Fintechonomics and the Future of Data
It is not a new concept that the customer is king. Nor is it a new concept that customer experience, cost and value of product will determine the ultimate success of the provider. And yet something has fundamentally changed. Access to data, and advancements in technology have altered not only the ‘how’ providers can and will serve customers — but also the ‘why’. The fact is that the ability to unite, analyze and share unfathomable amounts of data is, for the first time, allowing service providers not just a means to earn revenue — but tools to make people’s lives better. It’s what the customer of the future expects, needs and deserves — and it is changing the industries in which we work.
In financial services, FinTechs are basing their business models on this economic concept of holistic health for the consumer. In FinTech economics, or ‘FinTechonomics’, the ultimate goal of the sale of a financial service is to achieve the overall optimal financial health of the customer, and to improve their lives. This in turn creates the opportunity to sell additional financial, and other, services with the desired result being continued customer loyalty and economic longevity for the financial services provider. In this age of explosive data and transparency, if you are not providing your customer — retail, wholesale, corporate or commercial — the very best solution to achieve their overall optimal financial health they will understand that and leave for someone who can — you will be disintermediated.
To deliver holistic services that improve lives, however, means taking into consideration all aspects of a consumer’s financial health, in real-time, and digitally delivering a stream of helpful options, endlessly. To achieve that will demand an instantaneous, endless transfer of data, housed in a limitless, unified space, which is incessantly analyzed to create and deliver optimal solutions continuously. The new imperative to compete will be access to ‘full customer view’, and that little phrase is changing the way financial services institutions (FSIs) are running their businesses. To deliver this degree of customer service, at the lowest possible price, would mean the transformation of almost every business practice inside financial institutions today. It would mean a complete shift in the storage, use and delivery of data, to even dream of competing. It would mean changing business models and it would mean merging nascent cloud, cognitive and digital capabilities to provide unimaginable service. Is the Industry ready?
In this age of explosive data and transparency, if you are not providing your customer — retail, wholesale, corporate or commercial — the very best solution to achieve their overall optimal financial health they will understand that and leave for someone who can — you will be disintermediated.
Marginalized Before our Eyes
Let’s look at FinTechonomics in motion. Take Alibaba. Because this e-commerce giant built its business and its systems around the ability to achieve a full customer view, analytics were able to uncover that a lack of liquidity was causing major financing hurdles for small businesses, spurring the retailer to also become a private bank, and an investment fund. New services offered will allow borrowers to secure up to £50,000 for six months — and the approval takes only five minutes on-line. In addition, any data from the transaction will be filtered back to partner lenders to inform and improve products. The e-commerce giant says it plans to work with eco-systems, including financial institutions to realize their vision ‘To turn trust into wealth.’ The finance group, known as AFSG is expecting to finance over £100m worth of deals over a 12 month period.
IBM’s Pablo Suarez, Global Lead for Digital Banking says this, “There is no doubt that new services, like the ones offered by Alibaba, are marginalizing pieces of banking as we speak. Because of the way they are able to analyze their vast transactions knowledge, a provider like Alibaba can understand the real risk of a loan better than a bank. They then may well be able to offer more attractive terms in lending and trade finance. We also can’t forget the fact that Alibaba is in the business of amassing data to improve sales opportunities, so it will value and pay the customer for data, which further reduces rates. Their customer touch is constant and their digital design exemplary. All-in-all, a tough offer to beat for traditional banks in their current state.”
Do The Data
The only way forward is for global banks to provide the same level of service as Fintechs, and to achieve this they will need a full customer view. Without this important capability, FSIs will not be able to benefit from the history, and continued breadth, of customer information available to them, to serve all classes of customers. Streamlined and shared customer data will be absolutely necessary to achieve the extreme customization needed to access potential, essential new revenue streams. It is also the only way traditional banks will be able to plug into an open API economy. The fact is however, that the data warehousing and analytics used by financial services institutions today grew up just as fractured and silo-ed, as the underlying merged and acquired, lines of businesses that lie beneath them. FSIs are well aware of the problem and yet many continue to run parallel projects which are starting to prove short-sighted. Silo-ed data, and continued disparate analytics change programs may be the biggest threat for FS incumbants today.
