Transaction Data is a gold mine for Financial Institutions

By André Casterman, Chief Marketing Officer at INTIX, the data management fintech. 

July 2017

Data has been hailed by futurists as the new economic asset of the information age and identified by regulators as critical to supervise financial markets. Financial institutions (FI’s) have understood the data opportunity too; however, given the many potential data-related obligations and opportunities, it is not trivial for FI’s to determine where and how to reap immediate benefits. FI’s therefore need to first determine their own data priorities and equip themselves with the right data management technology.

Regulators want financial institutions to become data-centric

Regulators require information / data management to be a foundational effort within all financial institutions for purposes of risk management and compliance reporting.

As an example, by introducing BCBS 239 “Principles for effective risk data aggregation and risk reporting”, regulators got banks to make major improvements in risk data aggregation capabilities and risk reporting practices. Following this, banks have recognised the benefits of improving their risk data aggregation capabilities and have worked towards this goal. They see the improvements in terms of strengthening the capability and the status of the risk function to make judgements. This leads to gains in efficiency, reduced probability of losses and enhanced strategic decision-making, and ultimately increased sustainability and profitability.

There are many other regulatory obligations that are getting FI’s to realise that data needs to be managed as an asset. Unlike other assets, data can be endlessly reused and contribute to various algorithms. Using it for regulatory reporting does not deplete it for other uses. As a result, the importance of actively managing data becomes more evident.

Transaction data is a gold mine to drive growth

Proper use of data is not only key to match regulatory requirements. It also helps drive a set of actionable insights and business outcomes for a wide spectrum of strategic goals – from revenue generation and new market development to enhancing the customer experience and improving enterprise-wide performance.

Transaction data, including transaction processing status and history, is quickly becoming the new gold mine for financial institutions as it:

  • tells where, when and how customers consume transaction services and how much revenue is derived from such activity
  • exposes vital information across all of the moving parts of the financial institution (e.g., systems, processes, relationships, reciprocity)
  • helps improve customer engagement, optimise service delivery and increase service profitability.

Practically though, it is easier said than done. In order to deliver value, transaction data needs to be collected, interpreted and brought in a timely, simple and global way. This is where back-office systems demonstrate their unique value as key data sources, in addition to being critical transactional systems. Experience though shows that internal systems are very hard to access and export information from.

Legacy systems are no obstacle, quite the contrary

All banks – whether large or smaller – rely on a complex set of internal systems supporting the end-to-end processing of cross-border payments, ranging from e-banking portals and channels, to connectivity software, sanctions filtering systems, messaging middleware solutions, core payment engines, interfaces to clearing systems and correspondent banks, … As a consequence, transactions (e.g., payments) initiated by their clients often go through a dozen of (or more) processing steps before being completed.

Legacy internal systems are often finger pointed as the source of rigidity and as a main obstacle to drive innovation; innovative technologies now help address such issues by increasing data accessibility and intelligibility. By combining such advanced technologies as APIs, big data / data management with the huge content residing in back-office systems, banks accelerate time-to-market of new data-driven services in a very cost efficient way. Let’s identify the business area’s that would benefit most.

Strategic areas in need of effective data management

As per below Figure 1, there are 4 areas that depend on enterprise-wide data management within financial institutions: regulatory compliance and reporting, business intelligence, customer experience, risk and audit.

All 4 areas require client transaction data as well as client master data and transaction event history logs to be extracted from various internal systems and to be combined so as to provide the adequate reporting and insights. Whereas system-specific reporting is often implemented within each silo’ed system, the actual user needs (whether internal or external users) are matched only when transaction data aggregation and tracking is achieved across various internal data sources and internal back-office systems.

Figure 1. Strategic areas and data management

Examples of typical use cases are as follows:

  • regulatory compliance and reporting: automated reporting for regulators (e.g., transactions, risks), ad-hoc reporting for regulators, …
  • business intelligence: enterprise-wide metrics and business intelligence on any type of transactions and events, client behaviour analysis, client revenue and business activity dashboards, correspondent banking reciprocity analysis, …
  • customer experience: free-text searches across systems, archives and transaction types, SLA monitoring and alerting, end-to-end transaction tracking including external feeds such as SWIFT GPI, investigation and claim management, …
  • risk and audit metrics: automated calculation of transaction-related metrics and SLAs, performance metrics, user activity monitoring (log file), data layer for external API access, …

By making use of your client transaction data within any of those business areas, you will make a huge contribution to internal users and external clients, without taking any business risk.

Fintech companies such as INTIX will bring such advanced data management technology, so you can increase Return on Investment on your internal systems and utilise transaction data to drive business growth.

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