Data, Analytics and Automation Converge to Power Branch Growth

By John Gordon, Fidelity National Information Services

According to the Financial Insights report Revitalizing U.S. Branch Banking: A Little Less Talk, A Little More Action, bank branches continue to be the preferred channel for retail banking customers. When the firm conducted its 2006 Consumer Channel Preference survey of over 1,000 banking customers, nearly 75 percent reported using a branch at least one time in the previous month. This made the bank branch the most highly utilized retail banking channel, outpacing ATM, Internet and call center channels.Given the ongoing central role of the branch, banks have stepped up branch transformation and renewal initiatives over the past several years. With the launch of the Internet channel behind them, many banks have turned their attention to platform updates and channel integration projects to improve customer experience and accelerate time to market. Process automation initiatives have also been underway to help boost branch efficiencies and reduce operating costs.

Branch automation has helped banks be more responsive to customers, streamline processes, eliminate redundancies and do more with less. Now, with the convergence of deeper and more accessible data sources, sophisticated analytics and automated decisioning tools, banks can score big returns by standardizing new account decision making, product selection and ongoing cross selling initiatives. They can also protect themselves against deposit fraud, reducing the risk of lost profits.

Investing in these high impact tools can help branches contribute profitable new customer growth to the financial institution and do so more quickly than other, more protracted IT projects. Since branches are being called upon to expand the types of products they must deliver and do so with impeccable service, the timing couldn't be better.

New Account Opening Decisioning

While checking accounts are not the most profitable product for retail banks, they do offer an opportunity to build customer loyalty and sell more lucrative products like credit cards and automobile loans. New checking account growth is therefore an important determinant of a bank's future profitability. Still, when a prospective customer comes into a branch to open an account, the financial institution must recognize and evaluate the associated risk.

At the branch level, sophisticated risk management and fraud prevention technology has often been lacking. When consumers enter a branch to open a checking account, new account staffers must work their way through a time consuming review of a variety of consumer data points such as the FICO score, retail payment history, bankruptcy or foreclosure events, ID verification and so on before making their decision to open the account. Sometimes, the decision is straightforward based on the bank's policy rules, but in borderline cases, subjective decision making is a frequent occurrence.

There are a number of problems with this approach. First, bankers are currently spending about 75 percent of their time trying to verify customer identity and only about 25 percent of their time selling. This represents an untold amount of lost opportunity. It is also difficult to train staffers to follow precise rules when they are evaluating data from a variety of sources, making decisioning standardization hard to achieve. As a result, some consumers who should not be approved for a new account will get one, and others who represent a reasonable risk/reward opportunity may be turned away. Neither result is desirable.

The evaluation process itself can also be very cumbersome. New account staffers are often required to submit consumer information to multiple Web sites and evaluate the returned information based on policy rules. When results are borderline or ambiguous, they may consult with others in the branch to try and reach a final decision, though that doesn't guarantee it will be the right one.

Finally, this approach makes it difficult for the bank to quickly implement policy changes across the branch network. Staffers must be trained so they can correctly apply the updated policy, learn how to interpret new consumer data points, select the appropriate product offer and so on. Again, compliance from staffers can be hit or miss, especially in the time period immediately following the change.

Fortunately, there is an alternative. Today, banks can automate the new account opening decision by incorporating a risk score that analyzes a wide range of consumer credit and debit information to return an approve/decline decision to the new account desk. The scoring result can be customized to reflect the unique risk parameters of each branch, and integrated into the new account set up functionality of the branch channel software.

By automating new account opening decisioning, banks can help their branches standardize decisioning around risk and policy parameters, and open more profitable accounts. They can also use the technology to return best fit product selections when consumers are approved for an account, allowing them to properly price their risk while delivering products that meet the needs of their customers. The positive impact on both growth and profits can be immediate and substantial.

Managing Deposit Fraud Risk

Since most new checking account customers open their account with a check (either their own or one written out to them), automated decisioning can also help bank branches identify check funding risk and respond appropriately. According to a recent TowerGroup report, Real-Time Check Deposit Fraud Detection Protects U.S. Consumers and Banks, although banks try to identify fraudulent checks drawn on other banks when accepting deposits, most fraudulent checks are not detected until after presentment to the paying bank. By the time a check has bounced and been returned to the depositing bank, the new checking account may have insufficient funds to cover the check and the financial institution incurs a loss.

Of course, this can occur when a new account is opened as well as during the lifespan of the account. The TowerGroup report indicates that check fraud losses could be "significantly reduced by banks expanding their use of real-time check fraud detection through third-party vendor services."

These services have traditionally been deployed by retailers and check-cashing companies to minimize check fraud risk in real-time. Once merchandise or cash has left the building, recovery is difficult at best. However, third party providers are able to access vast data resources to analyze and determine whether a check is valid. The approve/decline decision is automatically delivered to the point-of-sale.

This same capability can be integrated with the branch channel platform and deployed to automatically inform decisions about fund availability. By automating the validation of checks prior to deposit, financial institutions can protect against losses and notify customers who may have unwittingly accepted a fraudulent check. They can also identify risk associated with the receiving customer accounts as well.

By broadening the depth and range of accessible data and creating sophisticated analytical models to effectively utilize that data, industry providers are helping banks make better and more consistent business decisions at the branch level and across the enterprise. By investing in sophisticated, proven solutions that bring the right data together with the best analytics, banks can automate critical decision making and earn a tremendous return on investment within a relatively short timeframe.

While economic realities may temper new IT spending over the near term, the implementation of automated decisioning tools like these should continue to be prioritized as the "low hanging fruit" that can generate positive results almost immediately. For branch operations, these solutions allow them to compete in their markets more aggressively while managing risk more effectively. This is exactly the kind of IT investment that makes good business sense.

John Gordon is EVP, Strategic Development, with Jacksonville, Fla.-based Fidelity National Information Services.