Data has always been an important commodity for many businesses, but as the digital revolution continues to transform the banking sector, the value of data has been elevated to a new level of significance.

If oil was considered the most valuable commodity at the start of the 20th century then data is rapidly becoming the 21st century equivalent. Banks have always held vast amounts of data inside their institutions, but historically, they have not been good at interpreting and extracting insights to monetise the value of this data.

With new regulations and increased competition soon to hit the market, this is set to change.

The drive towards greater competition and reform within the industry, led by the Competition and Markets Authority (CMA) in the UK and the European Union directive PSD2, requires banks to implement an Open Banking strategy.

Open banking brings bank data, customer data and third party providers together. This will transform the relationship between banks and their customers, with customer experience now at the heart of the new banking model.

To exploit data effectively, banks need to focus on three key areas. Firstly, they must identify how they can improve the customer experience through data. This means having appropriate messages, at the right time and context for customers.

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Secondly, banks must address customer segmentation through the use of ‘Fast data’. This will give banks a more accurate understanding of their customers and the context in which they consume services.

Finally, data should help banks bring value to their customers in terms of targeting appropriate products and services at competitive prices. This will be done in real time with the aim of enhancing the customer experience through the value of data, but also learning and understanding more about the customer.

The emergence of Cognitive Banking

In a world where we are witnessing the move from human driven cars to autonomous vehicles, a similar development is taking place in banking. We are seeing an evolution from banking to autonomous or cognitive banking, one where artificial intelligence and machine learning are changing the customer experience of financial services.

Cognitive banking is about having fast data and good User Experience and Interfaces (UX & UI) for customers. It also includes automatic or robotic artificial intelligence deployed in executing data quickly, accurately, cost effectively and predictably, thus significantly improving the digital banking process. In the world of digitalisation and the digital economy, cognitive banking expresses all the digital requirements and more.

As well as providing services in this way, banks must reach conclusions on the engagement strategy with their customer base, either directly or indirectly on real time data from multiple sources. This forms part of the cognitive banking process which encompasses the analysis, processing and production of insights resulting in new products and deeper more targeted customer value.

Banks and financial institutions are working towards establishing new business opportunities by identifying how customers consume and are made aware of products. Decisions can be made on which additional services can be offered to secure customer loyalty, along with understanding how banks should communicate specifically with individuals through applying more behavioural analytics to segmentation.

If banks apply greater machine learning and artificial intelligence techniques and technology, a far more personalised and focused message is created, one that is targeted more effectively and with the added benefit of improving each customer’s appreciation of what their bank can do for them.

Moving from Big Data to Fast Data

Deriving greater value and insight requires ‘Fast Data’. The defining feature of Fast Data is the rapid gathering and analysis of data in real time. It is about the ability to consume, analyse and execute on the insight generated from multiple data sources. Unlike big data, which focuses on storage, fast data is a consumption orientated view and provides a richer context in terms of analysis and decision making. This allows banks to provide a more enhanced and personalised customer experience.

The value of data

Faced with the prospect of increased competition from challenger banks and fintechs, the traditional bank must ensure it utilises data effectively. Speaking in 2015, Francisco Gonzalez CEO of Spanish bank BBVA said that data was the most competitive advantage that banks have. He added:

Banks should become data-driven organisations in order to deliver knowledge banking: new and better financial products and services based on information and better suited to every customer’s needs and expectations”

Traditional banks can extrapolate valuable data from their large established customer bases and segments – something challengers do not have. They can monetise this data and allow third parties to access segmentation information about their own customer base, detailing consumer behaviour.

This permissive data, which customers have agreed to share, is an important development. The opportunity to sell insights based on segmentation knowledge could become a profitable new revenue stream.

Christian Ball is Head of Retail – Atlantic Region, GFT