Financial institutions are increasing their investment in customer data and analytics to deepen customer insights, increase revenue, improve operational efficiency and manage risks.
According to CUNA Mutual Group in Madison, Wis., financial institutions spent $2.1 billion in marketing analytics in 2012. That number is expected to jump to $2.7 billion next year. Although only 8% of credit unions said they expected to expand and improve their data analytics capabilities in 2016, there is evidence that there is a growing interest in member data and analytics among credit unions.
But Steven Rick, CUNA Mutual Group’s chief economist, said during the organization’s 7th annual Discovery Conference Tuesday that credit unions have yet to seize the opportunity of a huge untapped potential to leverage member data and analytics that can increase penetration rates in key deposit and lending areas.
For example, the typical credit union reports a share draft penetration rate of only 55%, he said. Penetration rates for lending products are even lower – 20% for credit cards and only 15% for used auto loans. Credit unions could capture greater market share and a larger share of wallet by leveraging such techniques as member segmentation and targeting, response rate modeling, next best offers and marketing campaign analytics.
Additional evidence that credit unions are not seizing the data and analytics opportunities come from a recent survey, which showed limited data and analytical tools and capabilities was the fourth greatest marketing challenge for credit unions, Rick said.
However, the lack of robust data and analytics capabilities is exacerbating the first three marketing challenges – insufficient resources, too many initiatives and proving ROI. Without data and analytics, Rick said, resource planning can be based on guesswork, which contributes to the sense that credit unions have too many initiatives or take on too much at once.
Credit unions that have successfully used member data and analytics are the $1.8 billion Affinity Plus Federal Credit Union in St. Paul, Minn., and the $1.4 billion Oregon Community Credit union in Eugene, according to CUNA Mutual Group.
Affinity Plus had a response rate of 14%, or 200 out of 1,400 offers, in its mortgage refi marketing campaign. The credit union added nearly $30 million in new mortgage loans, and members who responded saved more than $2.6 million.
Oregon Community developed a segmentation model that identified which households would best benefit from its card offers. The credit union’s cost per acquisition fell to as low as $66, down from more than $300, which is far below industry standards, according to CUNA Mutual Group.
While member data and analytics can be a useful tool to help credit unions create better member experiences and generate revenue, consumers have lingering concerns about their privacy and the security of their personal information.
Nevertheless, a CUNA Mutual Group national survey of 1,200 consumers found that credit unions were among the most trusted entities to keep personal information private and secure.
“This can lead to a competitive advantage in terms of trust capital,” Rick (pictured) said.
Earlier this year, CUNA Mutual Group also conducted online qualitative research of credit union executives, which Rick described as an online focus group to find out how executives wanted to use member data.
They frequently provided responses such as “to be able to address our members’ needs before the member knows they need it.” Others said, “we intend to use analytics to develop products our members believe hold value for them.”
But Rick noted that consumers are much less receptive to having their data used for tailored product recommendations. According to research, consumers said things like, “if it wasn’t so creepy, if it didn’t appear to be underhanded or shady, then it might be more acceptable.” Some consumers said they just didn’t care for it or were perfectly capable of finding products and services that fit their needs without interference.
“There appears to be a misalignment in the way credit unions like to use member data, and what members find acceptable,” Rick said. “While the potential for misalignment does exist, providing truly tailored product and service offers can be a win-win for both credit unions and their members.”
What can credit unions do to increase their members’ comfort with sharing their personal information?
“The most effective measure was providing an opt-in opt-out option in the use of their personal data – 50% said that would make them more comfortable,” Rick said. “This was followed by showing consumers clearly how personal data is being used, and providing assurances that personal data would be kept safe. The least effective way was explaining the value your personal data delivers.”
Based on the results of both CUNA Mutual Group’s online credit union executive research and its consumer survey, Rick recommended that credit unions take steps to gain member acceptance of the ways they use members’ personal information.
“First, provide targeted, relevant, valued benefits in exchange for the personal,” he said. “In other words, ensure that use of member data is a win for the member as well as for the credit union. Also, reinforce members’ trust by making data security a priority and applying best practices. Finally, utilize tools, like a clear privacy policy, to be very transparent. While not a guarantee, taking these steps should help alleviate members’ skepticism or ambivalence regarding tailored products and service offers.”
