Why responsible data use means better banking experiences

One concern that’s arisen during the Farage debanking scandal has been the question of how responsible banks are when handling our data and meeting their customers’ needs. Whilst the Farage fiasco has obviously given rise to concerns about the use and potential disclosure of data held by financial institutions, it is important to remember that data can also be a force for good. With the media diverted, it was very easy to overlook the FCA’s new Consumer Duty coming into force at the end of July - a milestone for the regulator, and a hugely positive step for the industry and customers alike.

The new regulations place even greater emphasis on the need for banks to put customers at the heart of their businesses. Yet to deliver on their commitments, financial institutions will need to harness data at scale to gain insights into customers and prove their products are suitable. As financial institutions collect more data, they also shoulder more responsibly for using that data in an appropriate way.

Trust and transparency around data usage will be essential. The banks that will lead in the future are those that lean into their role as data guardians and use data to improve every facet of their business. Yet with only 64% of firms reporting that they were ready for Consumer Duty coming into force – and over seven million customers a year are unable to obtain the information they need from their banks – it’s clear the industry has some way to go. So where do we go from here?

Data for product personalisation

Typically, FS firms set requirements for customers to qualify for products – think credit score, money deposited in the bank, or certain monthly spending thresholds. However, in the age where decisions are often automated, this results in a frustrating experience for many customers. Where once a bank manager would make a holistic decision to lend to a customer, an algorithm looking at a few data points can draw what often feels like an arbitrary line in the sand.

That’s where more effective tapping of wellsprings of customer information comes into play, with the use of well-structured data that cuts across departmental silos in banks. This can enable banks to develop a fully developed view of a customer’s current and historic financial state, and better understand their needs, risk profile, and product suitability.

Most excitingly this responsible use of data can enable FS firms to extensively personalise product offerings for individual consumers. Data on income, spending patterns, and assets can be used to automatically generate personalised interest rates, terms, and payment plans that align with a customer’s needs. The result is more affordable products for consumers, alongside risk mitigation for FS firms.

Along with the pure financial benefit for the customer and firm, personalisation of products also establishes a stronger base of loyalty and trust between FS firms and customers. This fostering of long-term loyalty will tie into marketing efforts, alongside personalisation – proper use of data can ensure that products are only offered to customers who are genuinely viable for products.

Data for early interventions

There’s also a significant degree of social good that can be done with proper use of customer data. The same information that can enable hyper-granular product personalisation can also be used to monitor and assist customers who may be facing financial distress – and those who are susceptible to it. By unlocking their information on facts like changes in income, customer assets, spending patterns, or credit obligations, firms can automatically identify vulnerable customers and provide timely interventions.

These automated approaches can flag customers who are both currently experiencing financial difficulties. These “early warning” systems then can help FS firms offer early assistance and support – such as forbearance offers, debt consolidation options, or payment holidays. By making these interventions early, FS firms can help ensure the best possible outcomes for consumers while also building loyalty and mitigating their own risk exposure.

Overhauling the use of data in FS

 Along with meeting regulations like consumer duty and maintaining short-term competitiveness in a market defined by rising rates, data for personalisation can prove a strategic asset for FS firms. With full use of customer data, banks and the FS industry are in a better place than ever to spot macro-trends early – ensuring the best deals for consumers, and avoiding embarrassments like the delays in passing on rate rises to savings accounts earlier this year. In fact, it could even help spur innovation by helping firms identify gaps in the market that could be exploited to unlock trapped value and create entirely new product categories.

Ideally the journey to break down data silos to enable strong personalisation in FS firms would have started long ago – but it’s not too late to start now. Alongside the commercial benefits to be gained by improved data use within banks, the Farage scandal has also reminded us that there can be some major reputational and regulatory risks if you don’t utilise customer data properly. That’s why the priority for any FS firm that wants to be competitive and compliant in this market is to modernise their systems to handle customer data more systematically, enabling insights on customers to be responsibly used across the whole of their organisations.