Do bank CEOs fear analytics?
A recent study found that analytics are underused at banks and that senior executives are cold to the technology: a scant 20% said that if it were up to them their organization would be highly data driven.
The findings come at a time when, oddly enough, banks are investing heavily in analytics software. In an online survey conducted by American Banker/
Bankers are moving cautiously, adopting technology in deliberate steps, according to other research. Twenty-seven percent of banks are still at the stage of exploring customer analytics — determining where to begin, developing a business case and seeking funding, according to a recent report by
This apparent hesitation when it comes to analytics might reflect the fact that the business of running a financial institution has changed dramatically, Leavell suggests.
"Banks are slowly evolving from a purely branch-oriented paradigm to one that has more electronic distribution blended in," he said. "In the old days, a lot of analytics would go into locating branches, for example. Even larger firms were using third parties for such analyses. As electronic banking has moved into late adolescence, banks are just catching up as they realize all the data they are collecting is actually an asset and not just electrons lying around."
It also reflects lack of initiative among top executives, according to
The concept of data-driven decisions makes some executives nervous. "Analytics is largely about discovering relationships that aren't intuitively obvious," said
Some of the executives may be seeking a balance between relying on data and going with their instincts. "I don't think CEOs fear the data," Leavell said. "In my consulting days, I did see more than one CEO deemphasize or hide findings that did not support the CEO's gut. But business decisions are, or should be, as much a function of corporate culture and strategy as they are a function of data. A good executive should respect what the data show and a good quant should understand that data alone cannot address all cultural and regulatory concerns."
The very idea of playing with data — testing hypotheses against the numbers — is foreign to many top executives.
"The use of analytics requires some amount of faith that profitable things as yet undiscovered will be discovered," Meara said. "The sales pitch is, these things will help you uncover the veritable needle in the haystack, help you find stuff you aren't even looking for. How can I go play with this to see if there are some interesting and profitable discoveries that I wouldn't have even thought about. That's just a crazy idea to a traditional manager."
Where most executives carefully plot a strategy, put key performance indicators in place, create compensation plans, and set up oversight, an analytics-driven approach to decisions can be more "more musician-like," Meara said. "If you start jamming, maybe something cool will come out and it will sell a million records."
The skepticism among bankers makes life tough for vendors, Meara said."They're having a hard time selling analytics to the traditionalists because they can't promise that you can plug it in, turn it on and this is what you'll get. Now it's a discovery."
What many banks end up doing, Meara said, is starting small, using predictive models in small pilots and validating the models with testing.
"They'll do lots of little tests, so their risk and spend[ing] will be minimal and they'll capture data really fast," Meara said. "Pretty soon you go, 'Holy smokes. We tried this six different times, with different samples and sure enough it shows up every time. This must be real.' You begin to build confidence in the results of relationships that weren't intuitively obvious in the past."
There are signs that bankers could be more open to change in the future, especially in certain areas like marketing and compliance.
"The regulatory environment has been quite challenging the last few years, and fraud is just inherently scary," said
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