Insights 29 April 2020

Data-driven Banking: Big Data Readied to Add Value to Banks

As the waves of digital disruption start to shake every industry, those who are slow or cannot adapt themselves to changes might be swept away or destroyed eventually. One of the industries facing this clear impact is Retail Banking. An extensive network, or reliance on multiple branches, may no longer be an answer for the successful operations. What we may see now is the banks having to step up to transform their strategies and strengthen alliance to cater to the fast-changing behaviors of the customers at present and to be readied to change the ways of doing work on an ongoing basis. 

Digitizing Work Processes for Starters

Banking business is considered to involve a complicated work process with large documentation. When entering the digital world, not only do we have to turn paperless, but we also need to adjust our work processes such that everything runs smoothly, and can be managed automatically within a short period of time with the minimal number of procedures required as everything goes online.  One example about a first step banks took in digitizing operations was the implementation of Internet Banking. Many applications have been developed to enable the customers to do transactions on their smartphones conveniently, as can be seen today. Digitizing not only helps reduce the complicated process, it also provides Data in the digital form that can be further used or applied more easily.

Once Consumers Have Fully Stepped into the Digital World

One of the technological developments implemented by banks in the earlier period was the electronic payment system called PromptPay, by which the transferor can transfer money to the recipient’s bank account number tied to their telephone number, helping reduce the difficulty in remembering the recipient’s bank account number. Nowadays, a growing number of PromptPay users can be seen and people are less worried about doing transactions via the digital system. Over the past 10 years, various FinTech firms have offered new technologies to the financial industry with the clear trend of increased users, such as e-wallet, cryptocurrency, or AI-based credit lending, which is based on the analysis of customers’ personal behaviors (personalization).    At this moment, banks can no longer give an excuse for not adjusting themselves, although there are some customers who still want to use services at physical bank branches. Any bank that still bases its success on this old feature and cannot develop a new system or feature or devise a new strategy in response to the customers’ changing behaviors is likely to stumble or be forced to lose its market share to other FinTech firms in the end.

Tech Company, A New Player to be Watched

Another challenge facing the banking industry is the need to pay attention to the big players or experts in using data and technologies like Tech Companies. Currently, many tech companies are becoming players in the financial industry in the category of Non-Bank. For example, Apple has developed a payment solution called Apple Pay or a credit card called Apple Card which has gained attention from numerous users. Another example is the debut of Ant Financial by Alibaba to expand footprints in the financial industry, allowing the granting of credit facilities without the presence of loan officers by adopting Big Data and AI to run data and assess the risks of customers before granting loans. In the past, banks gained advantages from their large customer bases, but nowadays Tech Firms also have large pools of customers and are gaining advantages in terms of the ability to apply technologies faster. It is therefore not hard for those firms to steal market share from the banks. In the future, we will be likely to see a trend of a new, small-scale bank that starts its business on a full-scale digital banking platform.

How can banks adapt themselves?

The answer is that if banks want to survive this era, they must take serious actions and proactively adopt technologies and apply big data to achieve greater efficiency. This is because banks are organizations that store a large number of data of customers which can be used to create value added. Also, the banks must seek new sources of information that can add value to the business, since the use of traditional data such as transaction data may no longer be enough to create any difference to the organization. In addition, the banks must not ignore the platforms that cover the different lifestyles in order to collect data of the customers’ behaviors. There are 4 primary suggestions as follows:

1. Identifying business issues based on “pain points” derived from the traditional ways of work: Businesses may identify current business issues that can be solved by the application of Big Data, Machine Learning, and AI technologies to achieve greater efficiency or work solutions. For instance, AI can be used to analyze and predict trends of increases of interest rates based on communications from the central bank; this allows banks to plan or manage their interest rate policies in the most efficient manner. Another example is the use of AI together with Geo-Spatial Analytics for planning of locations of ATMs, and closures and mergers of branches in an efficient manner.

2.Identifying new ways to create value added: Businesses can increase existing income or generate new sources of income by way of targeted marketing; customer segmentation and selection of the commensurate products; development of new products from insights gained from data such as new types of credit cards, loans, or deposits that better respond to market needs; customer interactions through personalization; and data monetization through, for example, creation of data products from financial transactions in which customer behaviors have been analyzed.

3. Strengthening alliance: This is another key mechanism to be readied for an open banking platform. What the banks need to prepare are:

(1) APIs to connect to applications and functions inside and outside of the business and the maintenance of API security;

(2) Creation of an eco-system with FinTech or business allies to create new innovations that lead to mutual business opportunities through an API platform; and

(3) Joint creation of services or products between allies as a key factor for expanding the scope of services to cover a wider scale of customers. This helps collect more information and leads to the development of a business model towards an open banking platform for further connection with data or functions of other retail service providers in the future through Open API.

4. Taking into consideration Data Governance and other applicable laws: For example, data security, data privacy, and rights of data owners shall be taken into consideration to ensure compliance with the Personal Data Protection Act (PDPA). Also, the integrity and quality of data shall be maintained to ensure the benefits directly gained from the further analysis of the data.

Regardless of the size of a bank or no matter how large its market share or customer base, the coming technologies can always be disrupting the existing work systems or strategies. What matters most in the era of digital disruption is how businesses can make best use of available data so that they can adapt themselves to changes and best suit their customer needs. Don’t think that a giant cannot fall. The bigger they are, the harder they fall (if they do not adjust themselves.)