Editor's Note
Thanks to your love for the International FinTech Watch, this compilation is the first part of "Data" – A New Dynamic in Financial Services, an article published by the European Banking Association in February 2019 by Thomas Egna, Secretary General of the European Banking Association, and Marcus Rupcht, CEO of Fintech Traxpay. The article first introduces the great changes brought to the financial services industry by non-financial entities entering the traditional payment field under the trend of digital transformation, and then leads to the necessity and important value of banks to develop data analysis capabilities. The article points out that in order to give full play to the value of data analysis, banks need to increase investment in system construction to focus on developing three aspects of capabilities.
The following is the compilation of the previous article:
Global digital transformation is affecting all kinds of enterprises in different forms and sizes, and the important value of data is becoming more and more prominent. In its April 2017 report, Analytics in Banking: Time to realize the value, McKinsey predicted that by 2020, everyone on the planet will create about 1.7 megabytes of new information per second[1]. Such a huge amount of data is of great significance to the economy, especially the financial community.
For banks and other entities that want to enter the financial sector, the effective use of these data will be a decisive and differentiating factor in whether they can better meet the needs of customers. In a July 2017 article titled "Why Data Has Become Banks Most Important Commodity," published in the Global Banking & Finance Review, "In an increasingly competitive market environment, traditional banks must leverage data effectively and transform into data-driven organizations. Promote the development of knowledge banking. This will help banks launch better financial products and services to meet customer needs and expectations [2]. ”
1 Data analytics help banks strengthen their ties with businesses
In this digital transformation wave, some banks are panicking, while others see it as a transformation opportunity. These banks have built strong relationships with corporate clients and have begun to look at how to analyze and utilize the data they have collected to provide key strategic advice to businesses and help them obtain financing. Data analytics brings tremendous added value to this partnership.
Some banks have achieved good results in bank-enterprise cooperation, which not only improves the income of corporate customers, but also increases their own income. The aforementioned McKinsey & Company report cites a recent survey that found that "some banks have reaped the rewards of data analytics and are at the forefront of the industry." These banks have built a solid foundation for data analytics by building data lakes and centers of excellence (CoEs) and leveraging machine learning techniques. Thanks to advanced data analysis technology, banks receive an average of around €300 million in additional returns per year. Data analysis is gradually being integrated into the genes of banks, becoming a reflex action. ”
Data analytics capabilities enable banks to leverage high-value knowledge and actionable insights to improve efficiency and increase their own revenue by creating added value to corporate customers, so data analytics is becoming an increasingly important means of helping banks stand out. The European Banking Association (EBA) encourages its members and stakeholders to embrace innovation in payments and transaction banking, one of the philosophies that the EBA has been passing on to the banking industry.
2 Data analysis is a key element for banks to create internal and external value
EBA research has found that data analytics can create both internal and external (enterprise customers) value for banks. Banks are best placed to use data analytics to create internal value, such as improved product development, target marketing, precision marketing, operational efficiency, and improved risk management and fraud prevention. At the same time, data analytics may also lead to potentially high-value services.
When it comes to providing external value to customers, banks should focus on data that provides a unique value proposition for the business, which in turn may generate revenue for the bank. To truly benefit from this type of data, banks must focus on developing three competencies: (1) strengthening data analytics capabilities to make informed decisions and make recommendations through data analysis; (2) being able to both empower third parties to access internal data and use external data provided by third parties; and (3) developing the knowledge and skills needed to identify internal and external data sources.
To improve these three capabilities, banks need to invest more in systems, such as IT infrastructure architecture, while also focusing on upgrading staff skills and improving operational processes. The key to business success through data analytics is to find profit models, develop strategic partnerships, and take operational compliance into account.
To strengthen their data analytics capabilities, it is imperative that banks create centers of excellence to overcome the internal complexities that most banks have and provide leadership, cohesion, best practices, research, support, and training for important decisions.
