Approach - Actionable Analytics

In this blog post, we will discuss on the approach we can follow to provide an actionable analytics. Doing actionable analytics is not easier said than done. It requires a focused analytical process. Here we will outline the three important phase or levers that can improve the process of delivering actionable analytics. The three phases can help you to improve the financial aspects of the business by doing actionable analytics.

• Discover
• Explore 
• Engage

For example, if we are delivering actionable analytics for the marketing function. In each phase we will identify some critical characteristics or parameters that are going to influence the financial value directly or indirectly.

Discover - Customer Segmentation, Classification and Marketing Channel.

Explore - Cross Sell, Up Sell, Reduce number of profitable customers.

Engage - Customer Value Management, Life Time Value, Retention and Profitability.

In the Discover phase, the goal is to be able to identify the customer segments that have high engagement with the business and the marketing channels that are driving the most highly engaged customers to the business. Customer segmentation is more critical to gain knowledge about the customer segments. Higher the time spent in the discovery phase to identify the customer segments higher the effectiveness of the results in the next phase.

In the Explore phase, the goal is to make use of the knowledge that we have gained about the customer segments and marketing channel. We will make use of the knowledge to further amplify the monetary value by exploring the options such as cross sell and up sell opportunities. In the explore phase we have got to make sure that we approach cross sell and up sell opportunities to the customers who are more likely to respond to the campaigns.

In the Engage phase, this is the most critical phase as most of the strategic level analysis shall be done to engage with the customers to maintain the profitability for the business. This is the phase where most advanced level of modelling process is required.

“Customer value management (CVM) is a process that refines and leverages the benefits of customer relationship management. It encompasses customer identification, contact management, campaign management, advanced data modeling and customer scoring” Customer Value management shall be the high level strategic objective for any business to focus on.

The first phase is more of descriptive in nature and the other two phases are highly inferential in nature where advanced and predictive modelling techniques are applied to derive knowledge.
The above mentioned three phases are relative to each other to provide actionable analytics. Context and relevance are two important parameters one should remember while doing the analysis on each phase. Analyst must be able to interlink between all three phase so that results are inevitable. If each phase is executed in a meticulous manner, the results will be highly significant.

BANKING BUSINESS AND BANKING INSTRUMENTS- Part 1

Having discussed some amount of mandatory regulatory compliances for banks over the past couple of blogs, let us now focus on the bank’s lines of business. Understanding the different banking products is inevitable for credit risk management and analytics. One has to be well versed with the nature of banking products before they step in to develop model for any of them.  Each banking product has its own characteristics and its own set of risk exposure. Hence, understanding these products is the top priority. In this blog we discuss three of the major banking products: Checking Accounts, Savings accounts and Certificate of Deposits.



Checking Accounts: This is a transactional deposit account held at a financial institution that allows for withdrawal and deposits. Money held in a checking account is liquid, and can be easily withdrawn using checks, automated cash machines, and electronic debits among other methods. It allows for numerous withdrawals, unlimited deposits etc. These accounts are known as current accounts in UK. These are often loss leaders for large commercial banks since they become highly commotized. Because money held in checking accounts is so liquid, aggregate balances nationwide are used in the calculation of M1 money supply.

How does the bank profit from this loss leader??? → The goal of most banks is to entice the customers to use more profitable features such as Personal Loans, mortgages and certificate of deposits by linking them to the checking account.

Savings Accounts: A savings account allows one to accumulate interest on funds that the person has saved for future needs. Interest rate can be compounded on a daily, weekly, monthly or annual basis. There are two types of savings accounts: Basic Savings account and Money Market savings account. The basic account has either no minimum balance requirement or a very low minimum balance requirement, and as such the rate of interest paid on this account is low.  Money market savings account on the other hand requires a higher minimum balance and hence pays a higher interest rate. Withdrawals per month are limited.

Why does interest rate vary across the savings accounts? → The interest rate on savings account may differ on the following grounds: (a) Amount of fee and services charged on the accounts (b) minimum balance required to be maintained (c) cash or loanable funds with the bank, i.e. if the bank does not need much cash for lending out, they keep interest rate lower (d) organisational structure of the banks- if the banks have shareholders which demand that banks should grow, then it becomes difficult for the banks to pay high rates to the account holder.

Certificate of Deposit: A savings certificate entitling the bearer to receive interest is called a certificate of deposit. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are issued by commercial banks and insured by FDIC (Federal Deposit Insurance Corporation) in the US. A CD is a promissory note issued by the bank. It is a time deposit that restricts holders from withdrawing funds on demands. It is a safe asset for savings.
In the next blog we will discuss credit cards and revolving lines of credit. Understanding these business lines will help us in identifying model development procedure for these different products.