. 0 Comments Tags: , , .

Brian Diepold, Pitney Bowes Business Insight

After almost a year’s worth of development time, we are excited to launch the new Network Performance Management solution. Network Performance Management offers a suite of solutions focused on evaluating and improving the sales performance of financial services distribution networks. NPM traces its roots back to the PERFORM goal setting software PBBI has provided historically. While maintaining, and improving, the underlying predictive analytic models, we have greatly expanded the software capabilities and value for our clients.

NPM is delivered through an integrated desktop and web application that allows corporate office users and field staff to benefit from the same analytics and the same delivery platform. The technology also allows for other web applications to be seamlessly included in the client experience to enhance the tools available to the field staff.

Users have access to:

·         Local Knowledge reporting, that provides a complete view of each branch’s customer base, trade area characteristics, competition, and performance metrics.

·         PERFORM goal setting module maximizes branch performance by establishing objectives that are specific, measurable and attainable.

·         Network Analysis module provides sophisticated summary reporting across branches and management hierarchies, which allows corporate and regional management to identify top performers as well as those branches that require attention.

·         Custom Tools within NPM allow for additional solutions to be attached to NPM to ensure smooth communication between applications. The software is designed to link to other web portals through the Custom Tools module. These additional functions can greatly enhance the end-user experience and truly create actionable outcomes to empower your branch staff. The types of tools available could include:

·         Lead management
·         Prospect lists
·         Directing marketing solutions
·         Sales tracking

Our existing PERFORM clients, with additional deliverables on contract, will automatically be upgraded to the new solutions, which are now available. [More Information on Network Performance Management]

Boeing Employee Credit Union uses PBBI Analytics to get a 360° view of their customers

Published on June 16, 2009 in Leslie Nogue. 2 Comments Tags: , , , , .

The June edition of Baseline Magazine includes a product review, titled “Getting a 360° View”, that outlines the Boeing Employee Credit Union’s use of Sagent Data Flow and AnySite.  The article highlights how Pitney Bowes Business Insight’s solutions help BECU decide where to open locations and analyze performance. [Full Article]

Baseline Magazine (Circ: 125,100) is geared towards senior IT and corporate management business leaders. It examines the ROI of IT deployments and the implementation of the IT infrastructure to achieve business objectives.

Flagstar Bank Improves Branch Performance Goals Using PBBI Predictive Analytics

Published on June 15, 2009 in Leslie Nogue. 1 Comment Tags: , , .

 

Bank Systems and Technology has published a case study on Flagstar Bank’s use of Perform titled “Flagstar Improves Performance of Goal Setting.” The article highlights the benefits Flagstar Bank, a long-time customer of the Strategy & Analytic portfolio predictive analytic product and services, gleaned from their upgrade to Perform. 

The following article appears online and in the current print issue of the magazine for June 2009:

Flagstar Improves Performance of Goal Setting

Flagstar Bank boosts organizational confidence by using the Perform predictive analytics tool from Pitney Bowes Business Insight to improve its branch location performance goals.