The idea that big data and analytics will transform financial services has become an article of faith for the industry, whose leaders’ eyes light up at the size of the prize.
No wonder: the Centre for Economic and Business Research (CEBR) estimates big data will generate more than £26bn of additional economic benefit for the UK banking sector alone between 2015 and 2020, plus an additional £4bn for insurers.
But what if such a benefit proves illusory? What if financial services businesses find it impossible to grasp this value – not because it doesn’t exist, but because they are prevented from accessing the data required to unlock it?
In search of value
No-one disagrees with the argument that customer data – from the structured information that firms obtain directly from customers themselves all the way through to unstructured data scraped from social media and other sources – offers financial services businesses a powerful view of consumers’ financial status and habits. The open banking reforms of January 2018, moreover, promise to generate even greater insight into what people do with their money.
However, while customer data is proliferating and analytics tools provide ever-more sophisticated means to interrogate it, information that is off-limits to firms has no value. And there is good reason to think the volume of such information may soon balloon.
In part, this is because regulators and governments are increasingly anxious about data security and privacy. The General Data Protection Regulation (GDPR) that comes into force throughout the European Union in May 2018 is one manifestation of this anxiety, with provisions that will make it much tougher for all businesses to exploit customer data.
In the financial services sector specifically, the UK’s Financial Conduct Authority has repeatedly warned it believes firms’ use of data could result in customer detriment, and is considering how it might intervene.
Regulation aside, we are also now seeing something of a backlash from customers themselves, who increasingly recognise the value of their data and resent businesses seeking to exploit it. In an industry such as financial services, where trust is already in short supply, this may see consumers refusing to give permission to share their data. One recent survey found two-thirds of Britons would not share their financial data with third parties.
Building a new relationship
The combination of tougher regulation and increasing customer awareness spells trouble for financial services firms looking forward to bumper data dividends. They can no longer expect a free run at customer information; instead they will have to negotiate access to the data they desire, building consensual relationships with customers based on mutual benefit and trust.
Certainly, there will be times when customers are happy to grant access to their data, if they think doing so will secure them a better deal. An applicant for health insurance, say, might well choose to give providers access to the data stored in their wearable devices; someone who shows they run five miles three times a week can expect to secure lower premiums.
Equally, a mortgage applicant with a sub-standard credit rating might welcome the chance to show lenders their banking records if their transaction data shows they spend responsibly each month.
Winners and losers
In a scenario where people and regulators are increasingly cautious about data sharing, the implications of this are hugely significant. The financial services businesses likely to experience the greatest success in the future are those that make the best job of monetising customer data; but those businesses which do not build strong and trusting relationships with their customers will not have that data in the first place. They will find themselves eclipsed by rivals who have managed to secure that trust.
In which case, it is time for many financial services firms to rethink the way they work. Customer-centric businesses that put themselves in the shoes of their clients, designing services that people actually want and need, stand a much better chance of establishing a relationship than those that continue to focus on simply selling product.
Even better, businesses that leverage customer centricity to make smarter strategic decisions for the medium to long term – and invest in those decisions – can create a virtuous feedback loop that will power their growth.
If that sounds daunting, financial services businesses can take heart from the example of other industries that have made similar shifts. At Livingbridge we’ve worked with companies in sectors ranging from leisure to retail that have already begun to think in this way. In doing so, the opportunity is to exploit the disruptive power of data, rather than being locked out.