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Banking on Location

From consumer mapping to branch location to fraud detection, major banks and financial institutions worldwide are betting big on location technology.

  • When Bank of America needed to identify current and future locations of its banking centres in low-income neighbourhoods, it turned to mapping and geographic analysis application.
  • Virginia-based SNL Financial utilised analytics and location technology to provide accurate and up-to-date financial data to its client.
  • Central Bank of Nigeria relied heavily on GIS mapping to mark the financial access points of the entire country.

Such is the scenario worldwide where banks and financial institutions are increasingly turning towards new-age technical solutions. With technological revolution continuing to shape the nature and face of the global banking landscape, tech-savvy banks are leaving no stone unturned to woo their potential customers. Banking strategies are no longer in silos, but are increasingly linking information across operations so that the same information products used for improved customer service can detect mobile phone base fraud in real time. From customer mapping they are breaking into new barriers and adopting new solutions. And ‘location’ is the all new magic word for them.

Agrees Simon Thompson, Director, Commercial Solutions, Esri, “Today GIS and location analytics is used across the full spectrum of financial services industry applications from customer-centric business functions to the facilities themselves.” The chief driver of this is the power of models, particularly predictive models, which allow a bank to design, test and optimise its strategies — refining old ones and creating new ones.

According to a Capgemini report, Trends in the Global Banking Industry 2013, IT spending within the banking sector is expected to grow by 3.4% in 2013 to reach $179.2 billion and touch $192 billion by 2015. The majority of this growth is expected to come from the Asia-Pacific region, where spending by banks is expected to grow at 5.8% in 2013 to reach $62.8 billion. “New technology innovations and the constantly changing consumer dynamics, especially after the global slowdown, mean that banks, credit card companies and other FSI institutions need to be more agile and make better use of information assets,” says Thompson.

Location, the catchphrase of the real estate and construction industry is paving new roads for the banking and financial sector. From fraud detection to branch optimisation and customer loyalty to product segmentation, location analysis is helping financial services companies in a big way. “With location intelligence, financial institutions can visualise and analyse critical market characteristics such as concentrations of demographic/lifestyle profiles, product demand and growth characteristics — from consumers. These variables can easily be combined with customer data to make more informed decisions and develop effective marketing campaigns for new prospects and current customers and analyse the current trends,” says Suresh A. Shan, Head, Mahindra & Mahindra Financial Services Limited (MMFSL) Business Information Technology Solutions, India.

No wonder the Global GIS Market in BFSI 2012-2016 report foresees a CAGR of 4.95% for the global GIS market in the banking and financial services industry (BFSI) over the period 2012-2016.

Naming big banking clients in geospatial domain is difficult since banks have some of the strictest client confidentiality norms, but service providers unanimously agree that location analytics and GIS has become a must for all big banks across the world.

“We have seen a number of studies which have shown that geospatially enabled banks reduced their cost to asset ratio by more than 10% compared to their peers. Profitability can be up to twice that of competitors and the number of clients served per branch, with the same or higher levels of customer service and satisfaction, can be almost two-and-ahalf times of others,” adds Thompson.

Banks are enhancing their Big Data technology capability and are increasingly investing into analytics to understand customers’ needs, improve risk management and boost efficiency. Big Data capabilities, especially in the geospatial context, deliver banks the capability to recognise their clients at a more granulated level and help in delivering targeted, personalised offers in a much faster way. This helps enhance customer profitability, satisfaction and retention. Concurs Thompson: “By using big data and location analytics, some Esri clients have achieved as much as 90%-plus accuracy in modelling deposits per branch, operational performance and net return on assets.”

Branch optimisation and expansion
GIS systems allow banks to measure the reach of each branch; understand where their networks may have gaps and where they have excess redundancy. They can define a trade area around the branch and identify its market potential. “Using their own customer data, conflated with third party information, banks must develop an understanding of the total financial wallet opportunity that all households in a given geography represent. By combining their understanding of network coverage and gaps with market opportunity, banks can confidently frame their long term distribution strategy,” says Manish Chaudhary, Vice President, WW Engineering, Pitney Bowes.

The branches are one of the most expensive assets and as teller transactions continue to decrease, banks need to discover ways to make better use of those branches. “We are seeing a lot of use of location technology to look at in branch services and staffing, to optimise space utilisation, reduce footprint and maximise returns per square foot,” explains Thompson. This is driving a whole new level of indoor mapping which is on the micro scale but linked to macro geographies like catchments and financial segmentation.

For instance, Wescom Credit Union, one of the largest credit unions in the United States, with assets over $2 billion and 22 branches in Southern California, doubled its branch network utilising analytics technology. Adopting analytic technology allowed Wescom to gain new insights from its business data and provide unique and differentiating member service. These included informing members of their nearest no-fee ATMs, understanding usage patterns with Branch Membership maps, and measuring performance based on member lifestyles and life stages. Wescom has, in fact, recently refocused its attention on member engagement and branch optimisation which provide a wider range of interactive and personal banking services while remaining readily accessible to members.

