Mining data to create better products and cross-sell opportunities is a perennial topic of conversation with banks. We’re often asked who does it well, here at Celent. In fact, I was asked this just last week, and the answer is … not many, frankly. It’s more the exception than the norm.
Some other industries that have recognized this have taken action, making significant investments to tackle the problem. One of the more visible ones is perhaps Tesco, the UK retailer. It may have fallen on harder times over the last few years, but we shouldn’t forget the transformation it has gone through. 20 years ago, it was one of the smaller, more old-fashioned supermarkets in the UK, but at its peak it became the third largest supermarket in the world, with £1 in every £10 in the UK being spent with it.
How did it achieve this? In no small part, its loyalty program, ClubCard, which it launched in 1994. This was backed by initially hiring an analytics company called Dunnhumby. Such was the success of the scheme that Tesco believes ClubCard paid for itself within six months. The then chair said at the first board meeting after the launch: “What scares me about this is that you know more about my customers after three months than I know after 30 years.”
In context, the supermarket first to the market in the UK with loyalty, Safeway, abandoned its loyalty card in 2000, with the CEO claiming at the time that, “people have lost interest in points”.
Data mining and the bank connection
Tesco bought a 53% share in Dunnhumby in 2001 for £30m, finally buying the business outright a few years later. So why this post today? A couple of reasons. Firstly, given the change of fortunes for Tesco, it has put up a number of assets for sale, including Dunnhumby. The price tag is believed to be in excess of £2bn. There seems to be a broad range of people interested in buying, so the price is likely to be achieved. Secondly, it’s not just private equity firms interested, but big technology firms such as Google who are considering buying it as well. It’s not just the data it’s after, but the skills and techniques. That said, 20 years of data for over a billion customers globally (in excess of 40 terabytes of data), has huge value in itself, which is why the ad agency WPP is one of the other bidders.
The take-away for banks is perhaps a wistful ‘if only’. If only the banks had stopped worrying about competition from the supermarkets and had emulated them a little more, they too may have benefited from the insights from similar companies, and may also have such a prized asset.
Banks are fast followers rather than leaders, and have been risk-averse. With perhaps the golden age of fintech firms upon us, banks ought to be taking an even more proactive approach. Incubators are all good, but banks need to be more entrepreneurial and take a more speculative approach, or they stand to not reap all the rewards.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.