The benchmarking breakdown: why your competitors aren’t your competitors

Benchmarking is an incredibly useful tool. It allows organizations to measure themselves against their main competitors and identify key areas they thrive in as well as areas in which they are lacking. But, identifying your main competitors is a task within itself. For example, when it comes to incumbent banks, the major competitors in the market are well known; they are all of a similar asset size and have long been established as financial services providers. It’s easy to group these institutions together purely on these few key metrics.

However, the world of financial services has changed dramatically over the last decade and it’s time benchmarking did, too. Increasingly, financial institutions must consider the unavoidable fact that their traditional competitors may not be their true competitors anymore. We have access to millions of data points across many different products and services and it’s only through leveraging this data effectively that a true view of the full competitive landscape can be attained.

The way it is

While it is seemingly logical for bulge bracket banks to assess how their key growth markers are tracking against one another, the value of this insight is limited. In today’s competitive financial services environment, in which market segmentation has occurred on a grand scale, with small and medium sized banks, loans specialists, and fintechs thriving, benchmarking against institutions of a similar asset size provides an incomplete picture. It is simply one metric and why settle for a slice when we can have the whole pie?

It’s no surprise that the likes of JP Morgan, Citibank and Goldman Sachs process a similar amount of loans per year, for example, but there are many areas where they may be being outperformed by smaller providers. If a medium-sized bank has processed more loans in February than the market leaders in a certain location, each of the larger providers are at risk of missing this if they are not benchmarking appropriately.

The way it should be

Data scientists are able to leverage thousands of data fields to provide more granular breakdowns of the competitive landscape. To stay with the example of lending, loan product information, lending activity, and customer demographics are just high-level category snapshots of many factors that might be considered. We can create thousands of features from the data we collect across these categories and train models that enable smarter benchmarking. We can benchmark across many metrics and obtain a full view of an institution instead of benchmarking on one common metric such as asset size. Additionally, as features change from day to day, we can recompute our peers at any interval we wish, providing us a more updated and real-time view of our competition.

The key to creating these models relies heavily on having access to the data from financial institutions. But these firms are understandably guarded when it comes to information that might be of use to their rivals. This is where third-party data providers and fintechs come into play.

Of course, a financial institution could collect benchmarking data itself, but the only benchmarking criteria it could use would be publicly available information if they do not want to send market surveys. Data on financials, employee sentiment, high level product information and usage, for example, can help them achieve a reasonable overview of their competition, but it would be a fairly unsophisticated one. To do the same for hundreds of organizations would also be no small feat and likely quite expensive.

Financial institutions need to re-assess the ways in which they benchmark themselves against their peers. Long gone are the days where asset size and static metrics provide insightful information for peer comparison. We must leverage the vast amount of data we collect to paint full pictures of institutions to truly find the best peers. Competition is what drives progress, so improving benchmarking will, in part, facilitate the evolution of financial services.