GIS/BI Use in the Financial Industry:

“Leveraging Technology”“Leveraging Technology”

Prepared for Wharton GIS Conference

August 21, 2002

By Jerry Thompson

SVP/CIO Credit Union of Texas

Credit Union of Texas has grown from $749M to $1.3B in 2 years

• Formerly Dallas Teachers Credit Union– Changed to community (geographic) charter in April

2000– Changed name in April of 2001

• 11 geographic branches• 165,000 members• 125,000 households• Field of membership is about approximately 10%

market share by households• Assets growing at 45% per year

• "It is not necessary to change. "It is not necessary to change. Survival is not mandatory."Survival is not mandatory." -- W. Edward Deming

• "We live in a moment of history "We live in a moment of history where change is so speeded up that where change is so speeded up that we begin to see the present only we begin to see the present only when it is already disappearing.“ -when it is already disappearing.“ - R. D. Laing

““It’s all about the bucks. The rest is It’s all about the bucks. The rest is just conversation.” just conversation.”

- Gordon Gekko in “Wall Street”- Gordon Gekko in “Wall Street”

TODAY’S FOCUSTODAY’S FOCUS

Market AnalysisMarket Analysis Target Marketing Target Marketing Strategic PlanningStrategic Planning Advertising AdvertisingMarket DevelopmentMarket Development Siting SitingBrand ProfilingBrand Profiling Member Profiling Member ProfilingPromotion Planning Promotion Planning Services Mix Services MixTrade Area Definition Trade Area Definition Space Management Space ManagementMember Acquisition & Retention Member Acquisition & Retention Disaster PlanningDisaster Planning

KNOW YOURKNOW YOUR CUSTOMERCUSTOMER

““If we are not customer driven, our cars won’t be either”If we are not customer driven, our cars won’t be either”

Donald Petersen, Former Chairman, Ford Motor CompanyDonald Petersen, Former Chairman, Ford Motor Company

TODAY’S CHALLENGESTODAY’S CHALLENGES Segmentation & Targeting IssuesSegmentation & Targeting Issues

• Who are my best customers?• How can I effectively reach them?• Where are they located?• How many of them are there?• Where are more prospects that are like my existing customers?• How can I better understand them?• How can I better serve them?• How should I analyze and define my market

potential?

Strategic Plan

Re-branding andRe-branding andMarket ExpansionMarket Expansion

Profitability Profitability Data MartData Mart& Reports& Reports

Profitability AnalysisProfitability Analysis

Final DestinationFinal Destination : Become Become thethe financial services financial services leader in Texas.leader in Texas.

Targeted MarketingTargeted MarketingCampaignsCampaigns

E-E-PersonalizatioPersonalizatio

nn(ECA)(ECA)

2001Develop aDevelop a

Sales CultureSales CultureSales ForceSales ForceAutomationAutomation

ContactContactManagementManagement

EmployeeEmployeeIncentivesIncentives

2002

Data MiningData Mining

GeographicGeographicAnalysisAnalysis

Marketing AnalysisMarketing Analysis

Customer ValueCustomer ValueFocus GroupsFocus Groups

DemographicDemographicDataData

2000

1999

Capital InvestmentsCapital Investments Data Processing TechnologyData Processing Technology

• ““Real Time” core system implemented in 1994Real Time” core system implemented in 1994

• Interactive In house driven Web site in 1995Interactive In house driven Web site in 1995

• ““Real Time” Internet Home Banking in 1996Real Time” Internet Home Banking in 1996

• ““Real time” In house ATM network in 1997Real time” In house ATM network in 1997

• ““Real Time” ATM based Bill Payer in 1998Real Time” ATM based Bill Payer in 1998

• ESRI/IBM GIS/BI Visual Warehouse in 1999ESRI/IBM GIS/BI Visual Warehouse in 1999

• Wireless Home Banking & Bill Pay in 2000Wireless Home Banking & Bill Pay in 2000

