Although many financial institutions can analyze profitability at the organizational and product levels, the inability to adequately mine customer accounts has kept them from incorporating consumer behavior into these calculations, according to a study by CorePROFIT Solutions, an enterprise profitability management company.
Based on interviews with senior-level marketing and finance executives at the top 250 North American financial services organizations, the study gathered market intelligence on such topics as the financial institutions' use of profitability technologies and costing methodologies, costing satisfaction, and employment of the calculated data.
Nearly 70% of the financial institutions surveyed have implemented a model for measuring profitability. However, 87% of these models calculate profitability at the organizational and/or product levels only.
More than half the financial institutions surveyed are using profitability information for customer relationship management and sales and marketing programs.
Other primary uses of profitability information include product management, business process reengineering and financial decision making.
Sixty percent of the financial institutions are not satisfied with the underlying cost information they use to calculate profitability. More than 77% are currently using expense allocations or Federal Reserve functional costs as their primary costing methodologies.
Financial institutions noted that among their most significant barriers to profitability measurement are detailed cost information, data aggregation, and senior-level sponsorship.
"As financial institutions attempt to deliver more personalized and profitable products and services to their customers, the most valuable but frequently overlooked component of success continues to be detailed customer/account-level profitability information," according to Joseph Prunty, president and CEO of West Chester, Pa.-based CorePROFIT Solutions.
"Now more than ever," he said, "these institutions are scrambling to secure the accurate profitability information they require to help shore up their revenue streams and improve their bottom lines."
Results from the Profitability Technology and Costing Study are based on interview responses from chief marketing and chief financial officers at the top 250 North American retail, commercial and wholesale banks and credit unions with assets exceeding $2 billion.