The Tao of Data Monetization in Banking and Insurance & Strategies to Achieve the Same…

“We live in a world awash with data. Data is proliferating at an astonishing rate—we have more and more data all the time, and much of it was collected in order to improve decisions about some aspect of a business, government, or society. If we can’t turn that data into better decision making through quantitative analysis, we are both wasting data and probably creating suboptimal performance.”
Tom Davenport, 2013  – Professor Babson College, Best Selling Author and Leader at Deloitte Analytics

Data Monetization is the organizational ability to turn data into cost savings & revenues in existing lines of business and to create new revenue streams.

Digitization is driving Banks and Insurance companies to reinvent themselves…

Enterprises operating in the financial services and the insurance industry have typically taken a very traditional view of their businesses. As waves of digitization have begun slowly upending their established business models, firms have begun to recognize the importance of harnessing their substantial data assets which have been built over decades. These assets include fine-grained data about internal operations, customer information and external sources (as depicted in the below illustration). So what does the financial opportunity look like? PwC’s Strategy& estimates that the incremental revenue from monetizing data could potentially be as high as US$ 300 billion [1] every year beginning 2019. This is across all the important segments of financial services-  capital markets, commercial banking, consumer finance & banking, and insurance. FinTechs are also looking to muscle into this massive data opportunity,

The compelling advantages of Data Monetization have been well articulated across new business lines, customer experience, cost reduction et al. One of the key aspects of Digital transformation is data and the ability to create new revenue streams or to save costs using data assets.

..Which leads to a huge Market Opportunity for Data Monetization…

In 2013, PwC estimated that the market opportunity in data monetization was a nascent – US $175 million. This number has begun to grow immensely over the next five years with consumer banking and capital markets leading the way.

Digital first has been a reality in the Payments industry with Silicon Valley players like Google and Apple launching their own payments solutions (in the form of Google Pay and Apple Pay).

Visionary Banks & FinTechs are taking the lead in Data Monetization…

Leader firms such as Goldman Sachs & AIG have heavily invested in capabilities around data monetization. In 2012, Goldman purchased the smallest of the three main credit-reporting firms – TransUnion. In three years, Goldman has converted TransUnion into a data-mining machine. In addition to credit-reporting, TransUnion now gathers billions of data points about Americans consumers. This data is constantly analyzed and then sold to lenders, insurers, and others. Using data monetization, Goldman Sachs has made nearly $600 million in profit. It is expected to make about five times its initial $550 million investment. [2]

From the WSJ article…

By the time of its IPO in 2015, TransUnion had 30 million gigabytes of data, growing at 25% a year and ranging from voter registration in India to drivers’ accident records in the U.S. The company’s IPO documents boasted that it had anticipated the arrival of online lenders and “created solutions that catered to these emerging providers.”

As are forward looking Insurers …

The insurance industry is reckoning with a change in consumer behavior. Younger consumers are very comfortable with using online portals to shop for plans, compare them, purchase them and do other activities that increase the amount of data being collected by the companies. While data and models that operate on them have been critical in the insurance industry, it has been stronger around the actuarial areas. The industry has now begun heavily leveraging data monetization strategies across areas such as new customer acquisition, customer Underwriting, Dynamic Pricing et al. A new trend is for them to form partnerships with Automakers to tap into a range of telematics information such as driver behavior, vehicle performance, and location data. In fact, Automakers are already ingesting and constantly analyzing this data with the intention of leveraging it for a range of use-cases which include selling this data to insurance companies.

Leading carriers such as AXA are leveraging their data assets to strengthen broker and other channel relationships. AXA’s EB360 platform helps brokers with a range of analytic infused functions – e.g. help brokers track the status of applications, manage compensation, and commissions and monitor progress on business goals. AXA has also optimized user interfaces to ensure that data entry is minimized while supporting rapid quoting thus helping brokers easily manage their business thus strengthening the broker-carrier relationship.[3]

Introducing Five Data Monetization Strategies across Financial Services & Insurance…

Let us now identify and discuss five strategies that enable financial services firms to progressively monetize their data assets. It must be mentioned that doing so requires an appropriate business transformation strategy to be put into place. Such a strategy includes clear business goals such as improving core businesses to entering lateral business areas.

Monetization Strategy #1 – Leverage Data Collected during Business Operations to Ensure Higher Efficiency in Business Operations…

The simplest and easiest way to monetize on data is to begin collecting disparate data generated during the course of regular operations. An example in Retail Banking is to collect data on customer branch visits, online banking usage logs, clickstreams etc. Once collected, the newer data needs to be fused with existing Book of Record Transaction (BORT) data to then obtain added intelligence on branch utilization, branch design & optimization, customer service improvements etc. It is very important to ensure that the right metrics are agreed upon and tracked across the monetization journey.