• Internet Account Aggregation in 2001Internet Account Aggregation in 2001

Geography Matters…Geography Matters…

New BranchNew BranchSitingSiting

New BranchNew BranchSitingSiting

ProfilingProfilingProfilingProfilingTargetTargetMarketingMarketing

TargetTargetMarketingMarketing

ServiceServiceMixMix

ServiceServiceMixMix

Market TrendsMarket TrendsAnalysisAnalysis

Market TrendsMarket TrendsAnalysisAnalysis

Competitive Competitive AnalysisAnalysis

Competitive Competitive AnalysisAnalysis

StrategicStrategicPlanning Planning

%%

%%

%%%

%

%%%

%%%

%% % %% %%

% % % %%%%%

%%

% %%%

% %%

%%

% %%%

%

%

% %

Allen

Plano

Hurst

Ennis

Denton

Keller

IrvingEuless

Dallas

DeSoto

Sherman

Coppell

GarlandRowlettWatauga

Terrell

McKinney

Rockwall

Mesquite

Benbrook

Burleson

Cleburne

Grapevine

Arlington

LancasterMansfield

GreenvilleThe Colony

Lewisville

Carrollton Richardson

Fort W orth

Cedar Hill

Waxahachie

Gainesville

Colleyville

Haltom City

Forest Hill Duncanville

Flower Mound

Balch SpringsGrand Prairie

Farmers Branch

University ParkBedford

White Settlement

North Richland Hills

TX, Ellis

TX, Wise

TX, Hunt

TX, Collin

TX, Lamar

TX, DallasTX, Parker

TX, Denton

TX, Cooke TX, FanninTX, Grayson

TX, Tarrant

TX, Montague

TX, Hopkins

TX, KaufmanTX, Van Zandt

TX, Johnson

TX, Delta

TX, Rains

TX, Somervell

TX, Rockwall

CREDIT UNION OF TEXAS FIELD OF MEMBERSHIPCREDIT UNION OF TEXAS FIELD OF MEMBERSHIP

LOCATING A NEW BRANCHLOCATING A NEW BRANCH

Managing Member Relationships is a Managing Member Relationships is a critical challenge we all face.critical challenge we all face.

Reduce CostsReduce Costs

Increase Increase Member Member

SatisfactionSatisfaction

Stimulate Stimulate MemberMember

PurchasesPurchases

Retain Retain Valuable Valuable MembersMembers

Increase Increase MemberMemberLoyaltyLoyalty

Product Profitability – February, 2001

We begin by analyzing We begin by analyzing profitability at all levels.profitability at all levels.

The process to market to prospective The process to market to prospective members begins with visually exploring members begins with visually exploring

relevant information.relevant information.

GIS/BI Marketing Projects

• Product-oriented marketing– Monthly lease mailings (started targeting 10/2001)– Home equity (6/2002)– Spring and fall auto loan (started targeting 10/2001)

• Relationship-oriented marketing (multiple offer)– Single share multiple offer mailings

• January 2001• October 2001

– New member (started 7/2002)– Teller/Member Service Officer contact management

(started 2/2002)

Fall 2002 auto sale is an example of product-oriented model

New-member is an example of multiple-offer model

Behavioral vs demographic Behavioral vs demographic segments provide profitability segments provide profitability

clues and opportunities.clues and opportunities.

Where do our most profitable members Where do our most profitable members live and what are their demographic live and what are their demographic

characteristics?characteristics?

Where do prospective members who have the same Where do prospective members who have the same characteristics as our most profitable members characteristics as our most profitable members

live?live?

Market share as function of drive-time is important metric for

analyzing branchesMember HH with Checking as % of Member

Households (1st Branch)

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

0 2 4 6 8 10 12

Lancaster

For competitive reasons, the least interesting chart is shown here.

~65%

Since we want checking account deposits, Since we want checking account deposits, let’s target prospects who live within a let’s target prospects who live within a

seven minute drive from a branch.seven minute drive from a branch.

• Targeted 44,115 unprofitable members with one low balance account 2

• 3,617 members closed accounts

• 2,272 members took new loans or made new deposits

• Cost of Campaign• Three-Year NPV of campaign1

• 2000 Profit Impact

($354,955)

$ 73,1811

307,2271

380,408 - 45,000

$ 335,4081

$ 150,432Notes:Notes: 1. NPV based on three-year cash flow, 5.9% discount rate1. NPV based on three-year cash flow, 5.9% discount rate

2. One page letter offered three prioritized services as scored 2. One page letter offered three prioritized services as scored by aby a

data mining model. data mining model. Used 3,350 of the 19,700 possible Used 3,350 of the 19,700 possible offer offer combinations combinations

Targeting “Single Service” members with Targeting “Single Service” members with customized offers resulted in a 10.4% response customized offers resulted in a 10.4% response

rate and added $150K to the bottom line in 2000.rate and added $150K to the bottom line in 2000.

Single ProductCampaign (#1)

335

420New BranchBreak Even Improvement

520

LewisvilleCampaign

(22)

The returns on our GIS/BI investments are real and are enabling us to reach our strategic objectives.

(All numbers are $K.)

