Investing in Data

financial service providers such as banks and insurance companies court small businesses with the focus and attention of a first love. But even giants such as Bank of America count on a long-term relationship as they look to get acquainted. And they should. Small businesses account for 99.7% of all employers, according to the Small Business Administration, Washington, DC.

Compiled data is vital to this process. The most obvious reason is that data compilers have a huge volume of names, which gives financial marketers broad-based marketing access. Orange, CA-based Experian, for example, boasts a file of 12.4-million names in its National Business Database.

Typically, financial marketers draw on their own databases to build a predictive model of the best potential customer. “If you have confidence in the model you’ve built, then you’re going to purchase names that fit the model,” says Kevin McKenna, co-chairman of the Credo Group, Princeton, NJ, an e-business advertising agency specializing in insurance.

As in consumer marketing, banks and insurers use direct mail, telemarketing and Internet advertising to reach small businesses. “The practice of profiling, segmenting and using statistical models to identify responsive and profitable segments of the small-business market is very close to what consumer marketers do,” points out Wayne Rosenberger, president of database marketing agency, DiMark in Langhorn, PA.

But instead of including consumer demographic segments such as age, income and length at residence, basic business-to-business demographic segments include SIC code, length of time in business, number of employees and annual sales, among other segments.

Insurers and banks are particularly interested in a company’s creditworthiness. They want to know what are the debt-risk factors – such as how many trade lines the company has and how promptly it pays its bills – and factors that indicate a business in trouble: tax liens, legal judgments, and UCC and bankruptcy filings.

Experian, for instance, offers the Commercial Intelliscore and the Small Business Intelliscore, which are predictive scoring services that provide a statistical ranking between 1 and 100 of a business’ credit-worthiness.

The compiler also features a way to match business data against the credit data of business owners who are in Experian’s prodigious consumer database. The Business Owner Link file is comprised of the names of business owners whose Personal Identification Numbers match the same PIN in the consumer database. The Link file only contains 1.5 million records, but an initiative to add to them is on tap.

“What public record information does is give the [marketer] the opportunity to make sure it is a legitimate business and they are conducting business in an appropriate manner,” explains Donald Jackson, chairman, Jackson Consulting Group Ltd., Middletown, DE.

Still, B-to-B lists are not as well developed as consumer files, experts complain. One big difference is that in the consumer arena, the U.S. Postal Service keeps track of who relocates where through the National Change of Address program, but there’s no NCOA in the business world. It’s even harder to keep up to date on small-business closures, which are alarmingly frequent. A huge percentage – 20% of small-business start ups – close their doors within the first or second year in operation.

“If there is an official closure, for example if a company went bankrupt [and there is something filed in the public record], that is updated monthly,” says Donna Sears, Experian regional director in Orange. Otherwise, the compiler must find out through more time-consuming means, such as noticing payments received by Experian’s customers have ceased (after 18 months of no activity, the business is removed), or by discovering the company is out of business when performing its annual telemarketing data update. Admitting that list hygiene is an imperfect science, Sears points out, “More than 87% of our files have corroborated data.”

B-to-B lists also lack behavioral information. “Sometimes a bank targets the sales manager when pitching corporate credit cards, but at that company, the CFO is the go-to guy,” illustrates Andrew J. Birol, president of Pacer Associates, Solon, OH. “When that happens, they lose the sale.”

“On the insurance front, you’re trying to drive a lead, and eventually it is the decision maker who is going to close a sale by speaking to an insurance agent,” McKenna points out.

Sears says Experian is researching what data pieces are most valuable to the end user and may launch a behavioral data service late next year.

Another trend influencing data is the merger-and-acquisition fever that has gripped the financial sector. Since 1998, there have been 565 insurance mergers or acquisitions with banks or other insurance concerns, according to the Insurance Information Institute, New York. Most of these were not the mega-mergers like the 1998 marriages between BankAmerica and NationsBank, which created Bank of America, or Citicorp and Travellers Group, which created Travellers Property Casualty Corp., allowing an endless array of product offerings.

Most are small banks and insurers looking for data to expand their niche or geographic reach. The law Congress passed last fall that reformed Depression-era banking laws sanctioned those mergers and offerings.

“The merged financial service entities are very, very rich in terms of the financial backgrounds of their customers,” says Dr. Robert Hartwig, chief economist of the Institute. “But these small and midsize banks and insurers are looking to tap into each others’ markets, so will be looking for outside data to help them become players in the market. I definitely think the demand for information will increase.”