Driving Revenue with Personalized Credit Offerings: How Banks Can Leverage Alternative Data and AI-Powered Analytics

Consumer expectations are rapidly evolving in the modern age and banks must innovate to stay competitive. The recent pivot by JPMorgan Chase into the advertising space highlights an emerging trend: financial institutions must increasingly act like adtech companies to leverage their vast customer data for new revenue streams. One promising approach involves utilizing alternative data to offer personalized credit products, reward programs, and affiliate offers. This strategy can significantly drive revenue growth for banks. A key tool in this endeavor is AI-powered predictive analytics, which provides deep insights into customer preferences and behaviors. This article analyzes this trend and how banks can leverage AI to take advantage of it.?

The Shift Towards Adtech

JPMorgan Chase’s foray into the advertising business through its new unit, Chase Media Solutions, is an example of how banks can harness their customer data for more than just traditional banking services. JPMorgan is taking advantage of its extensive first-party data by targeting specific subsets of shoppers with tailored discounts and deals through the Chase Offers program. This move highlights the immense value of understanding customer spending habits and preferences.

With the decline of third-party cookies and changes in data privacy regulations by companies like Apple and Google, first-party data has become a critical asset. JPMorgan’s ability to offer personalized deals based on a customer's spending history uniquely positions it in the advertising market. This approach enhances customer engagement and opens up lucrative revenue streams. According to McKinsey, companies that excel in personalization generate 40% more revenue than those that don't. For banks, this can mean substantial gains; with a 10 to 15 percent revenue life.?

The Need for Alternative Data in Banking

Banks traditionally rely on conventional data sources like credit scores and financial statements to assess creditworthiness. However, these sources often provide an incomplete picture of a customer's financial behavior.

To truly understand and serve their customers, banks must tap into alternative data, which includes:

• Geographical Data: Data about where customers live, work, and spend their time can reveal a lot about their lifestyle and financial habits.
• Behavioral Data: Insights into how customers interact with various financial services and their spending patterns across different categories.
• Transactional Data: Detailed records of customer transactions that provide a comprehensive view of their financial activities.

By analyzing these data types, banks can gain a nuanced understanding of their customers' financial behaviors, enabling them to offer more personalized and relevant credit products. BCG estimates that for every $100 billion in assets, banks can achieve up to $300 million in revenue growth through personalized customer interactions

Enter AI-Powered Predictive Analytics

Incorporating AI-powered predictive analytics into the banking framework can enhance the effectiveness of using alternative data. Machine learning algorithms can process vast amounts of data to identify patterns and trends that might not be apparent through traditional analysis.?

This capability is crucial for:

• Creditworthiness Assessment: AI can analyze non-traditional data points to more accurately assess a customer’s credit risk. This is particularly useful for customers with thin credit files or those new to credit.
• Risk Management: Predictive analytics can forecast potential defaults by analyzing changes in customer behavior and external economic factors. This allows banks to take preemptive measures to mitigate risks.
• Revenue Optimization: By identifying opportunities for cross-selling and up-selling based on customer preferences, banks can increase their revenue per customer. Personalized product recommendations enhance customer satisfaction and loyalty.

GeoLifestyle Score: A New Tool for Personalization

1datapipe's GeoLifestyle Score is an advanced analytical tool that leverages geographical and behavioral data to provide deep insights into customer preferences and patterns. This score is fueled by AI technology and analyzes data from millions of mobile devices to decode customer journeys across various lifestyle themes, such as retail, fashion, travel, dining, sports entertainment, health, and fitness.

Key Features and Benefits of GeoLifestyle Score:

1. Precision Mapping: Identifies high-value customer segments by revealing hidden patterns and preferences, allowing banks to tailor credit offerings to individual lifestyles.
2. Tailored Engagement: Understanding customer needs enables personalized engagement strategies. For example, frequent travelers and diners can be offered credit cards with travel rewards and dining discounts.
3. Strategic Targeting: Provides comprehensive insights into customer behaviors, enhancing the effectiveness of marketing efforts and improving customer satisfaction with relevant products and services.
4. Personalized Decisioning: Informs decisions on credit approvals, limit adjustments, and personalized offers, reducing the risk of defaults and improving the profitability of the credit portfolio.

The Way Forward?

JPMorgan Chase’s venture into the advertising sector demonstrated that banks need to think beyond traditional financial services to unlock new revenue streams. Leveraging alternative data to offer personalized credit products is a powerful strategy that can drive significant revenue growth.

For financial institutions looking to enhance their predictive power and better understand consumer credit behavior, 1datapipe offers cutting-edge solutions. Our advanced analytics and machine learning tools provide deep insights into patterns, trends, and changes in credit and payment behavior, helping you reduce default rates and drive revenue growth.

To learn more about how our GeoLifestyle Score can drive more revenue for your company, reach out to our team today. We're ready to show you the potential of integrating alternative data into your financial services strategy.