Keep People at the Center of Your Data

A number of years ago, I wrote a blog regarding an interesting factoid I stumbled upon. It has to do with economist Charles Goodhart and his idea known as Goodhart’s Law: When a measure becomes a target, it ceases to be a good measure.

Over the years, as the fintech space and quite frankly the tech space in general has expanded, I keep coming back to this concept.

I think the reason it resonates with me so much is the fact that it reminds me of our desire to measure everything. That if we can gather enough data, develop the right algorithm, or analyze every input, “the answer” will reveal itself.

Metrics, KPIs, measures, whatever you call them, they offer valuable information don’t let them dominate your efforts in the digital space.

Reality Continues to Move

Targets can be elusive. Not only because we can always add more data to “refine” it, but also because the target of all this effort is lowly analog humans. And people constantly adapt to new inputs in unpredictable ways. The numbers help, but only offer a snapshot in time. That’s why it’s crucial to have a team or partner that can continually interpret what you’re seeing so leadership can make prescriptive decisions on direction.

For example, when the internet was young(er), many people in marketing decided that unique visits was the best measure of a site’s effectiveness. So, they began building sites that encouraged traffic - the more the better.

The logic was, the more people you have walk through your ‘store’ the better chance you could sell something. And much of the marketing team’s energy was put into boosting those visits.

Eventually, this measure became a target of success. Even advertisers joined the bandwagon, assuming the more people that looked at an ad, the better.

Then as that hill was conquered, it was discovered that volume wasn’t the magic bullet.  The amount of time a potential customer spent on the site was much more important. It indicated that customers were looking deeper into the site, which meant the entire site needed to have value for quality customers, not the masses.

Some of this transition happened because marketing tools and methodologies developed along with the online marketplace. And that is precisely the point. Adapting to new trends is important, and that can be tricky for financial institutions that have always seen consistency and gradualism as the prudent strategy.

There is a balance to be struck but sticking to those tried and true tools in an age of rapid change gets you down the Goodhart rabbit hole.

Don’t Get Blinded By Your KPIs

The fact is the first step is to better use the tons of data that your FI already has.

Traditional banks and credit unions rarely have the kinds of staff that can dedicate the time to enhance their data into actionable information. Today, that’s why finding the right fintech partners to help with this is crucial.

Once a legacy financial institution can understand how powerful their current data can be once it’s organized and focused, the better they can develop strategies that can move them forward.

The next challenge is how to interpret that data so they can make the best use of it. Enhancing data gives FIs a granular understanding of their customers (and potential customers). In doing so, they can then target specific offers to them, instead of shotgun offers to their entire base.

By focusing and enhancing the existing data, a whole new world of opportunities opens up.

This is where the value of community relationships can be enhanced as well. Smaller FIs can’t compete in size and scale with the big banks. But they can now enhance their data and discover more about their customers. And that allows them to find new opportunities to reach out and deliver the products they customers and members are looking for in their moments of need. It can also help them show their customers and members more about their own habits.

The first step is to remember Goodhart’s Law when looking through your data. Remain intuitive as much as data driven because people will always be people, and they change with every new feature.

And always respect the difference between a measure and a target.