Turning Financial Messaging Data into Business Profit – the new challenge for financial institutions
André Casterman, Chief Marketing Officer, INTIX
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 developments such as the regulatory pressure as well as the criticality of business intelligence and customer experience are impacting banks more than ever. Financial Institutions (FI’s) 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.
Today’s challenges determine tomorrow’s needs
FI’s face a series of strategic challenges that will determine their own future:
- Regulatory compliance – between 2008 and 2013, US banks paid more than USD 100 billion in penalties and settlements.
- Business intelligence – turning data into a 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 problems.
- Customer service – Big Data and advanced analytics offer a transformative potential to predict the “next best actions” and understand customer needs.
- Risk management – 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 FI’s be able to face such obstacles and in a cost effective way? Which strategy will help them survive? (How) could technology support the new needs in this journey?
Digitisation and regulatory compliance are transformative
The Financial Services industry faces an unprecedented acceleration of digitisation and regulations which leads to a series of major impacts:
- The increased digitisation produces new electronic information, digital processes, data semantics and structures as well as new IT systems within FIs.
- The extended digital environment leads to higher complexity for staff to find and interpret information given the growing number of data sources.
- As critical information is siloed, enterprise-level reporting, decision-making, customer service and performance optimisation are impaired.
- Working across data sources can be tedious or impossible given the variety of data semantics in use.
- 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, senior management is unable to obtain an accurate and in-depth picture of the risks the bank faces.
- A siloed approach to information 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 FI’s for purposes of risk management and compliance reporting. This has led FI’s to recognise their need to become information-centric.
The information management challenge
Given the continuous evolution of their IT infrastructure and adoption of digital processes, FI’s deal with a myriad of systems and applications, all having their own software technology, access method, security, user interfaces, data semantics and structures, messaging formats, etc. This situation does not simplify the work of the business and operations teams who have to face such complex environment and rely on a series of unconnected tools to execute their daily jobs. Consequently, activities requiring access to customer and transaction details, as well as history and statistics are severely slowed down. Examples include handling of customer enquiries, reporting on transactions towards regulators, reporting on SLAs to clients, management information reports and so on.
FI’s must consider those challenges strategically:
- First and foremost, they must elevate information to its deserved status of strategic asset. This will help 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 in order to turn information to their advantage.
However, some barriers exist:
- 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 connecting various data sources and data sets, and delivering on the promise of information or data management.
FI’s, become master of your data
By conquering Big Data challenges, FIs will be able to draw a competitive advantage through enhanced strategic decision-making, improved customer service and effective risk management.
Information management technology and governance are key to break 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 FI’s to respond to the increasing requirements for compliance and reporting, it also provides the opportunity to turn such data into valuable insights and information for the customers’ benefit.
Information management tools will help financial institutions address a series of strategic objectives including: regulatory readiness and responsiveness; enhanced strategic decision-making; faster customer service; effective risk management. In sum, FI’s that become master of their own data will benefit from a competitive advantage which they will turn into business profit.