Maintenance is taking 77% of IT budgets

Big data has the potential to unlock revenue

Banks should focus their efforts on using data to provide better services to merchants, retail customers and other businesses – and they can build a more efficient business, according to a new report by Kurt Salmon and EFMA, the European Financial Management and Marketing Association.

The first step identified by the report, Payment innovation: maximising the potential of payment analytics, is to work internally. That means fine tuning and reviewing customer segmentation using factors such as lifestyle and familiarity with digital technology. It also means following commercial leads by analysing how customers behave and particularly how they spend.

Financial institutions already use data to check credit history and revenue against charges, but the report suggests that this can be deepened, especially in markets where a credit bureau does not exist. It also points out that preventing fraud by analysing payment behaviours such as the amount, the product type, the frequency and the context should help to detect potential fraud early on, protecting consumer trust.

Perhaps the most promising suggestion is to use dedicated reports to merchants to help them understand customer spending behaviour, both at the brand and at its competitors. Although some schemes such as MasterCard and Amex have already released products in this area, most banks are at an early stage. The factors holding them back are limits to the data quality and fear that retailers will not appreciate their data being used to benefit competitors. It is also difficult to generate direct revenues as there is strong competition from historical data providers, but some banks see it as a loyalty service for their merchant customers.

By using card-linked offers that use payment data, the ideal would be to give cardholders customised shopping deals and create opportunities for the merchant to launch a loyalty or acquisition marketing campaign using the bank’s customer base. This service already exists in the US with BankofAmericaDeals, and has achieved some success. However, the report notes that in Europe it is emerging more slowly due to the high potential risk to the bank image and tighter data privacy regulation. In the UK, banks are working individually on this, but the report’s authors suggest that the next few years will likely see more alliances to maximise the potential audience for merchants, especially as medium-sized banks may not have strong merchant relationships.

A third use for data is to use personal financial management tools to engage with customers. A lot of banks are already doing this, and the report argues that it is becoming a must have. It is a way for banks to promote their digital channels, although it can be difficult to generate direct revenues. It still remains to be worked out whether the best approach is to aggregate data including from the customer’s other banks or to provide reports based only on the data of the individual bank.

One further step would be to directly sell data to data provider specialists or other businesses. However, even when the data is anonymous, banks don’t generally see this as an appropriate move, as it is a risk to their imagine and has limited value since the real benefit comes from understanding the individual customer. The local regulators in some countries also prohibit it.

“Banks are having to adopt their offerings and identify new sources of revenue to compensate for shortfalls in their established business models,” said Patrick Desmares, chief executive of EFMA. “While many banks recognise the commercial potential of their payment data, they still need to figure out how they can take advantage of it effectively. The fact is that many initiatives are underway, but we are still yet to see how banks can really maximise the potential of their data.”

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