Unlocking Financial Insights with Transaction Analytics

In the rapidly changing world of banking, the fusion of AI and advanced analytics with open banking has ushered in a wave of transformative possibilities. The traditional methods of assessing creditworthiness, have often left gaps in understanding the financial behaviors of individuals, especially those with limited interactions within the financial system. However, the convergence of AI, analytics, and open banking is reshaping this landscape, and at the heart of this transformation lies the power of transaction data. 

Transaction analytics, a relatively recent addition to the financial toolkit, has emerged as a crucial instrument in leveraging the wealth of transaction data to gain nuanced insights into customer behaviors. This approach allows for more informed credit decisions and the provision of highly personalized banking services. Several key drivers are propelling the adoption of transaction data:

• Global Account Ownership Growth: Over the past decade, the percentage of individuals worldwide with a digital financial footprint has surged from 51% to 76%, with developing countries seeing substantial growth, reaching 71%.
• Digital Payment Surge: The convenience of digital payment methods, spanning from credit cards to mobile payments, has fueled increased digital spending. Businesses are also adopting digital practices to credit salaries to their employees' accounts, further contributing to this trend.
• Open Banking Revolution: Open banking has streamlined banking processes by harnessing innovative technologies to extract data from multiple sources, offering a comprehensive view of customer finances.
• Reduced Computing Costs: Advances in cloud computing have drastically lowered the cost of processing vast transaction datasets, making effective data analysis more accessible than ever before.

This surge in transaction data has far outpaced the rate at which consumers are included in credit bureaus. By harnessing transaction data and analytics, banks can gain a 360-degree view of customers, leading to:

• Enhanced Understanding: Deeper insights into customer behavior and preferences.
• Comprehensive Credit Assessment: A holistic evaluation of creditworthiness.
• Tailored Services: The ability to offer hyper-personalized banking solutions.

But what exactly is transaction analytics, and where does its value lie? Let's dive deeper to understand its significance and how it can revolutionize decision-making across the lending lifecycle.

Defining Transaction Analytics in Banking

Transaction analytics involves collecting and analyzing customer financial transaction data from various types of accounts, including deposits, savings, credit cards, and expenses. This data is processed to gain insights into a customer's financial situation, income, spending habits, and preferences. It involves understanding every transaction a customer makes to create and regularly update their profile. These insights are then used to make decisions at the customer level throughout the lending process.

Transaction analytics necessitates architectures capable of efficiently ingesting and processing substantial data volumes from both internal and external sources. This data processing can occur in real-time, batch processing, or on-demand, allowing businesses to maintain a dynamic understanding of their individual customers' current circumstances. These valuable insights at the customer level are accessible throughout the organization, enabling various functions involved in decision-making to implement the appropriate actions promptly, regardless of where the customer is in the credit lifecycle.

This unified perspective empowers various departments and the C-suite to rapidly adapt to changing conditions. Moreover, it's worth noting that transaction data based solutions enable event-driven architectures to make decisions on the customer in real time based on their most recent state.

By analyzing transaction data, it's possible to understand customer behavior, preferences, and creditworthiness more accurately. For instance, customers with good credit risk often consistently spend on essentials like groceries and maintaining assets such as homes and cars. Foreign transactions, indicating spending outside the customer's country, are also associated with good credit risk as they demonstrate affordability.

On the flip side, customers who rarely engage in discretionary spending, like shopping or dining out, might pose higher credit risk due to limited affordability. Transaction data can also unveil spending trends and sudden shifts in patterns that could raise concerns. Additionally, frequent transfers between savings and checking accounts, depleting savings, may indicate high risk.

Understanding how customer behavior influences credit risk enables banks to streamline new customer onboarding, enhance existing relationships, foster loyalty, and protect vulnerable customers.

In this blog, we've introduced you to the exciting world of transaction analytics and its potential to revolutionize the banking industry. Stay tuned for our next installment, where we will explore the practical applications of transaction analytics and how it can reshape the lending landscape.

How FICO Platform can help you leverage and harness the full potential of transaction of analytics:

FICO's industry-leading decisioning platform enables organizations to harness the power of transaction analytics effectively and efficiently. FICO Platform capabilities empowers businesses to consume transaction data from various internal and external sources, generate customer profiles and operationalize AI responsibly, driving strategic outcomes across the customer lifecycle. We don't just provide insights; we facilitate the transformation of data into actionable decisions, seamlessly integrating them into your lending process.

Ready to take the next step? Contact us to discuss more.

You can find out more from the following resources:

• View the Harnessing the Power of Transaction Analytics webinar
• Download our Transaction Analytics infographics
• Read about how a global bank is getting results using transaction analytics
• Read this blog on Empowering Lenders in India: Advanced Analytics for Debt Collection