Banks in Asia Pacific may be losing 20 percent or more of potential revenue from deposits, because they have not used analytics to optimize their strategies for their deposits business. Nearly half of the respondents to a survey conducted by analytic software company FICO (NYSE: FICO) put the lost revenue at more than 10 percent, and one in five respondents said it is more than 20 percent.
Banks can optimize their deposit strategies using solutions such as FICO Optimization Solution for Deposit Pricing, which allows lenders to offer optimal deposit rates that balance customer satisfaction with profitability and portfolio growth.
The survey was conducted at the 2015 FICO Asia Pacific CRO Forum, held earlier this year in Bangkok, Thailand. A total of 34 senior risk officers and banking executives representing 23 financial institutions across the region participated in the survey.
The new findings come at a time of slowdown in growth of deposits in the region. According to HSBC’s research in 2014, year-on-year growth in Asian bank deposits has decelerated from above 12 percent to 10 percent. Among the reasons cited for this slowdown is a tendency for Asians to invest their money in speculative vehicles like property, equities, or in some cases, shadow banking products. Deposits are often seen as performing at or below inflation, and tend to attract more dollars only when other markets look volatile.
In FICO’s survey of chief risk officers:
75 percent of CROs said that in making decisions about deposits, customers cared about interest rates the most.
50 percent said they needed to increase deposits due to both regulation and changes in risk appetite. A further 15 percent said it was due to regulatory requirements only.
25 percent said they still do not share deposit account information with other areas of the bank to enable a more comprehensive decisioning.
Increasingly, there is a need to manage newly optimized deposit strategies in much the same way that banks have handled credit card accounts. FICO® TRIAD® Customer Manager allows deposit risk managers to measure customer risk with predictive analytics, set up targeted risk-based strategies, automate a host of decisions using these strategies, and test new “challenger” strategies against their current “champions” to continually improve results.
Dan McConaghy, President, FICO Asia Pacific, said, “Banks need a speedy and precise strategy around rate-setting that is individual to the customer. This type of segmentation and offer-making is only possible with advanced analytics. This will help ensure profitability, while maintaining customer satisfaction and make deposit products more attractive to Asian customers.”
Phil Norman, Head of Analytic Services, FICO Asia Pacific, said, “We help banks strike the right balance in pricing their deposits. Our approach to pricing uses a sophisticated modeling approach which incorporates optimization to provide lenders an individual rate for each customer so they are attracted to invest while maintaining more margin for the lender.
“Many banks across the region also need to increase their capital due to new regulations, and deposit funding is one of the least expensive forms of capital available to banks, so it is becoming a greater focus for many CROs.”
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