Is data the new currency for the international banking industry?
The big question for all of us attending this year’s Sibos is clear: what is the real purpose of today’s banks? Established in the first instance to keep money safe and deliver profits to shareholders through smart investments, banks today need to provide new and valuable experiences to customers that extend way beyond core services – or risk losing customers to competitors that can.
There is no doubt that data is key to the current transformation of the banking sector, or that the infrastructure is now in place to support it. Data is the new currency of the digital age.
The ability to analyze, exchange and monetize structured and unstructured data in near real-time is possible – as is access to almost limitless, flexible processing power. Enabling customer communication from any device – but providing a contextual and seamless experience across multiple channels – can now be achieved.
One of the other notable enablers of this new world of banking is the platform economy. Familiar to all of us who use digital brands such as Airbnb, Uber and Amazon, a platform owned by a brand provides access to relevant third party products and services alongside its core services. In return for acting as host, the brand can use data gathered about customers across the whole ecosystem to create insights into behavior.
Such analysis unlocks an escalating ladder of maturity levels when using data to understand evolving customer motivations:
- Level one – What happened?
- Level two – Why did it happen?
- Level three – What’s going to happen?
- Level four – How can I make it happen?
To remain relevant in an ever changing marketplace, banks need to leverage this emerging data revolution to transform the service they provide to customers or risk falling into the background. As part of this, they need to build an ability to integrate different open data sets to create a unique proposition for individual customers.
Data can be derived from internal information, but then blended with other public data feeds such as social, weather, local events and traffic reports to create genuinely useful insights. The aim is to understand what combination of information, presented at which trigger points, increases a customer’s propensity to take out a new product or service.
Food online ordering firms like Grubhub in the US and Just Eat in the UK are taking control of restaurant brands, payment, customer relationships and loyalty. The restaurants themselves can either invest in building their own, single brand loyalty program or retreat to a physical presence, the one element of the restaurant trade that online ordering firms have no interest in owning.
New market entrants are chipping away at the outside of the banking industry in a similar fashion. In most cases, new Fintechs want to innovate from the outside-in and don’t concern themselves with the core and other banking services where banks excel. They want to find ways to create a better experience and capabilities for consumers to manage their finances holistically, not just those held with one bank. This creates significant opportunity for collaboration.
The speed with which consumers are increasingly able to switch banking services should also be a wake-up call. Millennials expect to be able to make a payment instantly or order a credit card on their phone and receive it in a couple of days. They don’t want to meet a person in branch or spend ages waiting to speak to a representative, preferring instead perhaps to seek advice from a chatbot, if any is needed.
The biggest challenges that banks face when responding to such velocity and changing expectations are the same as they have been for decades. IT is siloed and difficult to change, budgets are reduced, skills shortages are growing.
The good news is that there is a noticeable trend for banks to take their non-mission critical legacy systems and move them to the cloud. There is recognition that banks have the expertise and scale to create effective and collaborative platforms and that the days when IT ran the bank are over. A transition is underway where the CMO is taking over from the CIO and looking at innovation from the outside customer’s point of view.
There is also growing confidence that banks will begin looking at all of the players in their ecosystem to identify areas where they can co-create value and provide a better service for customers. Technology like Finastra’s newly launched FusionFabric.cloud will enable banks to open up APIs to legacy systems and create a new platform for innovation.
Going back to my original question: what is the purpose of today’s banks? Ask 10 people and you will probably get 10 different answers. But the chances are very high that every single one will involve a smarter use of aggregated data – the banking industry’s new global currency.
Visit Finastra on stand #G50