However, the key to analyzing data to draw useful conclusions lies in the rational and thorough design and management of the analysis process, analysis tools, and algorithms. Ultimately, the data economy is not just about accessing relevant data, the quality of the data and the analytical algorithms, models, and tools used for data classification play a decisive role in the quality of conclusions and subsequent processes. As John Thornhill put it in an opinion piece in the Financial Times titled "Lessons from history on the dangers of blind trust in data": "There is a significant difference between 'big data' and large amounts of data. We should be particularly careful about what data is put in or excluded from a particular model, and what reasonable inferences can be drawn. The article cites a large number of cases, including credit scoring systems designed by some large Internet agencies. The Internet agency hopes to rely on a credit scoring system to accurately measure customer trustworthiness, but it is currently "difficult to build a reliable predictive model for different scenarios", so although the system's score is based on data from hundreds of millions of people, credit scores still cannot be used as a basis for lending.
While leveraging data may bring the most value to bank customers, banks can also create value in an area that seems to be only relevant to compliance: managing data access and customer authorization. In order to maintain the highest level of customer trust, banks must proactively manage customer privacy, including limiting the scope of use of customer data and implementing strict authorization management schemes, and informing corporate customers of the above data policies, but these are only the minimum standards of bank data management. In addition, banks can provide customers with centralized and convenient authorization management facilities and tools to create tangible value, and banks assist customers in managing distributed data asset authority, making the process of exercising data sovereignty easier and more convenient.
To avoid the typical many-to-many challenges in data authorization, the banking industry can even co-develop licensing standards and services for B2B2C and B2B2B environments based on its legacy digital identity and login account infrastructure. The General Data Protection Regulation (GDPR), the Second Edition of the EU Payment Services Amendment Act (PSD2) and Open Banking are already pushing banks to implement internal data authorization standards and services, with the next step likely to extend them to the broader economy. Similar to tech companies like Amazon, Google, and Microsoft that provide IT services to other businesses through the cloud, banks can also provide credit services to other sectors of the economy.
Vincent Brennan, EBA Vice Chair and Chair of the EBA Open Banking Working Group, said: "Our recent publication on Open Banking has been exploring the practical value of a data sovereignty model in which a party that uses an application or other service to collect and store data does not automatically gain access to data. We believe that banks have the ability to help customers centrally manage access to data collected through different applications, just as banks manage their customers' other physical assets in a very secure and reliable way. "The Open Banking Working Group is currently in discussions to identify a guidance document that will define the role of banks in laying the foundation for the data economy.
exegesis
[1]https://www.mckinsey.com/industries/financial-services/our-insights/analytics-in-banking-time-to-realize-the-value
[2]https://www.globalbankingandfinance.com/why-data-has-become-banks-most-important-commodity/
[3]https://www.finextra.com/researcharticle/32/clearing-and-settlement-the-new-battleground-for-payments-innovation
About the author
Thomas Egner: Secretary General of the European Banking Association (EBA). For more than 20 years, he has held various positions in the transaction banking industry. Primarily responsible for developing large-scale payment clearing and settlement strategies and participating in the implementation of the Single Euro Payments Area (SEPA) and the EU Payment Services Amendment Act (PSD).
Markus Rupprecht: Founder and CEO of Traxpay. He has accumulated extensive experience in the European and American banking industry and has a passion for technological innovation, proposing innovative solutions in the field of B2B payments.
Source of this article
European Banking Authority (EBA), February 2019
The European Banking Association (EBA) is an industry organization of 160 banks and non-bank members from Europe and around the world dedicated to promoting dialogue and exchange of experiences within the field of payments to achieve the pan-European vision of payments. The EBA encourages organization members and other stakeholders to engage in innovative thinking leadership and helps organization members understand and implement regulations, including by supporting the development of market practices. EBA has an office in Paris, France.
Translator: Liu Jialu
Source: European Banking Association
Gao: Chen Siyu
Editor-in-chief: Min Wenwen Zhu Shuangshuang
Academic Guidance: Yang Tao
This column is co-produced by the Fintech 50 Forum and the Institute of International Monetary Research (IMI) of Chinese University
The compiled article represents only the views of the original author
Edited by Li Ming
Responsible editors Li Jinxuan and Jiang Xu
Producer Zhu Frost
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