Home-grown analytics can give a strategic edge

David Goldman/AP - Dunia Finance started with a business model offering financial services to underserved clients in the United Arab Emirates just as the worldwide financial meltdown began. The central bank licensed Dunia to offer credit cards, personal and auto loans.

The big idea: Analytics that are aligned with the business model and market conditions are a strategic asset that can provide stable growth in a volatile industry, even when the data are self-generated.

The scenario: Dunia Finance started with a business model focused on offering financial services to underserved clients in the United Arab Emirates just as the worldwide financial meltdown began. The central bank licensed Dunia to offer credit cards, personal and auto loans, simple insurance products linked to them, and corporate deposit services and financial guarantees for companies. Dunia was not allowed to take cash deposits from retail consumers.

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Ali Hurbas joined Dunia in 2008 as head of its Strategic Analysis unit. His experience at Dunia was his first working for a local company in the Middle East. Hurbas was used to analytics powered by a robust customer credit scoring mechanism using credit bureau data from a broad set of sources. He found no such financial data here, only data on infractions of law, such as bouncing a check. Banks were not accustomed to sharing financial data.

In the United States, a direct-mail targeting campaign with a 2 to 3 percent response rate could translate to more than 100,000 responses. But with the UAE’s small population that response rate would be about 1,000 offers. Hurbas knew he had to build a robust analytics system under high consumer credit risk with a small population that emphasized accurate targeting.

The resolution: The team created an in-house custom data warehouse. Because vendors were not involved, changes could be made instantly. This strategy was particularly important in the early years, because Dunia was adding products and processes, and data elements had to reflect enhancements dynamically. An outside vendor would have cost more but would also have added weeks of lead time when SAU needs to respond to business challenges in hours.

A credit bureau was developed within Dunia. Each new customer was assigned a Dunia customer identification number and a unique file. Responses to earlier campaigns were recorded to facilitate constant feedback loops from direct marketing campaigns. This automatically improved the response rates for campaigns and the effectiveness of cross-selling efforts. If an existing Dunia customer was looking at cars, for example, and decided to buy one, he or she would probably be preapproved, so the loan transaction could be made quickly. Following one monthly cycle of payment history, the customer’s early performance data would be looked at immediately. Six months after a new account was booked, Dunia would consider increasing the credit granted to the customer. Dunia was able to succeed in a harsh time for business when 11 much larger competitor banks failed.

The lesson: Analytics should be considered a strategic asset or investment. A small start-up may be better off custom building its own analytics systems. Good data on the right variables can be as valuable as big data. When aligned with a business model, analytics can be the key to profitable growth.

Bodily and Venkatesan are business professors at the University of Virginia Darden School of Business. Darden senior researcher Gerry Yemen also contributed.

 
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