Ross Avenue BranchRedevelopment 350

Single Product Campaign (#2)

Asset Allocation Improvements,Reserves, Incentive Pgm

400

3003

Field of MembershipExpansion

$1,450

TotalCost

Note 3: Through 2Q02

Total

Return

$2,303

$853

NetReturn

Asset Growth

MemberPortfolio

Net IncomeReturn on Assets

KEY PERFORMANCE METRICS ARE ON OR KEY PERFORMANCE METRICS ARE ON OR AHEAD OF BUDGETS & PROJECTIONSAHEAD OF BUDGETS & PROJECTIONS

KEY PERFORMANCE METRICS ARE ON OR KEY PERFORMANCE METRICS ARE ON OR AHEAD OF BUDGETS & PROJECTIONSAHEAD OF BUDGETS & PROJECTIONS

Markov chain analysis is useful in single-account analysis

• Determined which groups are more likely to go dormant and subsequently be escheated

• Estimated length of membership for different groups

• Simple forecast of growth, transaction volume

• Several policy changes in process

BI Strategy Projects• Flight deck system dynamics model

– Is growth via branches and checking accounts more efficient than growth via top of market CD rates?

– IBM constructed prototype in 2001 via subcontract with Ventana Systems

– In process of adding data; number of elements at staging level is greater than existing number

• National Credit Union Administration• General ledger• Competitive interest rates

• Member lifetime value estimation– Markov chain based– Policy decisions regarding marketing investment

CURRENT PROOF OF CONCEPT TECHNOLOGY PROJECT

““CEO STRATEGY FLIGHTDECKCEO STRATEGY FLIGHTDECK””

Automated Tactical & Strategic Executive Decision Support

The design goal of the CEO Strategy Flightdeck The design goal of the CEO Strategy Flightdeck project is to allow us to ‘test fly’ & ‘spatially project is to allow us to ‘test fly’ & ‘spatially

analyze’ multiple tactical & strategic scenarios, so analyze’ multiple tactical & strategic scenarios, so we can avoid mistakes and make critical decisions we can avoid mistakes and make critical decisions

faster.faster.

Flightdeck Features:Flightdeck Features:

• Comprehensive:Comprehensive: Captures all important business activities and drivers, and their interactions!

• Quantitative:Quantitative: Estimates bottom-line effects of strategic actions based on 10 years of historical response and common-sense limits

• Causal:Causal: Even more important, you get the reasons behind the bottom line

• Clear:Clear: Simple, familiar model parts, variables named in English, and accessible, fully documented equations. No Black Boxes!

• Spatial:Spatial: Present appropriate predicative data using spatial analysis software tools.

Flightdeck Advantages:Flightdeck Advantages:• FindFind unintended side effects of strategic actions,

in advance• UnderstandUnderstand every business function’s role in

strategic execution and performance• TestTest the robustness of strategies against a wide

variety of economic conditions• IdentifyIdentify limiting factors and key leverage points

during strategy development• PresentPresent & CompareCompare relevant predicative growth

& usage patterns with spatial analysis software tools.

Our goal is to be able to ‘test fly’ new Our goal is to be able to ‘test fly’ new strategies & models using key strategies & models using key

business metric leversbusiness metric levers.

Another functional goal is to be able to Another functional goal is to be able to ‘tweak’ key business metric levers to ‘fine ‘tweak’ key business metric levers to ‘fine

tune’ existing strategies on the fly.tune’ existing strategies on the fly.

Projects in ProgressProjects in Progress1. Modeling & simulating various types of natural &

man made disasters, using existing visual warehouse & spatial analysis tools, with the output feeding a…

2. “Real-Time” disaster evacuation routing information service, for individual employees & members, by work or home location, by time of day, delivered by…

3. Enhancing our existing Internet and Voice Response Unit based branch/atm location routing information delivery systems.

4. Natural Voice Authentication & Recognition VRU

5. Car Lease Residual & Return Models

6. Credit Card Limit Change/Revoke Model

7. Member Revenue Scoring Model

Another functional goal is to be able to Another functional goal is to be able to ‘tweak’ key business metric levers to ‘fine ‘tweak’ key business metric levers to ‘fine

tune’ existing strategies on the fly.tune’ existing strategies on the fly.

“There is nothing more difficult to handle, more doubtful of

success, and more dangerous to implement than initiating change. Innovation makes enemies of all those who prospered under the old regime.” Machiavelli, in The Machiavelli, in The

PrincePrince

““THE” CHALLENGETHE” CHALLENGE

Thanks for joining me!Thanks for joining me!Questions?Questions?

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