How Banks Can Compete in a Data-Driven Future
Banks’ futures depend on institutions’ ability to master three key things – customer experience, compliance, and storage.
While this may seem like an oversimplification, it’s hard to dispute the importance of at least the first two factors. Banks that don’t prioritize building and sustaining a happy customer base risk being relegated to the commodity pile. And those that fail to comply with stiffening global privacy rules risk fines, scandals, business losses or a combination of the three.
That leaves storage. While storage isn’t a measure of effectiveness, it is a critical enabler of success. Without a steady resource of dependable, accessible, affordable storage, organizations can’t make ends meet, never mind execute on aggressive business goals. This is particularly true for companies in financial services, arguably the most data-intensive sector in the global economy.
Data storage is growing exponentially across sectors. In 2007, the global capacity for data storage was 281 exabytes. That number increased 100-fold over the next decade, up to 33 zettabytes in 2018, and a report by IDC projected volumes would keep growing about 40% a year, hitting 175 ZB by 2025.
Data-hungry initiatives are going to continue to push storage needs higher in financial services. Finance has long been built on the ability to amass large amounts of customer data. But data collection trends have intensified in recent years. Customer experience and compliance needs are exploding, and applications ranging from blockchain to high-speed trading to advanced fraud detection all require huge amounts of data to operate at peak efficiency.
These evolving trends have pushed financial services organizations to reexamine the hierarchy of data and technology. In the past, processing was concentrated at the server level with more and more storage getting added on as data requirements grew. Today, storage has moved to the center of the wheel while servers play a more peripheral role in organizations’ efforts to meet the exponential growth in data mining.
No single factor has propelled the financial services sector’s use of data like the impulse to take care of customers. Banks, in particular, are in a constant struggle to differentiate themselves from competitors offering similar product lines – loans, savings accounts, insurance plans, money management vehicles – with similar terms. Rather than compete just on price, banks need to compete on smarts – tapping data to understand their customers better, convince them to buy more and do so at a better price point for the bank.
Banks also need data to level the playing field against a new set of competitors. Upstart fintech players are creating hyper-efficient, cloud-first businesses offering new apps, processes, products or business models – all online. These fintechs are raising the bar for customer experience, forcing banks to make more strategic investments in storage, data analytics, and overall customer service.
Data that used to be collected and regularly disposed is now retained for longer periods of time to ensure that banks have every angle of the customer relationship covered. This requires immense amounts of storage, access to third-party data and a highly agile mechanism for retrieving key informational nuggets exactly when they’re needed.
For example, segmentation of customers based on available data allows a bank to perform predictive analysis for a particular customer’s next purchase. The bank knows a targeted customer travels frequently – based on prior credit card purchases – so it offers a new card with miles benefits and discounts for airport services. The customer is pleased that the bank understands their needs and presented an offer that actually served a purpose.
Rich troves of data can unearth cross- and up-selling opportunities based on customer insights and current customer behavior. Surfacing the right data can trigger notifications in case, for instance, the customer has been investigating car loans on the internet, has an expiring term deposit, is living in a home that’s currently for sale or is renovating a house. The banks can meet the customer’s demands at the lowest cost point, maximizing the value of each transaction.
Regulatory pressure is forcing banks to collect, retain and report more data than ever before. Introductions of new regulations – everything from Basel III for leverage ratios to AML/KYC for anti-money laundering to FATCA for tax collections – force banks to disclose more granular information to central banks and regulators. Banks also have to collect data in a more controlled way, so they can report it automatically and also make it available in case regulators make ad-hoc inquiries.
Then there are the issues with privacy. While certain rules put a premium on information transparency, regulations such as GDPR in Europe go the other way. They force companies to get approvals before gathering personal data, shield certain data from oversight in certain circumstances, and spike other information when regulations stipulate that they do so. This requires banks to set up a particularly agile storage infrastructure with nimble controls. While data can be a valuable asset, it can also be a liability if it’s not handled properly.
Looking Toward the Data-Driven Future
Even before the pandemic shook global markets, banks faced an existential threat. Now the threat is escalating. Any bank that isn’t able to monetize data to the fullest extent possible – and do a good job storing it – simply won’t survive. Banks need mounds of data to keep pace with “new economy” players on the customer experience front. Any slip-ups, and their messaging will look old school, they’ll spend more per lead than their competitors and their attempts to “target” accounts will end up annoying loyal customers. Banks that fail to leverage the right data and report it correctly will struggle to compete.
Storage is key to this equation. Banks that create data-centric architectures that collect information, store it cost-effectively and make it available at the right time will gain a strategic advantage, now and well into the future.
About the author: Anthony DeLisio is the vice president of enterprise financial business strategy at Infinidat.