4 Ways Banks Can Use Alternative Data to Boost Loan & Account Growth

For financial marketers, changes to how consumer data can be used have made their job more challenging. The use of alternative data, however, opens new paths to acquiring and retaining customers. Here are four methods to effectively use nontraditional data.

Beyond the typical challenges of driving growth with limited budgets, bank marketers face several hurdles specifically related to data. Over the years, the amount of data and data sources available has grown exponentially, making it increasingly difficult to extract actionable insights. Add in evolving regulations related to cookies and digital data gathering, along with today’s harsh economic realities, and it’s no wonder the challenges have grown more complex.

As data collection changes, financial institutions are looking for different ways to collect, organize and gain insights from their customers. This is where alternative data comes in. Aggregating and analyzing alternative data helps banks and credit unions “unlock improvements in growth, productivity and risk management,” according to McKinsey.

What Is Alternative Data?

Unlike the traditional data pulled in credit checks, alternative data can include rent and utility payments, part-time income, rental income, education and more.

Alternative data helps financial institutions grow by providing critical information about the people and companies with which they do business.

Here are four ways alternative data can help financial institutions strengthen their marketing strategy, capture unrealized opportunity and improve customer acquisition.

1. Grow Existing Customer Relationships

Banks and credit unions can identify new opportunity by looking at the relationships they already have or by better understanding what their best existing customers look like. Customer data is one of the most valuable tools, so it’s vital not to let it go stale. The key to fresh data is keeping up with customers’ changing needs.

This requires customer data that reveals leading indicators and life changes. Alternative data gives a banking provider this visibility. Alternative data provides a multidimensional view of customers with additional insights that traditional data (and marketers’ data) may miss.

There is more to a consumer’s life than money management and bill paying. For example, maybe the person’s income is steadily increasing. Maybe they recently married. Perhaps they are strong members of their community yet own property out of state.

“Economic value” insight gets marketers closer to the targets needed to achieve better outcomes. These unique data sets provide a more dynamic, nuanced context for a deeper customer view to deliver the right offer to the right customer at the right time. This allows financial institutions to grow their share of wallet while managing risk tolerance.

2. Identify Ideal Prospects

With marketing budgets limited and competition growing rapidly, it has never been more essential for financial marketers to identify their best prospects. Marketing to people who either cannot or will not buy wastes time and money and can potentially damage the institution’s brand. In banking — where spending on direct mail and traditional media far exceeds digital advertising — precision targeting is paramount.

If marketing professionals are working with traditional data, that’s a start, but it may not be enough and it may not reveal a complete picture. When paired with this traditional data, alternative data — address history, occupational records, education, interests, assets, court records, connected relationships and more — offers a broader view of prospective customers, one that can greatly augment existing marketing data.

This person-level data — not modeled, survey or summarized data — provides richer insight about the individual’s household, occupation, education, economic trajectory, derogatory events and more. It all comes together to generate a clearer picture of a prospect.

Moreover, when sophisticated linking is applied to a single identity, it uncovers information about that person’s relatives and associates, not only their identities but a range of economic and behavioral attributes. Savvy marketers leverage this information to get more from their marketing spend through improved prospect lists and new referral opportunities.

Armed with this additional information, marketing professionals can better craft offers and messaging that resonates with target audiences and boosts response rates.

3. Expand Small Business Portfolios

The U.S. has more than 30 million small businesses and they comprise 99.9% of all U.S. businesses. Small businesses represent a tremendous opportunity for financial institutions looking to grow market share and revenue. They likely have many existing customers who own or have close ties to a small business to create up-sell and cross-sell opportunities across business verticals.

Making Small Business Lending More Feasible:

Without a borrowing history it's difficult for traditional lenders to gauge risk. Alternative data helps fill in the prospect's picture.

By identifying the linkage between their consumer portfolio and potential small business opportunity, financial marketers can capture greater market share, increase profits and build valuable long-term relationships.

However, discerning a viable opportunity from a risky opportunity is where the real challenge comes in for most financial institutions. Small businesses often self-fund and have little or no borrowing history. Without business credit histories, it can be difficult for banks and credit unions to evaluate creditworthiness and have confidence in their ability to gauge risk.

Alternative sources can help fill the gap of small business data that may not be available from traditional financial payment sources, giving investors granular insight into a company’s performance. This in turn informs investment decisions. Marketers can identify customers who have incremental risk connected to their business through business performance, bankruptcy and judgment data and get a deeper, more robust picture of consumers, including insights on their household, relatives, associates and neighborhood.

Together, this additional data provides extensive coverage of consumers and their small businesses, enabling marketing effort to be optimized and return on investment enhanced.

4. Improve Prescreen Efforts

Traditional credit data-based prescreen campaigns can exclude consumers who have little to no credit history, a number that adds up to approximately 53 million U.S. adults, according to our data. This emerging consumer market is largely comprised of Millennials and recent immigrants, who together represent significant future growth opportunities.

What if marketing professionals could capture the revenue potential of millions of U.S. consumers with limited to no credit history? Non-traditional data can help. Alternative credit data looks beyond conventional credit data to include both life event insights like professional licenses, asset ownership and public records, as well as modern credit-seeking behaviors from markets like online lending and short-term lending.

When alternative data combines with advanced analytic models, the result is an assessment that is highly predictive, meaning it brings new information to the table which often adjusts how applicants are assessed. This incremental, predictive evaluation can form a more comprehensive picture of an individual’s creditworthiness, notably identifying creditworthy marginal and invisible applicants who might otherwise have been declined.

Access to creditworthy consumers can inform strategically driven prescreen programs to help businesses reach the right consumer at the right time with the right offer. Marketers drive today’s best prescreen programs through defined goals that are designed to reach specific consumers in a very measurable way. They are homing in on the best prospects through the use of additional attributes and alternative data that indicate a consumer is ready to buy and is the right target for the offered product.

By tapping into alternative data, financial marketers can get a new perspective on their customers and create a more in-depth profile of the customers they are trying to acquire and, more importantly, retain.

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