Data-driven Banking: Five trends to watch out for

The recent bank bailouts and buyouts have created an atmosphere of concern and uncertainty in the banking industry. Additionally, traditional banks face significant challenges amid changing consumer behaviour, an economic landscape still recovering from the impact of COVID-19 and competition from born-in-the-cloud challenger banks. In this increasingly demanding environment, bankers have the chance to fight back by investing further in their digitalization programs.

 Financial institutions have turned to AI, data analytics, and automation technologies to transform customer experience and automate repeated processes. With these tools, banks can supercharge their operations by delivering relevant data and insights at the right time and speed to the right people, optimizing and accelerating decision-making. At the heart of this transformation is data. Properly sourcing, managing, interpreting, and protecting data will be the key ingredient for banks to grow, manage risk and make strategic investments for years to come.

With so many opportunities and intiatives in play, here are five data-related trends that are shaping the future of banking.

 1.     Banks must create digital operating models fit for the modern customer experience.

For banks to remain relevant to a new generation of tech-savvy consumers they must focus on digital customer journeys and the evolution of how people are accessing and experiencing financial products and services. The agility that new technology brings has enabled banks to quickly launch new products and services, extend customer contact, make business processes more efficient, and improve connectivity with their ecosystem partners. For example, Open Banking protocols allow data to be exchanged (with the customer’s permission) among ecosystem players to drive greater value, benefits and innovative offerings for the customer.

Many traditional banks are making headway, including JP Morgan Chase, which recently announced plans to open a digital bank in Germany by 2025; Lloyds banking group, which outlined a three-year digitization strategy; and Santander, which is utilizing big data to drive customer experience and digital transformation. 

Deriving insights about customer experience will continuously enhance what this experience looks and feels like, creating a virtuous circle and, ultimately, increased customer loyalty. To make all this happen, banks must also re-assess their operating models: easier and better data integration, more efficient processes, faster response times and creating “plug & play” platforms make for a more resilient business and enable faster monetization of the available data.  

2.     Protecting data from cyberattacks will continue to be a top priority for corporate banks and their customers.

While banks move as quickly as they can to modernize their operations to deliver the desired outcomes, they must continue to adopt technologies with the latest security protocols.  The boardroom and C-suite will continue to prioritize cybersecurity, knowing that any breach would have a disastrous impact on their reputation and, by extension, their bottom line. The penalties associated with failing to secure the data entrusted to them as they evolve their business models are too great to take this matter lightly. Therefore, banks will continue to invest heavily to protect against cyberattacks, data breaches and financial crime.

As banks transform their businesses, they are increasingly partnering with financial technology companies to optimize payments, underwriting and app development. Some banks are even offering banking-as-a-service to fintechs, giving them the opportunity to take advantage of the bank’s charters and deposit insurance while providing more nimble services to consumers. However, it is essential that banks have the right cybersecurity controls in place to protect themselves and their customers’ data when partnering with less-regulated companies. Equally, fintechs looking to partner with banks need to prepare for the complex regulatory, cybersecurity and risk management obligations of banks if they are to establish a successful relationship.

3.     Sophisticated, secure identity management will help banks manage their cost base and personalize consumers’ day-to-day transactions.

Banking communities in Europe, the Americas and Asia are moving quickly to roll out new digital platforms. Digital Identity management is key to making them secure and efficient. Indeed, there is a great deal of interest in the work DXC Technology has done in Norway to implement and run the BankID identity scheme for the country. Relying on trusted and verifiable sources, BankID has dramatically increased the speed and reliability of validating identities and processing transactions across all areas of banking in Norway: from payments to account opening and asset transfers. This work has provided deep, data-driven insights into what is possible in digital banking when infrastructures, ecosystems and business processes align, and is helping lay the groundwork for tomorrow’s model.

Elsewhere in the market, secure identity management is facilitating moves like Western Union’s (WU) integration of Mambu into its new digital bank platform, which gives WU full control to deploy new banking products and services that are easy to configure and integrate with external applications. In a single native mobile app, customers can now open an account in minutes in what is being seen as a move to transform the transactional relationships WU has with its customers into closer customer-centric connections.

4.     Data will be at the heart of proving the effectiveness of sustainability investments.

All businesses, small- and medium-sized enterprises (SMEs) in particular – are transforming to ensure their operations are sustainable. The scale of the task can seem overwhelming. Banks help remove some of the angst by providing the critical financial vehicles to help SMEs on their sustainability journeys, as well as fund public-private partnerships that further the sustainability agenda.

As well as being the right thing to do and a key part of the corporate social responsibility banks hold, such investment will be increasingly welcomed by customers who are more discerning of sustainable business practices. Many banks are creating ecosystems that bring together a range of relevant organizations, including specialist ESG-related public and private finance suppliers. These platforms can provide and exchange the data required to monitor progress and create innovation. 

Demonstrating the impact of the banks’ contribution to such causes will depend on the ability to monitor, track, report and (therefore) adjust their initiatives for maximum effect. This can only be achieved with data: banks will invest in the proper tools, processes and reporting environments to manage the impact of their ESG-related investments effectively.

5.     Banks need to reinvigorate their hiring practices to ensure they are reaching the talent that can take them into the future.

There are multiple scenarios that impact staffing needs. These include:

• Increasing reliance on digital technologies
• Transitioning to platform-driven businesses powered by data
• Shifting focus from shareholder relations to stakeholder relations
• Renewing emphasis on purpose-led strategies

With such a wide range of issues impacting a bank’s day-to-day operations, proper staffing is as vital as it is nuanced, and requires upskilling existing staff and hiring to plug skills gaps and service growth areas.

Of equal importance are the expectations of the people being recruited. Younger employees work and communicate very differently to those who are used to historic “analogue” banking operations. To attract and retain the best talent, banks need to invest in practices and technologies that speak to this audience, and mirror the digital offerings being put to customers. Data gleaned through the recruitment process and employee staff surveys will ensure banks stay on track.

Conclusion

The banking industry is under renewed scrutiny. Not only are banks’ investment choices and business dealings under heightened oversight by regulatory agencies, but customers are being more selective about where they want to secure their personal finances. Banks need to seize the opportunity to securely digitize their operations, thereby improving offerings, controling costs, and enticing the next generation of banking customers.

From creating seamless digital experiences for customers, to securing their identities, investing effectively in ESG initiatives, and ensuring staff skill needs are met, the success or failure of financial institutions in the coming years will rest on their use of data.