Turning financial messaging data into business profit
Long considered an impenetrable space dominated by a few, the financial services industry is currently riding a giant wave of entrepreneurial disruption, disintermediation, and digital innovation. Recent industry developments such as the regulatory pressure as well as the criticality of business intelligence (BI) and customer experience are impacting banks more than ever before. Financial institutions (FIs) are caught between increasingly strict and costly regulations, and the need to compete through continuous innovation. The competitive position of incumbent institutions is at stake.
André Casterman, ex-Swift and now chief marketing officer at Intix, provides his expert take on this new challenge for financial institutions.
Today’s challenges determine tomorrow’s needs
Banks and FIs face a series of strategic challenges that will determine their own future:
1. Regulatory compliance challenges – between 2008 and 2013, banks in the US paid more than $100 billion in penalties and settlements.
2. Customer experience challenges – big data and advanced analytics offer transformative potential to predict the “next best actions” and understand customer needs.
3. Business insights challenges – turning data into competitive advantage is nowadays seen as the holy grail. However only a few succeed to become masters of their own data and conquer big data challenges.
4. Risk management challenges – regulatory bodies now require information management to be a foundational effort within all FIs for purposes of risk management, however, the responsibility around data quality is fragmented and unclear within the organisation.
How will FIs be able to face such obstacles? Which strategy will help them survive? Can technology support new needs in this journey? How to tackle such needs in a cost effective way?
Digitisation and regulatory compliance are transformative
The financial services industry is facing an unprecedented acceleration of digitisation and regulations. This leads to a series of major impacts:
1. The increased digitisation produces new electronic information, new digital processes, new data semantics and structures as well as new IT systems within financial institutions.
2. The extended digital environment leads to higher complexity for staff to find and interpret information given the growing number of data sources.
3. As critical information is silo-ed, enterprise-level reporting, decision-making, customer service and performance optimisation are impaired.
4. Working across data sources can be tedious or impossible given the variety of data semantics in use.
5. The regulatory mandates make effective information management no longer optional; as per Basel Committee on Banking Supervision (BCBS) 239 regulation, systemically important banks (SIBs) must prioritise addressing gaps in their risk data aggregation and reporting (RDAR) capabilities. Without these capabilities, senior management is unable to obtain an accurate and in-depth picture of the risks the bank faces.
6. A silo-ed approach to data management raises non-compliance risks. Many banks continue to lack the high-quality data capture and aggregation processes full compliance requires.
Information whether based on structured and unstructured data is increasingly seen as the lifeblood of the business. Regulatory bodies identified this too and now require information management to be a foundational effort within all FIs for purposes of risk management and compliance reporting. This has led financial institutions to recognise they need to become information-centric enterprises.
The data management challenge
Given the continuous evolution of their IT infrastructure and adoption of digital processes, financial institutions deal with a myriad of IT systems and applications, all having their own software technology, access method, security, user interfaces, data semantics and structures, messaging formats and so on. This situation does not simplify the work of the business and operations teams who have to face such complex environment and who must rely on a series of unconnected tools to execute their daily jobs. As a consequence, activities requiring access to customer and transaction details, history and statistics are severely slowed down. Examples include handling of customer enquiries, reporting on transactions towards regulators, reporting on SLAs to clients and management information reports (just to name a few).
FIs must consider those challenges strategically:
- First and foremost, they must elevate transaction information or data to its deserved status of a strategic asset. This will help them ensure that data is actively managed on enterprise level for its embedded value to be realised.
- They also need to equip themselves with the right technology to turn information to their advantage and benefit the gold mine that transaction data represents.
However, some major hurdles must be overcome:
- Integration with legacy systems: many legacy systems make it difficult to extract data and may not be best suited for big data technologies.
- Connecting data silos: there is no uniform view of data and most organisations have not integrated disparate data sources given the complexity of the task.
Data integration tools are becoming key to connect various data sources and data sets, and to deliver on the promise of information or data management.
Become master of your data
Financial institutions that are able to address data management challenges will be able to draw a competitive advantage through enhanced strategic decision making, improved customer service and effective risk management.
Data management technology and governance is the key. The easy-to-use and complete suite of advanced data management technology breaks down the organisational silos that typically exist within financial institutions to provide a complete picture of an institution’s financial transactions and client information across a myriad of sources. Not only does this make it easy for financial institutions to respond to the increasing requirements for compliance and reporting, it also provides a business opportunity to turn such data into valuable insights and information for their customers’ benefit.
Data management tools will help financial institutions address a series of strategic objectives including:
- Regulatory readiness and responsiveness;
- Faster customer service;
- Enhanced strategic decision making;
- Effective risk management.
FIs that become master of their own data will benefit from a competitive advantage which they will turn into business profit.