Data can supercharge banking

There is probably no industry sector that holds more data about the public than the banks and financial services. Because it’s their business to know all there is to know about us. Or so you would think.

The fact that “challenger banks” like Bank Zero and Tymebank have emerged to leverage the digital revolution to cut costs and fine-tune consumer offerings tells us that the incumbents have left behind numerous gaps in the wake of staking their territory.

“The challenger ‘neo banks’ and new fintech providers have highlighted the untapped potential of entire segments of the market,” says Salomon Erasmus, regional head of strategic business development at FTSE-listed payments technology company Network International. “Not only have the traditional banks struggled to capture small business accounts, but they are also up against the powerful attraction of simple, admin-light offerings that come with low or no monthly fees.”

Once upon a time, in a fantasy world where the Big Five-or-so banks held a monopoly on serving the consumer’s wallet, it would have been absurd to ask if the giants could catch up with the small newcomers. Now, it is a critical strategic question. The answer is, yes of course. But not by throwing marketing budget at the market.

It’s more about throwing data at their own processes.

Says Erasmus: “When it comes to securing both the lucrative SMME sector as well as a consumer market more willing than ever to switch, finding ways to curate and personalise services will increasingly be the supercharger all competitors are looking for – and data will be the propellant to fuel it.

“Insights from internal and external data remains one of the most effective ways to address shifting user behaviour and deliver products that are tailored to what current and future customers actually want.”

Tell that to your bank. Cookie-cutter strategy still dominates customer strategy, and even the challengers are guilty. To ensure they operate cost-effectively and profitably, they limit the choices of customers, and apply rigid costing.

However, with artificial intelligence and machine learning going mainstream and being built into banking tools, it should soon be feasible to “build your own bank”, as Bank of America optimistically – and falsely – put it in the late 1990s. And the challengers are in pole position.

“While legacy banks are dealing with day-to-day technology and regulatory challenges and are, in many instances, still playing catch-up with their digital transformation roadmaps from before the pandemic, the more nimble players have been able to focus on developing services tailored to rapidly shifting customer needs,” says Erasmus. “And yet all financial service providers, both old and new, should be focussed on tapping into the rich information of the data at their disposal, rather than being weighed down by frustrating back-office  management.”

He agrees that our banks are some of the finest in the world, but they still do not have universal reach. Naturally, he advises banks to look outside for help.

“One of the ways the more nimble challenger banks have differentiated themselves has been through the use of customer data insights to help design and rapidly deploy new products.

“Traditional banking systems have been designed with stability, control and compliance at their core. Banks spend hundreds of millions of rands making sure their systems remain available. However, the pressure will only grow as transactional volume rapidly increases now that the Rapid Payment Programme has gone live.

“In an age of digital banking, technology leaders are focused on building cloud-ready, open banking-compliant organisations. This requires constant attention and leaves very few resources open to focus on the growth opportunities big data offers. Banking resources are consumed by day-to-day operations, and we know that finding the right skills to take advantage of new tech that is reliant on data, such as AI, requires scarce skills. The solution lies outside your bank’s walls.”

* Arthur Goldstuck is founder of World Wide Worx and editor-in-chief of Gadget.co.za. Follow him on Twitter on @art2gee