When discussing data, it’s easy to couch the issues in technical language. This makes it tempting to see data as an IT issue. However, data lies at the very core of what banks do; it represents their source of enduring competitive advantage and the effective use of data will determine success in the digital age.
An explosion of data – and processing
The amount of data produced annually is increasing exponentially, by a compound rate of 40%, according to McKinsey estimates. This is being driven by an explosion in smart devices and user-generated content. The same is true in banking. As banking digitises and payments move away from cash, data is mushrooming and customers are using their mobile apps far more than visiting branches. Data variety is also growing – banks now can gain contextual and social data on customers, for instance – and all that information can be turned into insights to drive more intimate customer relationships.
Today however, banks are doing little with their data. A Capgemini survey found that only 37% of customers believe banks understand their needs and preferences adequately.
In order to capitalise on their data, banks will need to overcome challenges, like:
- Tackling the prevailing mindset. Banks’ reputations rest on safeguarding customer assets. For many bankers, the priority is to lock down customer data to ensure that it isn’t compromised. While the privacy of customers must be maintained, this mindset will limit banks’ ability to leverage data to improve experiences.
- Data silos. Banks’ IT systems have been typically built to offer specific products and services and data is product- rather than customer-focused. The data is bound up in multiple systems with no conformity on semantic standards. Banks will need to solve this problem if they are to get data flowing easily
- Using unstructured data. Since few banks have a consolidated view of their structured data, trying to enrich it with unstructured might seem a challenge to far. However, the ability to do so would open new frontiers.
- To leverage the power of big data and the internet of things, banks need to capitalise on real-time data, and move off batch systems. With rapidly growing databases increasingly being queried, banks also need to consider how they store data.
- Banks are likely to see skills shortages. To draw meaningful insight from masses of data requires technology knowledge and business acumen, problem-solving and excellent communication. That's why it’s hard to find the right candidates and wages are high.
IT’s role is important
The IT team must provide the technological backbone for data, ensuring all is in a single model against which users can run interactive queries and visualise real-time outcomes. For many banks, this will be best achieved by a cloud-based model.
The IT team is also key for maintaining data security and should design it into the architecture from scratch. That’s why some companies are moving responsibility for security from general counsel to CIO. Another option has cloud providers run applications since they adhere to recognised data security standards.
However, most data does not reside with IT. Most customer data sits with the CMO, and there are other pockets across organisations. Further, IT doesn’t own all IT spending and data is too crucial to success for the CEO to delegate responsibility to any single department. The role of the Chief Data Officer, working for the CEO, is to bridge data silos, interpret business requirements for the CIO, oversee procurement and ensure data is paramount.
Realising experience-driven banking
Before the crisis, you were statistically more likely to change spouse than switch banking providers. But this is changing. Customers have choice. They have information. And, they are accustomed to the kind of rich, interactive experience afforded by e-commerce providers.
To retain customers, banks need to use data and analytics to bring value-added services. An EY survey found people would expand their relationship (or pay more) if providers gave expert advice, found ways for saving money and rewarded loyalty.
When financial providers combine this personalised service with other information, such as context and channel preferences, we begin to move into experience-driven banking. That is, using data to drive value-added insights and getting that information to customers at the time and place they need it, over their preferred channel.
A key advantage
Technology changes have reduced costs and opened the banking industry to new competitors and disruption. However, banks retain advantages, the most enduring of which is data. Banks have millions of customers and billions of transaction records. Google and Apple are spending billions on accessing the information that banks already have. It is now incumbent on banks to do something with this rich material.
 McKinsey & Company, “Big data: The next frontier for innovation, competition, and productivity”
 Capgemini Consulting, “ Big Data Alchemy: How can Banks Maximize the Value of their Customer Data?”