For banks and financial institutions, finding the best new bank location for business expansion is also important. Strong understanding of the marketplace in which financial institutions function, or would like to operate, are integral to profitable growth.

Problems faced by banks

Bank of America, which serves approximately 57 million consumer and small business relationships in the United States adopted mapping technologies to identify current and future locations of its banking centres in low-income neighbourhoods to meet its Community Reinvestment (CRA) needs. The geographic analysis application helped the bank gain important insights into target markets and strengthen its commitment to CRA compliance, while impacting site selection decision-making in those areas. “MapInfo Professional cuts the time by 25% that it takes to audit our network of banking centres, along with easily mapping and analysing their geospatial measurements,” revealed Scott Weston, AVP for Retail Distribution Analytics, Bank of America.

The United Bank for Africa (UBA) — one of the largest financial institutions across Africa — is all set to implement an ambitious GIS-based solution to support a multi-billion Naira branch expansion and optimisation project. The bank aims to have a geographic approach to analyse where new branches and ATMs should be located and what factors affect either positively or negatively their operations and profitability. “In this way the bank could have a structured approach using geographic intelligence to analyse the geographic location of competitors’ branches and ATMs to evaluate the effectiveness of all UBA branches in the face of competition,” says Ireti Ajala, Managing Partner, Spatial Technologies Ltd.

In the banking industry, branch performance is measured in part by the customer-to-back-office space ratio. A 70:30 split, with 70% being space allocated to customer sales functions and 30% being space allocated to back office administrative functions, indicates a good use of space. London- based Barclays Bank utilised Bentley’s facilities planning software to track assets at 1,733 branch properties. With a more accurate picture of the entire UK branch network, Barclays was able to understand customer likes and dislikes, which branches have an optimal customer-to-back-office ratio, and where changes should be made to improve the return on investment in the UK branch network.

The new-age technology can provide ‘what if’ scenarios and dynamic segmentation to locate multiple classes of assets. “These technologies allow us to bring together diverse datasets to build a global view of rapidly changing dynamic markets,” says Albert Lojko, Global Head, Eikon, Thomson Reuters.

Customer is the ‘king’
The pride and joy of every business is a loyal customer; therefore a 360-degree view of the user is necessary. In such a competitive scenario, banks need to be closer to their customers, understand them better to deliver more relevant and timely services. According to a 2013 survey done by Bloomberg Businessweek Research Services among banking executives around the world, more than 70% say customer eccentricity is very important to them. Tapping on this concept, Italy-based UniCredit Group, Less than a third of a customer’s wallet is held by the average bank. Deepen relationships with significant revenue potential. Create a single view of customer to manage opportunities, relationships and risk. one of Europe’s largest banking institutions, implemented a geolocation system that displayed bank location and services information on maps for customers and users via desktop or mobile devices. It selected Google Maps API Premier for its geolocation technology. The integrated system allowed customers to make appointments with branch agents, at the same time promoting the bank’s products.

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Similarly, SNL Financial, a Virginia-based company whose clients include leading investment banks, asset managers and regulatory agencies, utilised Esri technology to offer detailed GIS and analytic functionality to the customers. The functionality lets their clients view various types of data, including street information and aerial images, and gives them the ability to create new data, such as adding new market areas, and incorporate information on demographics and business data. “Using SNLi Mapping, subscribers have been able to better evaluate companies’ mergers and acquisitions and make more informed decisions. They are performing their own market analyses and integrating demographic data with geographic information such as the location of major cities, interstate highways, and company buildings. Many subscribers also use SNLi Mapping for making presentations because of the high quality of the mapping capabilities,” reveals Dan Sheets, Project Manager, SNL Financial.

“In this age of the customer, banks need to ‘act local’ so that their messages are relevant to each customer, or at minimum a group of customers at the local level,” says Choudhary.CIMB Bank implemented an end-to-end customer communication management system, which helped the bank achieve greater customer satisfaction while improving operational efficiency, realising production cost savings and increasing marketing value. The bank basically needed a customer communication management solution for its retail banking business. Its consolidated statement engine could only andle accounts hosted on its mainframe. It also lacked system robustness and was unable to support personalised 1:1 marketing communication.
These deficiencies resulted in customers receiving multiple monthly statements and wastage of marketing hard copy. The bank turned to Pitney Bowes Software for a customer communication management solution that integrated and consolidated data from a variety of source systems, consolidated statements, and enabled 1:1 marketing.

6 Focus areas for banking industry 6 focus areas for banking industry

Citibank, as a part of worldwide Rainbow Project — Citibank Customer Management Repository — utilised Pitney Bowes solutions to develop a unique customer ID so that regardless of where in the world a customer is engaged /transacted with the bank, he would be recognised and given “right” level of service based on their relationship with this bank.

