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Banks have always held vast amounts of data inside their organisations but their ability to interpret and extract value from this commodity is something they have historically struggled to achieve. With new regulations and increased competition soon to hit the market, this is set to change.
The Competition and Markets Authority (CMA) in the UK and the European Union directive PSD2 are driving banks towards implementing an Open Banking strategy. The aim of Open Banking is to improve customer experience through more competition between established banks and smaller challengers. This development will transform the relationship between banks and their customers, with customer experience sitting at the heart of this new business model.
Data gives established banks an inbuilt advantage over their smaller competitors. They must understand how they can improve the customer experience by exploiting the data they hold. It means learning how to interpret data that allow banks to communicate and send messages to customers at the right time and appropriate context. It requires them to address customer segmentation through the use of ‘Fast data’, which will give banks a more accurate understanding of their customers and the context in which they consume services. Data should ultimately help banks bring value by targeting appropriate products such as mortgages, loans and insurance policies at competitive prices. This will be done in real time and will help banks provide a more personalised and enhanced service to customers.
The emergence of Cognitive Banking
A more personalised form of banking is beginning to emerge through enhanced data analysis. This ability to extract more value from data through learning, understanding and analysis is leading towards cognitive banking; where artificial intelligence and machine learning are changing the customer experience.
Cognitive banking is about having fast data and good User Experience and Interfaces (UX & UI) for customers. It also includes automatic or robotic artificial intelligence deployed in executing data quickly, accurately, cost effectively and predictably, thus significantly improving the digital banking process. In the world of digitalisation and the digital economy, cognitive banking expresses all the digital requirements and more.
As well as providing services in this way, banks must reach conclusions on the engagement strategy with their customer base, either directly or indirectly on real time data from multiple sources. This forms part of the cognitive banking process which encompasses the analysis, processing and production of insights resulting in new products and deeper more targeted customer value.
Banks and financial institutions are working towards establishing new business opportunities by identifying how customers consume and are made aware of products. Decisions can be made on which additional services can be offered to secure customer loyalty, along with understanding how banks should communicate specifically with individuals through applying more behavioural analytics to segmentation.
If banks apply greater machine learning and artificial intelligence techniques and technology, a far more personalised and focused message is created, one that is targeted more effectively and with the added benefit of improving each customer’s appreciation of what their bank can do for them.
Moving from Big Data to Fast Data
Deriving greater value and insight requires ‘Fast Data’. The defining feature of Fast Data is the rapid gathering and analysis of data in real time. It is about the ability to consume, analyse and execute on the insight generated from multiple data sources. Unlike big data, which focuses on storage. Fast data is a consumption orientated view and provides a richer context in terms of analysis and decision making. This allows banks to provide a more enhanced and personalised customer experience.
The value of data
Faced with the prospect of increased competition from challenger banks and fintechs, traditional banks must ensure they utilises data effectively. As the digital revolution continues to transform the financial sector, the value of data has risen to a new level of significance. At the start of the 20th Century, oil was considered to be the world’s most valuable commodity. Today, data is rapidly assuming a similar position.
Banks need to become data-driven organisations to deliver cognitive banking. This will lead to new financial products and services based on information that are better suited to the needs and expectations of customers. The value of data elevates banking above and beyond that of merely a transactional arrangement to one that supports the lifestyle and interests of customers.