He who hesitates...?

Mining data to create better products and cross-sell opportunities is a perennial topic of conversation with banks. We’re often asked who does it well – in fact, I was asked this just last week. And the answer is…not many, frankly. More the exception than the norm. Some other industries who have recognised this however have taken action and made significant investments to tackle the problem. One of the more visible ones is perhaps Tesco, the UK retailer. It may have fallen on harder times over the last few years, but we shouldn't forget the transformation they've gone through. 20 years ago they were one of the smaller, more old fashioned supermarkets in the UK, but at their peak became the third largest supermarket in the world, with one in ten pounds in the UK being spent with them. How did they achieve this? In no small part their loyalty programme, ClubCard, which it launched in 1994. This was backed by initially hiring an analytics company called Dunnhumby. Such was the success of the scheme that Tesco believe that ClubCard paid for itself within 6 months. The then chair said at the first board meeting after the launch: "What scares me about this is that you know more about my customers after three months than I know after 30 years." In context, the supermarket first to the market in the UK with loyalty, Safeway, abandoned its loyalty card in 2000, with the CEO claiming at the time "people have lost interest in points." Tesco bought a 53% share in Dunnhumby in 2001 for £30m, finally buying the business outright a few years later. So why the post today? A couple of reasons: Firstly, given the change of fortunes in Tesco, they've put up a number of assets for sale, including Dunnhumby. The price tag is believed to be in excess of £2bn.There seem to be a broad range of people interested in buying, so the price is likely to be achieved. Secondly, it's not just private equity firms interested, but big technology firms such as Google who are considering buying them as well. It's not just the data they're after the skills and techniques. That said, 20 years of data for over 1 billion customers globally (in excess of 40 terrabytes of data), has huge value in itself, which is why the ad agency WPP is one of the other bidders. The take-away for banks is perhaps a wistful "if only." If only the banks had stopped worrying about competition from the supermarkets, and had emulated them a little more, they too might have benefitted from the insights from similar companies, and might also have such a prized asset as well. Banks are fast followers rather than leaders and have been very risk averse. With perhaps the golden age of fintech firms upon us, banks ought to be taking an even more proactive approach. Incubators are all good - but banks need to be more entrepreneurial and take a more speculative approach, or they stand to not reap all the rewards.