The High Cost of Bad Customer Data in Credit Card Banking
Don’t you hate getting junk mail? Especially those unsolicited credit card offers that try to entice with you more debt? Well I do. It’s amazing how in today’s digital and e-spam crazy days, credit card banks continue to send print, post, and send millions of “pre-approved” offers. Unlike my college days when I really needed a credit card to pay for my so-called “necessities” like going out and buying clothes, I don’t need anymore debt. Every so often, like most American’s, my mailbox is full of offers. Well, yesterday was one of those days. The letter states that I am pre-approved for up to $50,000 of fresh new credit.
What’s sad is that I already have a credit card with that bank. Even worse, they sent everyone in my household the same offer including my under-aged children. I bet if my dog was in their database, he would have gotten one too. If I remember correctly, this is the 5th time in the last 6 months they sent me an offer to open an account. Why are they wasting their money sending me something I do not need? Is there something wrong with their marketing system? Don’t they know who I am? Don’t they get that I am not interested after the second or third try? Obviously not.
According to a 2014 Motley Fool article, lenders sent Americans nearly 1 billion credit card offers in the mail in just the first quarter of 2014 just in the United States. It was even worse last year as mailers increased by 50% YoY and what’s mind blowing is that there are roughly about 115 million households in the U.S. Having worked in the credit card industry early in my career, I remember working on designing the mailer, copy, art, and running monthly campaigns to acquire new customers. This was before the internet of course and even with today’s technology, most credit card solicitations are still done the old fashion way. If I remember correctly the cost of producing and mailing a hard copy offer is roughly $4/per piece. If my math is correct, the credit card industry spent $6 Billion (1 billion*1.5*$4 = $6 Billion) designing, printing, and mailing credit card offers in 2015. OMG!
I know the banking industry makes enough to cover their acquisition costs from revolving balances, interchange, late payment, and annual membership fees, but still, $6 billion is allot of money, especially when on average 15-20% of these mailers are sent to the wrong address, existing customers, underage children, people who have passed on to another life, or even to the household pet?
This is a classic data quality problem that the credit card industry faces. The interesting thing is given my current role at Informatica focused on helping the financial services industry leverage technology to harness the power of their data, Many of these banks employ very smart people; invest in very expensive predictive analytic and business intelligence solutions to match the right offer to the right target audience. Where many banks have fallen short is assuming data quality issues have already been dealt with by someone in IT by throwing bodies to solve the problem or often these issues are overlooked and factored into the “cost of doing business” I am disappointed to see the lack of progress in certain segments of the market. Moreover, knowing the revenue and profit margin challenges across financial services, the banking industry needs to do more to get a handle of their data quality problems.
Whether it’s the credit card industry or any other industry that relies on physical mail or digital mail for acquiring new customers, it is critical to consider modernizing the way data quality is identified, resolved, and monitored by adopting data governance processes coupled with proven software solutions that can help deal with these most expensive challenges. In addition, given the number of systems and databases that contain customer information, banks need a way to manage and obtain a Total Customer Relationship view across systems. A solution that ties customer information from disparate systems, identifies unique entities, and defines relationships between them, to provide a “golden” or “master Customer record all systems can use.
Given where interest rates are these days, imagine what the banking industry could do if they could reduce their credit card marketing spend by 20% or $1.2B annually just in the U.S. That is quite a bit of money that can be saved or reinvested back to the business. Even more, those expensive investments in Big Data, Analytics, and/or smart people could actually start paying dividends…you think? How much is poor quality data and lack of understanding of your customers costing your business?