ABA Banking Journal - November/December 2016 - 26

SPECIAL REPORT > INNOVATION AND TECHNOLOGY Do You Do What the Data Tell You? The rise of prescriptive analytics, the 'fourth frontier' in big data. BY EVAN SPARKS B anks are on the forefront of the growth of using "big data" to inform and even drive business decisions. And as computing power grows and the uses proliferate for the data that banks control, data science is rapidly moving to provide its users with prescriptive power and new tools to automate and advance business decisions. For Cheryl Gurz, SVP for operations at the Bancorp in Wilmington, Del., "prescriptive analytics" is the fourth frontier in the evolution of data. "This is where tomorrow is going," she says. This fourth phase follows basic reporting of data (such as through Bank Secrecy Act Suspicious Activity Reports), followed by descriptive analytics (digging into amassed data to answer specific questions) and predictive analytics, which Gurz notes involves "predicting the likely future outcome of events often leveraging structured and unstructured data from a variety of sources." The goal, she says, is for banks to answer the "what if" questions, constructing models of decisions that simultaneously address differing scenarios, provide insights that involve a vast array of relevant data and provide preferred solutions to thorny problems. For example, Gurz recalled a bank that was exploring whether to offer insurance in its local market. A data scientist looked at all the ZIP codes in the bank's footprint and incorporated a database of weather events. The answer: "Nope! We are making loans to areas that have high weather patterns with losses, and we don't want to sell insurance because the payouts have a probability of being high." 26 ABA BANKING JOURNAL | NOVEMBER/DECEMBER 2016 Banks have generally led in analytics, with 71 percent of banks using big data to improve operations, compared with 60 percent across all industries, according to an IBM survey. "Financial services are far ahead of the rest of the industry," says IBM's Michael Maxwell, who, like Gurz, was a featured speaker at the ABA/BAFT Global Payments Symposium in New York earlier this year. As banks continue to build on the promise of prescriptive analytics, they're finding applications for these tools in three key areas: growing the bank's business, gaining operational efficiencies and facilitating regulatory compliance. Finding scarcer growth opportunities "In this economic environment, how do banks obtain growth?" Gurz asks. "Growth isn't easy anymore." With margins squeezed and the best credits picked, banks are turning to prescriptive analytics to help them find every opportunity and make sure they don't leave money on the table. At Canada's TD Cards-a division of the TD Bank Group, a global banking company based in Toronto with a large U.S. operation-managers were looking to grow their $9.5 billion (U.S.) credit card portfolio with 5 million active accounts, all without changing their risk appetite. TD worked with the data and analytics company FICO to develop a solution. They created a sample customer and identified several "custom decision keys," as TD's Clifford King calls them, such as whether she maintains a stable

Table of Contents for the Digital Edition of ABA Banking Journal - November/December 2016