We live in a world of data. Data is pervasive and plentiful and has, and will continue, to change the financial services landscape as we know it. Although the full extent of its impact is yet to be confirmed, the industry at large has already begun planning ahead to ensure they are not left behind in this ever uncertain and competitive climate.
To illustrate the possibilities inherent
Imagine a day in the not so distant future, when you are on the train on your way to work, you check a dashboard produced by an app on your phone that shows your spending patterns aggregated from all your bank accounts. It identifies that you are spending too much on entertainment and are falling short of your savings goal.
Fast-forward a couple of hours, and on your commute home from work you learn from a social media alert that a bank has a much higher interest rate on savings accounts than your current bank. You therefore use your mobile phone to go online and transfer your details and money in a matter of minutes to take advantage of the better deal.
This is data portability at its best but while it offers an ocean of opportunities for banks and customers, understanding the role of data portability regulation will be key to its continued successful implementation.
Changing Faces of Data Portability
The opportunities of data portability are multifaceted, depending on which hat you are wearing. From a client perspective, data portability enables ease of movement between service providers, allowing customers to seamlessly switch to a service provider with the most attractive offer.
For FinTech companies, agile and innovative by definition, but still operating in the shadow of large corporate financial services organisations, it enables them to analyse an enormous pool of historic data, providing insight into individual customers, services, and ultimately enabling them to provide a more competitive offering.
For large financial services corporations, data portability goes against everything the industry stands for: client data security before everything, so understanding how to regulate this transparency is key.
Regulation and Data
The ever changing and intrinsically complex relationship between data and regulation is key for banks and the wider financial services to understand and more importantly prepare for. There are a host of ambiguities regarding what exactly data portability is, how it is supposed to be implemented, and the ultimate issue of what constitutes client data and who owns it?
There have also been two major milestones this year which have questioned the status quo of regulation and data.
Firstly, the introduction of second Payment Services Directive (PSD II) earlier this year, which was a major milestone in the banking sector which has and will continue to have implications on the way businesses use customer data. PSD II aims to create a level playing field for all payment service providers, while enhancing security and customer protection. It also allows different sectors, such as Fintech companies, retailers, and social media platforms, that have previously struggled to add value to customers due to rigid banking structures, to directly engage with them.
PSD II is an updated version of the regulation that was originally implemented in 2009, and brings all new disruptive and innovative payment platforms under one regulatory umbrella. The regulation means banks have to open their payments infrastructure and customer data to licensed third parties, after receiving permission from customers. As a result of data sharing, PSD II will ultimately break the banks’ monopoly over user data, in turn creating more competition across the financial services sector.
The debate has rapidly continued to dominate headlines, as the latest data protection legislation, the EU General Data Protection Regulation (GDPR), is due to come into play in May 2018.
GDPR clearly defines client data as ‘data that helps directly or indirectly identify a client’, swinging data ownership in a client’s favour. GDPR also highlights data portability as an individual’s right, but ultimately falls short of showing exactly what it is and how it should be implemented by the banking industry.
The banking sector has had to prepare for the new processes to ensure they are able to provide a seamless and transparent service as result of PSD II and the pending GDPR deadline. The question is no longer purely about how ready banks are to embrace the new processes, but whether they have the right structures and means in place to facilitate the changes and remain competitive.
The question also arises as to what big banks and other organisations that sit on valuable client data need to do to prevent it from being used by competitors in becoming the market leaders and providing the best customer offering.
At Brickendon, based on our experience of working with a diverse range of clients, we believe going forward banks will need to employ top talent in areas such as regulation, data science, and agile transformation to stay ahead. Moreover, to enable businesses to adapt, it will ultimately be an exercise of working side-by-side with the client to produce a uniquely tailored approach to make the bank a top performer in an exciting, but ruthless and ever more competitive industry.
Organisations need to be innovative in the way they mine data and come up with new services to offer clients. To stay ahead of the curve, they should become agile to the extent that they can quickly replicate and adopt appropriate innovations brought to the market by their competitors. Organisations should review their data models, untangle data infrastructure and update the governance policies to clearly separate client data from proprietary data owned by the bank.
The goal should be to make it as easy as possible for clients to choose who they bank with, but ensure they are not bound for life by that choice. This a very important aspect of the customer experience which will allow new and former clients to join (or re-join) the bank and be integrated easily into their system.
Bill Gates was once quoted as saying: “banking is necessary, banks are not…” and there may have been more truth to his comments than anticipated.
The role banks play in the future of banking remains ambiguous and to some extent in their own hands.
The complexity of the road ahead is in effect a call to arms before the data portability issue officially hits the banking market. The role banks play in the future of banking remains ambiguous and to some extent in their own hands. It’s therefore important they consider how they manage the relationship between data and regulation change that will be key in ensuring their continued progression.
About Nathan Snyder:
Nathan is head of the US region with over 15 years’ experience delivering projects and change portfolio governance. He is responsible for the Data, Risk & Regulatory, and Quality & Testing practices at Brickendon.