Time to Move the Mountain
“Many people in the industry like to say it’s impossible or too costly to break down the barriers needed to achieve a consolidated customer view, for the world’s financial institutions. My response is — you have no choice.” comments IBM Big Data Specialist, Gerald Hayden. “Continued ad-hoc data and analytics projects will cripple transformation initiatives. In my experience, if you are able to move from the traditional vertical governance models used at most banks, to a horizontal governance model, which has as its goal one analytics architecture for the entire organization — the budget and resources are available and become clear.
“I encourage my clients to assign an Analytic Architecture Advocate. It is that person’s job to get all of the business heads in one room, and on the same page moving forward. Leadership has to commit to ensuring no further IT or analytics projects are approved unless they will support the goal of one overriding data analytic architecture to achieve a holistic view of customer. The biggest threat to incumbent players could very well be themselves. There is no time to lose on disjointed change programs.” says Hayden, “It’s time to get serious.”
Banks are waking up to this way of thinking. BNP Paribas, in a recent announcement reported that it will invest $3.2 Billion on a three-year transformation program to ‘build the bank of the future’ by improving its use of data to become more agile. The investment, which will also include projects to implement technologies like cloud, cognitive analytics, digitization and blockchain, is expected to generate $3.6 Billion in savings by 2020 and $3 Billion in annual reoccurring savings after that.
“Yes. The investments are huge”, continues Hayden, “but my clients that realize what it’s going to take to compete, and commit to this type of transformation are going from investment to ROI in 24 to 36 months. Not to mention the potential simplification of regulatory compliance.” But if financial institutions do not organize to take these steps forward now, as others begin to, they will find themselves in a race in which they may never catch up. “Now when I am asked by my clients to come in and improve one data base, or inject cognitive analytics into just one part of the organization — I teach them about FinTechonomics. Just like the clients I serve, if I don’t do what is best for the continued financial health of my client, I will be disintermediated. Instead, I go to the top of the organization and make sure they understand the importance of an enterprise wide data and analytics approach. We then take that discussion across business lines until we have an agreed awareness from all stakeholders, on what it’s going to take to move forward.”
Calling for Clouds
The first step to a consolidated customer view is cloud computing. Cloud solutions have been offered in one form or another over the last 10 years as a way of normalizing data sources to reduce cost and effort while improving agility, IT processes and resource scalability. But make no doubt about it — cloud technology is not just about storage any more. Major advances mean that cloud capabilities will determine strategies going forward, making decisions regarding choosing cloud platforms and solutions a fundamental choice in determining a firm’s success.
Sanjay Rishi, General Manager of Global Cloud Services for IBM says this, “If you are looking at implementing a cloud migration based on cost savings, you are already looking in the rearview mirror.” Cloud technologies are shifting the way in which we can use and share data so much, it is now an impudence for business model reinvention. Cloud services are not just about storing data — they’re about using the data. Increased space and reduced costs are absolutely necessary to compete, but cost savings like these will soon be parred and increasingly returned to the customer. The speed and agility with which you can access data from the cloud, and perhaps share it with others, will be the true differentiator. Just think of the sheer size of data yet to be realized as we continue on the IoT (Internet of Things) journey. The only practical way to organize and use that data quickly to catch the competitive edge, is through a forward thinking cloud strategy.”
“There’s plenty to think about when scripting your cloud strategy. On premises vs off — premises, private or public — and hybrid cloud programs will be unique according to the needs and uses of each FI. One thing is for certain though and that is the need for what I call ‘Iterative Implementation’. My clients with healthy cloud strategies are able to test proofs of value at each stage of the development process, and easily bring other API partners along for the ride. By embracing new design thinking and agile development approaches, clients are able to prove concepts in minutes vs months, delivering superior design and impressive cost savings. Industry leaders are already in talks to explore endless eco-system possibilities, and those conversations always begin with the ability to communicate linking cloud technologies with APIs. Staying out ahead of emerging cloud innovation is challenging but integral. If someone is trying to sell you a decade old cloud solution, I’d think twice.”
