The Crucial Role that Data plays in Banking
Regulation and technology are constantly being regarded as the key drivers in banking and although, they play a crucial role, it is data and the ability of big data that is really driving the industry.
In order for regulation and technology to reshape the banking industry, there is a need to firms to rethink their foundations and business models and structures which puts data at the core of the industry.
Open Banking and Increasing Competition
The data held by banks is now more accessible which is driving digital change across the sector. More data is being generated than ever before and not just via traditional methods but the growth in social platforms has meant that data is being generated in many more places than in the past. Increasing use of digital means for economic interactions demonstrates the shift in how financial value is generated and banks need to be able to adapt their business models which focuses on big data if they are to survive this digital transformation.
Previously, there was limited data exchange within this industry due to decentralised business models but such business models are now a thing of the past. Centralised models are now in place whereby the government permit economic actors to be a part of their centralised framework. These actors are creating competition, driving technology innovation such as APIs and creating more data flows between consumers and businesses which is increasing the level of competition within in the industry but also driving the digital transformation currently taking place in this sector.
Data can be easily located and presented in a manageable way providing management with a clear view to all data – this can be used to identity potential risks and reduce risks. For example, fraud is one of the biggest problems faced in this industry but big data can be used to detect potential cases of fraud as well as prevent fraud happening. Additionally, an efficient data management system means that banks can easily control and manage the millions of records that they hold helping them to comply with compliance and regulation reporting.
Customer Segmentation and Personalisation
Data allows for greater speed, choice and simplicity to users during mobile/digital banking and the increase in access to data and increased competition in the industry will also mean an increase in volume, variability and diversity of data which can be leveraged to provide insights about customers. Banks can use big data to monitor their clients’ behaviour in real time – customer spending, key periods of spending and spending habits can all be monitored. This will provide management with insights to personalise offerings, enhance customer propositions and create more targeting marketing boosting profitability. For example, banks can learn about commonly used services, preferred credit cards and saving preferences which will help product marketing and client relationship building.
Banks have always known the benefits of a strong data management system as a means to reduce costs and increase operational efficiency but also to provide security for their systems against financial crime threats. However, with the technology innovations like blockchain and cloud computing, getting to grips with data is imperative and as competition increases and the amount of data grows, banks need to look to reshape their data management strategies as well as their business models to survive and compete.
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