The financial services industry's most significant competitive advantage is the customer insights that can be extracted from data. The key is using data-driven insights to improve the consumer experience, operational efficiencies, business processes and sales effectiveness.
According to Mike Cagney of SoFi, he is going to, “Do to banks with a smart-phone based model what Amazon has done to bookstores and Uber has done to taxi fleets.” Cagney believes there is going to be “a seismic redistribution of market cap in banking and they (existing market participants) will not see it coming until it’s done.” (“The Uberization of Banking” in the WSJ).
SoFi has already turned the banking model on its head by getting its money from investors versus passbook savers. And in contrast to organizations participating in the subprime crisis, SoFi uses data and advanced analytical models to cherry pick those within its book of loans.
Providing validation for the SoFi business case are analyst firms. These firms say that most banks have not yet realized the promise of emerging digital technologies. Analysts analysts say existing insititutions need to look at how transformative technologies can put them at the center of a customer’s life. As a part of this, they must prepare to overhaul their customer relationships and service proposition.
This includes using technology to change how borrowing decisions are made. Today, these can be based upon very specific, quantifiable criteria. With the potential of a total customer view it is possible to derive “perfect” or “near-perfect” financial decisions. Responding to the opportunity, Wells Fargo announced a business lending solution that could make a decision in a day including putting the money in the customer’s bank account.
To respond to the potential threat that Mike Cagney and other startups represents, existing banking providers need to take advantage of the opportunities in front of them to use data for business advantage.
1. Regulatory Compliance – Banks need to get control of an ever growing list of compliance requirements. Key to doing so is the ability to accurately report and show control over risk data. At the same time, banks and credit unions need to be able to not only defend their perimeter but also defend their data from cyber security attacks. If hackers get in, they shouldn’t get all your data.
2. Solution Alignment – Banks need to remake their product offerings so they are attuned to their customer’s needs. Not fixing this makes bankers even more susceptible to disruption and can lead to margin reduction as competition works to increase its revenue or sales at an existing player’s expense.
3. Marketing Readiness – Banks need to be able to increase up-sell and cross-sell. To do this, customer insights are needed. For many banks, operating in real-time has proved difficult because they are saddled with legacy processes and systems. The inability to operate in a real time, omni-channel environment will increasingly be the kiss of death.
4. Operational Efficiency – Banks need to continuously improve and create operational efficiency. Most often this means improving processes through advanced applications. Not fixing this is a business risk because legacy systems cannot necessarily support new business processes or desired customer centricity. Given this, change is needed. It starts by unlocking and reconciling legacy data siloes.
5. Disruptive Technologies – Banks need to create the operational efficiencies to invest in disruptive technologies. The problem is that too many banks have so far found it difficult to adopt cost saving technologies including all varieties of cloud technologies. At the same time, many banks struggle to adopt the new business capabilities needed to either play offense or defense with digital disruptors. This includes making sure their data is protected or making sure it generates the meaningful insight to drive better business decisions.
