Financial institutions possess enormous amounts of private, sensitive, and unique data on their users, such as spending habits, income, balance and net worth, mobile and online device use, age, and more. An overall trend towards democratizing such data can be leveraged to improve not only the overall financial health of its users, but also the impact of the Financial Institution.
Outlined below are three impactful examples of how this data can be put to good use:
Many people keep the bulk of their money in low-interest savings accounts, either because they do not know of better options, or inertia. Data analysis on their spending and income levels may suggest that moving 50% of their balance to a high yield money market account or CD would allow them to maximize interest earnings without inhibiting their spending habits or lifestyle.
Example: A financial institution automatically prompts users that fit into this category to reallocate a portion of funds from their low-interest savings account into higher interest earning accounts. Users are able to increase their interest income hassle-free, and the financial institution can build loyalty while securing funds for an extended amount of time.
Financial data is becoming more accessible with the use of banking APIs and data aggregators. For example, information across various financial institutions – such as balances, interest rates, and transaction data – is more fluid and readily available. This has created an opportunity in the market to offer users better financial products.
Example: When a user links an external account to their main financial institution, that Institution leverages instant ACH authentication powered by their digital banking provider and a data aggregator. By tapping into the API response, the financial institution (via their digital banking provider) can gain a larger picture of the users’ financial story by seeing all of their accounts. This valuable data can then be used to market other financial products to them.
A user’s financial history, such as loan repayment, digital banking activity, support volume, and balances over time, can help to identify valuable, low-risk users. Such data can then be leveraged to pre-qualify users for additional products and services. Alternatively, financial institutions could automatically grant them enhanced functionality while offering an option to opt-out.
Example: A user has been a customer for over five years without defaulting or making a late payment, and has maintained consistent, high balances over time. By leveraging data analysis, the financial institution can pre-qualify that user for advanced products or services, or automatically give them a more robust product, such as an increased spending limit on their credit card. “Opt-out” functionality can be used so that the user does not feel the financial institution is forcing them into a certain product or service.
The above examples are three ways data could benefit your financial institutions and end-users but of course the possibilities are endless. As a disclaimer to the above, privacy laws and regulations limit what financial institutions can do with this data and compliance experts should be consulted when leveraging user data.