Bankers need to become more data centric in order to retain their right to win. Otherwise, the transformational business changes being made by others will chip away at their natural incumbent advantages. Fixing this requires bankers to securely blend data from a broader range of data sources. The difficulty here is that incumbents, in contrast to FinTech challengers have their data buried in siloes. At the same time, this data is typically poorly governed and secured only on a system by system basis. This prevents industry incumbents from taking advantage of the changes that are essential to a go forward ‘right to win’.
The advantages to incumbent bankers of breaking through these issues and getting their data act together include the agility to enhance their consumer intimacy, grow customer share, ensure regulatory compliance is met and business risk is minimized. Incumbents that do not follow through will, in contrast to their peers, experience the following business issues:
Higher operational costs
Slower rates of growth
Protracted and more expensive compliance with regulatory standards
Increased data privacy vulnerabilities
Disruption versus transformation
How are key banking challenges data related?
Looking at the industry, banking incumbents have 4 challenges where better data can give them competitive advantage against both emerging and existing FinTech challengers.
Business Growth: Incumbent bankers are seeing profit margins decrease as competition heats up and FinTech challengers vie to take their market share and as such, modernizing customer loyalty programs makes sense as a business objective for incumbent FSIs. Taking this step will allow incumbents to improve sales per customer and increase revenue. At the same time, it will allow them to increase customer intimacy while improving the ability to do both cross-sell and up-sell. Part of doing this means engaging existing and potential new customers in an omnichannel and digital fashion. This requires that incumbents know their customers regardless of which internal organizations owns them and that they have the ability to blend cross divisional data with social media data for predictive analytics. This necessitates bankers assimilating more data than ever before from origins where access is often governed only within source data silos themselves.
Operational Efficiencies: Bankers increasingly need to take cost out in order to invest in the disruptive technologies which improve customer engagement, as described above. Many FSIs, however, are finding it difficult to adopt cost saving technologies, especially public cloud. While these FSIs have experimented with private cloud, public cloud usage has been muted – even though it offers the potential for significantly reduced operational spend on shared service datacenters – on the basis that there is a lack of ability to control data once it reaches the cloud. Cloud is clearly about more than cost reduction. It is about increasing business agility and providing nearly elastic capacity. Security concerns have prevented bankers from taking advantage of all that the public cloud has to offer; for them, the ability to actively manage and control protection of data as it flows in and out of the cloud is vital.
Regulatory Compliance: To meet compliance requirements, such as those of PCI DSS, GDPR and GLBA in the US, PSD in the EU and the UK’s FCA, FSIs need to accurately report and show control over their data. These regulations at their core aim to prevent loss of customer data by putting a financial cost to the loss of customer information. GDPR in particular requires that data protection be designed into banking processes for products and services, by default, from their inception.
Data privacy: Clearly, unless data security is systematically governed and managed from the start, bankers risk losing the customer intimacy that is needed to grow their business. Data privacy, therefore, matters to financial institutions. Consumers are demanding greater control of and respect for their personal data and they expect that only those who need to can see their private information can access it. For FSIs looking to increase customer engagement, intimacy and loyalty, ensuring trust in their brand is integral to sustaining competitive advantage. As a consequence, avoiding cyber security attacks and data breaches which erode public trust and pricing power is essential to influencing market perception and protecting against reputational damage.
Is securing data potentially an incumbent advantage?
One FSI CIO said to me recently, “We are increasingly competing against all forms of FinTech challengers who cannot afford to do what incumbent vendors can to protect their data.” This CIO went on to say that as such, smart FSI CIOs will use data protection as a competitive advantage. Clearly, the opportunity for FSIs today is to get their data hygiene act together – those that are ready will be able to lead industry changes, while late responders will likely be acquired by others who have already embraced digital disruption.
As you can see above there are numerous challenges for incumbent financial services organizations, but there are also opportunities and winning FSI use things like data security to gain the upper hand and as an advantage over the emerging competition. To learn more about the opportunities and overcoming data challenges, please read my Financial Services Data Security Solutions white paper.