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Trends and Outliers

TIBCO Spotfire's Business Intelligence Blog

01/27
2014

Predictive Analytics for Financial Services Firms: Forecasting the Future

While financial markets are notoriously hard to forecast, top performing companies in the financial services industry are using predictive analytics to gain new insights into customer behavior to drive revenue and deepen existing relationships with their customers.

shutterstock 146739185 291x300 Predictive Analytics for Financial Services Firms: Forecasting the FutureThat’s according to a new research report from Aberdeen Group that found that financial services companies that used predictive analytics saw a 10% increase in identifying new customer opportunities in the past year, compared to a 7% increase for companies not using predictive analytics

“This goes beyond basic demographic segmentation; predictive analytics reveals untapped market segments full of prospects to business development decision makers,” the report notes. “Predictive models identify the traits in potential customers that bear out to longstanding, profitable relationships.”

Additional findings from the report include:

  • 48% of firms using predictive analytics are able to gather and analyze unstructured data compared to 14% of companies not using predictive analytics
  • Firms using predictive analytics saw an 11% increase in the total number of customers compared to an 8% increase in firms not using this technology
  • Organizations using predictive analytics saw an 8% increase in cross-sell/upsell revenue compared to 3% for those companies not using the tools

“This level of performance requires that firms not only land a high percentage of prospects, but also retain their current customers,” according to the report. “Predictive analytics adopters can run multiple ‘what-if’ scenarios to see which offerings and messaging appeals to both old and new customers.”

Financial services firm in the study were using predictive analytics for a variety of purposes including:

  • 81% of companies were using analytics for customer profiling and profitability analysis compared to 62% of those with no predictive analytics
  • 63% of firms were using analytics for risk management compared to 52% of those with no predictive analytics
  • 63% of organizations were using analytics for regulatory compliance compared to 33% of those companies not using predictive analytics
  • 63% of businesses were using analytics for fraud detection and management compared to 29% of those companies not using predictive analytics

Companies using predictive analytics are able to boost cross-sell and upsell revenue because sales and marketing staff can use predictive models to anticipate the needs of customers, according to Aberdeen.

“They can then craft attractive offers for additional products and services,” the research report notes. “If connected to databases with up-to-date customer information, predictive analytics can also trigger offer recommendations based on life events, such as closing on a home or the birth of a child.”

Firms using predictive analytics have also adopted additional supporting technologies, according to Aberdeen:

  • 87% of financial services companies using predictive analytics also used data management technology
  • 80% of firms using predictive analytics also used real-time analytics
  • 72% of businesses used data integration tools with predictive analytics
  • 69% of companies using predictive analytics also used data cleansing technology

“Financial services firms with predictive analytics are also more than twice as likely as those without to have real-time analytical capabilities,” according to the report. “In the financial world, predictions based on stale data simply won’t cut it. Those firms trying to gain insights into the future understand the importance of feeding models data from the absolute present.”

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