What Makes “Best” in Next Best Offer?

What Makes “Best” in Next Best Offer?

We Need Better Marketing Banks today are looking to drive significant improvement in their marketing efforts by using real-time analytics. And among the latest efforts, there’s a lot of talk – and promise – about Next Best Offer. No one really agrees on what Next Best Offer means. It wouldn’t be the first time we all use terms we don’t really know what they mean (uh…big data, maybe?) But I want to clarify what Next Best Offer should mean. Or at least tell you what it shouldn’t mean. When I say Next Best Offer, I mean the offer that adds the most value to the customer – as measured by an increase in their overall expected customer lifetime value. Expected customer lifetime value is made up of two parts: The profitability if they accept the offer, multiplied by The probability they accept the offer. Most Next Best Offer engines only offer you the second part: the probability. They have models that tell you which kinds of customers should get which product. But they don’t speak to the individual profitability of the customer. Three Phony Next Best Offer Solutions I want to talk about three solutions that often get called Next Best Offer that aren’t. If you have one of these, they’re not bad; but they’re not Next Best Offer either. They can be improved. The Demographic Segment Solution There are many vendors who have taken marketing data – both demographic and psychographic – and created customer segments in retail banking. They can take a individual customer and map them to these segments. Once they’ve mapped a customer, they have chosen...
Keep Payday Lending Safe, Legal, and Rare

Keep Payday Lending Safe, Legal, and Rare

Nothing seems to get bankers, consumer advocates, and government regulators so riled up as payday lending. The short-term non-bank loans taken out by millions of consumers a year are the focus of government studies and consumer reporting. But clearly, there’s a demand, and if we are creating personalized banking experiences for each and every consumer, there must be room here somewhere. It’s easy to dismiss this financial vehicle as predatory and harmful, but it opens up the question: what should these borrowers do? When you start to look at the data, you find that the story isn’t so simple and the pejoratives used to describe the industry and its customers don’t quite fit. I’ve completed an initial analysis on the data reported by the Consumer Financial Protection Bureau (CFPB) in the United States and have drawn some conclusions about the behavior of the typical payday loan borrower. From those conclusions, we see what these borrowers need and we have an glimpse into how to provide it. Keep Payday Lending Safe It’s clear there’s a need for short-term borrowing – either as an emergency funding source or because of poor cash-flow management practices. The trick is to provide for short-term financing without trapping consumers in a never-ending downward predatory spiral. The way to do that is to finally admit to ourselves one simple truth: these are not short-term loans. At least not the 14-day or 30-day ones that people think they are. Data collected and reported by the CFPB in their report, CFPB Data Point: Payday Lending, shows that the typical payday loan borrower “rolls over” their loan multiple times...