Why aren’t banks making the most of data?

If data is the new oil, then the banks are the Exxon Mobil of the financial world.

“Your bank has the deepest and most personal dataset about you that any institution has,” says Ed Maslaveckas, chief executive of Bud, a UK fintech that connects apps and banks. “You might think Facebook or Google are scarily accurate, but the datapoints they have are a fraction of what your bank has.”

The quantity of data banks hold on individuals is so huge it needs “warehouses” or “lakes” to store or make sense of it. Yet despite this, bank customers rarely receive the kind of tailored offering that comes from other companies; data management in banking has a long way to go.

“Other industries are thinking far more holistically about their customers and their data,” says Falk Rieker, global head of IBU (international banking unit) banking at software multinational SAP. “Banks have optimised their data for functions such as know your customer or marketing, but they don’t look enterprise-wide. There’s no one to tie this data together.”

Why aren’t banks using data to make better decisions?

For most chief data officers within the banking industry, simply consolidating existing data is enough of a task to keep them busy. But, according to a recent white paper, Why data culture matters, from consultants McKinsey, the number-one takeaway when looking to improve is that your “data culture is decision culture… The fundamental objective in collecting, analysing and deploying data is to make better decisions”.

There are those who would argue a regulated industry such as banking has other commitments, with compliance playing a large part in banking data management. But Rob Casper, chief data officer at J.P. Morgan Chase, says: “If you simply rely on having huge quantities of data in a data lake, you’re kidding yourself. Volume is not a viable data strategy. The most important objective is to find those business problems and then dedicate your data management efforts towards them.”

Sadly for banks’ customers, the industry has had little need to make those efforts so far. Hans Tesselaar, executive director at BIAN, a not-for-profit association that was established to promote banking interoperability, points out that historically there was little or no competitive pressure on banks.

But with the advent of open banking, which requires the biggest UK banks to provide data access to other, licensed companies, banks will need to try harder to keep customers satisfied. “The whole idea [of open banking] was to increase competition and competition will be the trigger to accelerate data management. The banks are sitting on a goldmine of data, but are not monetising it,” says Mr Tesselaar.

What should banks be doing with current data?

So, what are banks able to do with their existing data? Reach out, says Mr Rieker, with offers of help or introductions to partner organisations, but only after understanding their customers’ actions better. “There’s a lot of talk about the ‘experience economy’,” he points out. “Banks need experience data. They need to understand not just what the customer has done, but why. They need to use experience data to find out what is really relevant to their customers.”

Your bank has the deepest and most personal dataset about you that any institution has

Consumers look to financial institutions for a variety of reasons, but key is help and advice for the problems faced right here and now. “What banks should be doing is helping and advising us in a unique way, that’s the challenge banks are working towards,” says Mr Maslaveckas. “It’s not about flogging us stuff, but optimising your life and your finances. The truth about money is that what I want is not to think or worry about it and that’s a complex issue.”

Security concerns causing banks to hold back

But for all the talk of personalised banking, there’s still a nervousness that it could also go spectacularly wrong. There are sensitivities around banking compared with other industries, where the more you can tailor your products to the customer, the easier it should be to close the sale. But, says Mr Tesselaar, finding out enough about your customer to make that uniquely personalised financial offer needs careful handling.

“You have to safeguard the trust,” he says. “People don’t care if Facebook makes them an offer; it’s part of the game. Or if some information is shared; the idea of Facebook is sharing, so you’re not that upset if it is shared further. But if my bank does it? That’s more sensitive and more subjective. I might not mind if everyone knows I’m sitting in a pub, but I might mind if they know I’ve just taken out a bank loan.”

Given the unique sensitivities around money, the industry needs to be particularly careful not to betray trust when it comes to data management in banking. Customers are unlikely to forgive the industry on this issue if it goes wrong. According to McKinsey: “An effective data culture puts risk at its core: a yin and yang of your value proposition.”

So any analytics needs to be scrutinised to ensure there are no ethical issues and no compromise with regulatory requirements.

Banks must learn to put customer experience first

The banking industry has the difficult job of finding out what its customers want before the customers actually know themselves. After all, for most of us there’s little attraction in comparing insurance quotes, unlike comparing white sandy beaches or the perfect trainers.

Banking is not generally an industry that runs on creating fashionable buzz around products or where cachet and status come into most people’s choices. We just want not to be bothered by the faceless suits.

Data management in banking has been so focused on regulatory compliance and security that converting customer data into customer experience has taken a back seat. But as margins shrink and new contenders enter the market, the pressure is on to squeeze greater value out of those untapped reserves.