Data Mining Found to Be Popular, But Researchers Urge Searches Be

A report from Meridien Research shows data mining is one of the most popular activities in the financial services industry.

But Meridien researchers warned that financial institutions should begin delving into their customer data bases only after careful consideration of what such efforts will yield.

"Clearly, financial institutions need to have a focus on the kinds of business issues they wish to solve before they choose a data mining application," said William Bradway, research director of Meridien and author of "Data Mining Solutions and Customer Management."

"When an institution is finished doing data analysis," he said, "it should be able to translate the potential value to real value effectively."

The 28-page report examines how data mining can be used for a range of customer management tasks including cross-selling, customer profiling, and customer retention.

Needham, Mass.-based Meridien estimated that the top 500 global financial services firms-300 of which are banks-spent $360 million on data mining technologies in 1997. Commercial banks are the most avid users of the technologies.

North American companies accounted for 54% of the spending, followed by European, 29%; Asian-Pacific, 10%; and others, 7%.

Worldwide spending on data mining technology is expected to increase by an average of 20% per year through 2002.

Data mining "is an area undergoing significant change and transition," said Mr. Bradway. "We think the business value associated with data mining is rather rich if a financial institution conducts its analysis efficiently to implement a change in its business strategy."

He said software packages that identify statistical trends are getting easier to use and this in part is fueling banks' moves into data mining.

"The challenge is to have a robust customer warehouse to take advantage of data mining applications," said Mr. Bradway.

The report was based on three months of research involving 16 vendors and 50 financial institutions.

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