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Fraud detection
Detecting frauds and defaulters is also one of the major concerns of banking and financial institutions worldwide. Payment providers have developed fraud detection tools that depend on massive datasets containing not only financial details for transactions, but IP addresses, browser information, and other technical data that will help these companies refine models to predict, identify, and prevent fraudulent activity. “Financial institutions are also considering using big data solutions to leverage publicly available data such as Property Deed and Assessments, to identify mortgage fraud such as equity stripping schemes. This would go above and beyond the current Know Your Customer initiatives, watchlist screening, and the application of fundamental rules. Correlating heterogeneous datasets has the potential to dramatically improve fraud detection, and could also significantly decrease the number of false positives,” explains Shan.

Fraud against bank deposit accounts cost the industry $1.744 billion in losses in 2012, according to American Bankers Association (ABA) estimates. Debit card fraud accounted for more than half of 2012 losses (54%), followed by cheque fraud (37%). Online banking and electronic transactions such as wire and ACH accounted for the remaining 9% of losses. In such a scenario, remedial measures are not enough. Banks have to resort to preventive actions, too. Portuguese scientists in collaboration with the European Space Agency (ESA) have developed a software, Feedzai, which can process a huge number of banking transactions a customer has made for the last four years to detect fraud. By applying both ‘machine learning’ and ‘big-data techniques’ to look at all the data, the software learns to distinguish fraudulent- looking from non-fraudulent-looking transactions.

Carlos Cerqueira from Instituto Pedro Nunes, the Portuguese broker in ESA’s Technology Transfer Network part of ESA’s Technology Transfer Programme, believes, “Feedzai’s machine learning models and Big Data science are able to detect fraud up to 30% earlier than traditional methods, and illustrate how the competencies developed at ESA research centres can be useful to other sectors.”

The importance of Big Data is that it is linking a lot of different types of structured and unstructured data, delivering massively scalable analytics from real time and transactional data and allowing FSI organisations to create new data assets. “This is creating new ways of looking at fraud and money laundering and automatically scheduling cash pickups. Merchants are also provided with new understanding of their clients’ demographics, segmentations and financial needs,”

The Central Bank of Nigeria (CBN) is determined to reduce fraud or what is locally called 419 by connecting location data with every bank account. CBN mandates banks to validate addresses submitted as part of the new procedure for opening new bank accounts. Banks are currently committing huge resources to the implementation of this requirement by making physical house visits for confirmation. The actual cost of address validation runs into billions and this substantially adds to the operational cost and subsequently impacts the annual profits for the industry. “STL’s address geocoding data can greatly reduce the cost of address validation and still empowers banks to comply with this directive from the Nigerian financial regulator. This is the area we are currently investing in. We are now rolling out accurate and intelligent base data for address geocoding and validation,” says Ajala.

A user walks by the Citibank branch. Citibank utilised Pitney Bowes solutions to develop a unique customer ID.
Citibank utilised Pitney Bowes solutions to develop a unique customer ID so that regardless of where in the world a customer is engaged /transacted with the bank, he would be recognised and potentially given “right” level of service

Agents of change
The race for market supremacy is compelling banks across the globe to adopt the latest technology on the circuit in a bid to capture new markets and customers. “Perhaps the Holy Grail for retailers is to have a truly intimate, individualised understanding of consumers’ online and offline shopping behaviour. We are seeing an increased use of location based data and location analytics by financial service companies to help address this need,” adds Thompson.

Also, mobility is transforming e-commerce by enabling comparison shopping in stores and delivery of personalised offers based on shoppers’ location and preferences. “As a result, near field communication (NFC) proximity payments will close the loop between advertising and execution,” points out Shan. Rise in mobile banking has been coupled with location-based analytics, thereby making smartphones a ubiquitous geospatial technology in the financial services industry. Banks have leveraged this feature to create ‘geospatial’ banking apps, which the customer can download on their smartphones.

“With NFC, GPS, beacons or WiFi, we can validate the presence of the customer and the payment method at the merchant location,” underlines Thompson. Touchless payments, scan to deposit cheques and alternative payment technologies are all using location technologies to connect the banks to consumers. From those technologies, one can get a wide range of insights on consumer behaviour, intent and desire, which banks are putting to good use.

Cashless systems will become much more prevalent based on GIS and smartphones/embedded chips. For example, there are many places in Europe, Asia and South America where one can pay for public or private parking, highway tolls and vending machines all with the same smart device. This is much better than requiring multiple devices, and the inconvenience of having to transfer payments or cash across accounts.

Bank of America adopted mapping technologies to identify current and future locations of its banking centres in low-income neighbourhoods to meet its Community Reinvestment needs.
Bank of America adopted mapping technologies to identify current and future locations of its banking centres in low-income neighbourhoods to meet its Community Reinvestment needs.

No matter how tech-savy a bank gets, it still runs high on risks. Internally, the biggest challenge for the technology implementation would be data maintenance. GIS is closely related to the use of spatial data, therefore if the latest data is not updated to the system, wrong information will be passed on to the user. “The coding process of GIS has a high technology requirement, therefore maintaining and updating spatial data would become the biggest challenge especially in terms of expertise,” explains Shan. That and further awareness remain as the biggest challenges.
Ridhima Kumar,
Assistant Editor,
[email protected]