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Boosting Retail Banking Profitability with Next-Best-Offer Modeling

8/21/2024 | nmb@konfitech.com

Challenge: Retail banks face a constant struggle – how to attract new clients and maximize profitability from existing ones. This often involves balancing the goals of the marketing department, which seeks to upsell additional products with next best offer modelling, and the risk department, which needs to ensure responsible lending practices.

Traditional approaches rely on subjective judgments and may lack a robust and objective way to assess individual client potential. This can lead to missed opportunities or mismatched offers, impacting both customer satisfaction and bank profitability.

Solution:

Konfitech, a leading IT company, specializing in data-driven solutions, partnered with a retail bank to developa Net Financial Impact (NFI) Analyzer. This solution leverages advanced propensity-to-buy and probability-of-default modeling to generate a single, objective score for each client's expected profitability. Next best offer modelling is at the core of their strategy.

Our Approach:

  • Data Collection: We gathered extensive data on both new and existing clients, encompassing both demographic and behavioral information to support next best offer modelling.
  • Propensity-to-Buy Modeling: We built sophisticated models to predict the likelihood of each client purchasing specific banking products (e.g., mortgages, loans).
  • Segmentation and Personalized Offers: Clients were grouped based on shared characteristics, and NBO models were built specifically for each segment. This ensured highly personalized offers tailored to individual client needs and risk profiles.
  • Champion-Challenger Testing: To validate the effectiveness of the models, a controlled experiment was conducted. A test group received personalized NBO recommendations based on the NFI Analyzer, while a control group received offers based on existing business rules.

Results:

The NFI Analyzer demonstrably improved the bank's performance:

  • 5x Increase in Up-Sell Rate: The test group exhibited a five-fold increase in the up-sell rate compared to the control group, demonstrating the effectiveness of personalized NBOs.
  • Personalized Loan Prediction: The NFI Analyzer delivered personalized loan recommendations including specific credit limits, loan terms, and principal amounts, all optimized for each client's unique risk profile and potential profitability thanks to next best offer modelling.
  • Data-Driven Customer Acquisition & Retention: By leveraging data-driven insights, the bank could now attract new clients and retain existing ones with offers that were both financially sound and attractive to the customer.

Conclusion:

Konfitech's NFI Analyzer empowers retail banks to make data-driven decisions, fostering deeper customer relationships and boosting overall profitability. By balancing marketing and risk objectives, the solution helps banks achieve sustainable growth while ensuring responsible lending practices. This demonstrates the effectiveness of next best offer modelling.

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