Monetization Strategy #2 – Leverage Data to Improve Customer Service and Satisfaction…

The next progressive step in leveraging both internal and external data is to use it to drive new revenue streams in existing lines of business. This requires fusing both internal and external data to create new analytics and visualization. This is used to drive use cases relating to cross sell and up-sell of products to existing customers.

Demystifying Digital – Reference Architecture for Single View of Customer / Customer 360..(3/3)

Monetization Strategy #3 – Use Data to Enter New Markets…

A range of third-party data needs to be integrated and combined with internal data to arrive at a true picture of a customer. Once the Single View of a Customer has been created, the Bank/Insurer has the ability to introduce marketing and customer retention and other loyalty programs in a dynamic manner. These include the ability to combine historical data with real time data about customer interactions and other responses like clickstreams – to provide product recommendations and real time offers.

Demystifying Digital – the importance of Customer Journey Mapping…(2/3)

An interesting angle on this is to provide new adjacent products much like the above TransUnion example illustrates.

Monetization Strategy #4 – Establish a Data Exchange…

The Data Exchange is a mechanism where firms can fill in holes in their existing data about customers, their behaviors, and preferences. Data exchanges can be created using a consortium based approach that includes companies that span various verticals. Companies in the consortium can elect to share specific datasets in exchange for data while respecting data privacy and regulatory constraints.

Monetization Strategy #5 – Offer Free Products to Gather Customer Data…

Online transactions in both Banking and Insurance are increasing in number year on year. If Data is true customer gold then it must be imperative on companies to collect as much of it as they can. The goal is to create products that can drive longer & continuous online interactions with global customers. Tools like Personal Financial Planning products, complementary banking and insurance services are examples of where firms can offer free products that augment existing offerings.

A recent topical example in Telecom is Verizon Up, a program from the wireless carrier where consumers can earn credits (that they can use for a variety of paid services – phone upgrades, concert tickets, uber credits and movie premieres etc) in exchange for providing access to their browsing history, app usage, and location data. Verizon also intends to use the data to deliver targeted advertising to their customers. [4]

Consumers can win Lady Gaga tickets in Verizon’s new rewards program, which requires that they enroll in its targeted advertising program. PHOTO: ADREES LATIF/REUTERS

How Data Science Is a Core Capability for any Data Monetization Strategy…

Data Science and Machine learning approaches are the true differentiators and the key ingredients in any data monetization strategy. Further, it is a given that technological investments in Big Data Platforms, analytic investments in areas such as machine learning, artificial intelligence are also needed to stay on the data monetization curve.

How does this tie into practical use-cases discussed above? Let us consider the following usecases of common Data Science algorithms –

  • Customer Segmentation– For a given set of data, predict for each individual in a population, a discrete set of classes that this individual belongs to. An example classification is – “For all retail banking clients in a given population, who are most likely to respond to an offer to move to a higher segment”.
  • Pattern recognition and analysis – discover new combinations of business patterns within large datasets. E.g. combine a customer’s structured data with clickstream data analysis. A major bank in NYC is using this data to bring troubled mortgage loans to quick settlements.
  • Customer Sentiment analysis is a technique used to find degrees of customer satisfaction and how to improve them with a view of increasing customer net promoter scores (NPS).
  • Market basket analysis is commonly used to find out associations between products that are purchased together with a view to improving marketing products. E.g Recommendation engines which to understand what banking products to recommend to customers.
  • Regression algorithms aim to characterize the normal or typical behavior of an individual or group within a larger population. It is frequently used in anomaly detection systems such as those that detect AML (Anti Money Laundering) and Credit Card Fraud.
  • Profiling algorithms divide data into groups, or clusters, of items that have similar properties.
  • Causal Modeling algorithms attempt to find out what business events influence others.

Conclusion..

Banks and Insurers who develop data monetization capabilities will be positioned to create new service offerings and revenues. Done right (while maintaining data privacy & consumer considerations), the monetization of data represents a truly transformational opportunity for financial services players in the quest to become highly profitable.

References..

[1] PwC Strategy& – “The Data Gold Rush” – https://www.strategyand.pwc.com/media/file/Strategyand_The-Data-Gold-Rush.pdf

[2] WSJ – “How Goldman Sachs Made More Than $1 Billion With Your Credit Score”

https://www.wsj.com/articles/how-goldman-sachs-made-more-than-1-billion-with-your-credit-score-1491742835

[3] McKinsey Quarterly – “Harnessing the potential of data in insurance..”

http://www.mckinsey.com/industries/financial-services/our-insights/harnessing-the-potential-of-data-in-insurance

[4] Verizon Wants to Build an Advertising Juggernaut. It Needs Your Data First

https://www.wsj.com/articles/verizon-wants-to-build-an-advertising-juggernaut-it-needs-your-data-first-1504603801

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