Data: Surely it is an IT issue, right? (Part 2)

Data is not generally seen as a banking issue, when in fact, it is one of the few, crucial advantages it has.

Ben Robinson argues that the banking sector needs to build on the competitive advantages it has, particularly around data, to deliver a better, fuller, richer banking experience for the consumer

New pathways ahead
However, the ability to do so would open up new frontiers for banks.

Consider, for example, a bank being able to enrich its existing credit scoring capabilities with information from social media such as recommendations.

Fourth, to really leverage the power of big data and the internet of things, banks will need to access and capitalise on data in real time, and move off batch systems.

With rapidly growing databases being queried at ever increasing rates, banks also need to consider how they store data.
Splitting read/write data from read-only data would be a good place to start since it would improve data management by separating the mission critical data from the mission sustaining data.

This separation would also provide far faster querying to accommodate increased look-to-book; and it would make transactions cheaper by using in-memory for the (reduced in size) read/write database.

Lastly, banks – like other industries – are likely to come up against skills shortages.

To be able to analyse, interpret and draw meaningful insight from massive amounts of data requires skills that combine technology knowledge (eg ability to use complex statistical models) with business acumen, problem-solving capabilities and excellent communication.

This is why it is hard to find the right candidates and wages are high – a recent report looking at the UK market found three quarters of “big data” jobs were difficult to fill and wages were twice the national average.

IT has a key role – but must work together with rest of organisation
The IT team must provide the technological backbone for the company data, ensuring all company data is in a single data model against which users can run interactive queries and visualise outcomes in real time.

For many banks, this will be best achieved through moving to a cloud-based model. The mainframe is a high performance computer, but unfortunately built for a world where storage and CPU were scarce and i/o abundant, which is the exact opposite of the current situation.

The IT team is also chiefly responsible for maintaining data security and should ensure this by designing it into the systems architecture from scratch. That’s why we are seeing some companies move responsibility for data security from the office of the general counsel to the CIO.

Another option – which runs contrary to much prevailing thinking – would be to have cloud providers run applications since they adhere to recognised data security standards, such as ISO 27001.

The move to self-assisted transactions with straight through processing will also help since, as NetGuardians recently pointed out to me, more than 60% of bank fraud is committed by internal users.

As crucial as IT’s role is, most data does not reside with IT.

Most customer data, for example, sits with the CMO, and there are other pockets of data across whole organisations. Further, IT doesn’t own all IT spending.

According to Gartner, CIOs typically only control 50% of IT spending today.

Also, data is far too crucial to the success of the bank for the CEO to delegate responsibility to any single department.

The role of the Chief Data Officer, a fast growing C-level position, working directly for the CEO, is to bridge the data silos, to interpret business requirements for the CIO’s team, to oversee procurement and to ensure data is top of mind.

A key source of competitive advantage
The banking industry is clearly undergoing massive structural change.

Technology changes, in particular in areas such as mobility and cloud, have reduced the cost of doing business and created alternative distribution channels that, in turn, have opened up the industry to new competitors and new disruptive business models.

However, banks retain several sources of competitive advantage, even in the digital age, the most enduring of which is data.
When it comes to data security, consumers rank banks higher than any other of their service providers.

This advantage may diminish over time, but for now banks enjoy a better rating than some of their emerging competitors such as online retailers (in which a mere six percent of consumers have a lot of trust) and social media sites (2%).

Adding to the data advantage is the fact that banks have masses of it. They have millions of customers and records of billions of transactions.

Google and Apple and other potential disruptors are spending billions of dollars on digital wallets and other means of getting access to the information that banks already have. It is now incumbent on banks to do something with this rich material, and not just utilise it for up- and cross-selling opportunities.

Realising the promise of experience-driven banking
Before the banking crisis, you were statistically more likely to change spouse than switch banking providers.
But this is beginning to change. Customers have more choice.

They have more information. And, they have become accustomed to the kind of rich, interactive customer experience afforded by e-commerce providers such as Amazon.

Bank customer attrition is therefore ticking up, especially among millennials who have the lowest levels of loyalty.

72% of millennials say they would be likely to move to a non-traditional banking provider (compared with 27% for those over 55).

Increasingly, to retain customers – especially younger ones – banks will need to use data and analytics to provide a more value-added service for their consumers.

An EY banking customer survey found that people would expand their relationship (or pay more) in return for providers giving expert advice, finding ways for them to save money and rewarding their loyalty.

Accenture found that 58% of millennials would like their banking providers to proactively recommend products and services that they need.

And, the success of new banking ventures such as Simple (acquired by BBVA), built around the concept of helping people to achieve their financial goals, demonstrates that people would like their banks to be more involved in their financial and commercial lives.

When financial providers are able to combine this kind of personalised service with other information, such as context and channel preferences, we begin to enter the realm of experience-driven banking.

That is, using data to drive value-added customer insights and getting that information to customers at the time and place they need it, over their preferred channel.

Imagine, for instance, landing at an airport and receiving a text to say that there is a sale in a store that you regularly visit and that if you use your debit card to withdraw cash at the airport there will be no commission charged. It’s going to be hit or miss.

Banking is at a crossroads
Digitisation is bringing major structural change including the opening up of the industry to new non-traditional competitors such as Google and Apple, which have cutting-edge analytical capabilities.

The industry can respond by building on the competitive advantages it has, particularly around data, to deliver a better, fuller, richer banking experience. Or, it can continue on a path towards disintermediation which will see it relegated to a role of providing highly regulated commodity back-office services.