Taking on Fintech in Its Own Backyard

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Richard Price, Head of FSI, UK&I with TIBCO

The Fintech market is growing at an incredible rate, reinventing the financial services sector as it goes. Valued at $20.4 billion as recently as 2019, the Fintech sector is projected to be worth $471 billion globally by 2027. 

The reasons for Fintech’s success are not hard to understand. Digital challengers, whether in retail banking, wealth management or capital markets, are free of bricks and mortar commitments and unencumbered by legacy IT. In consequence they are more easily able to offer today’s customers and investors what they want – greater convenience and a quicker reaction to emerging challenges and opportunities.

Traditional banks have in many cases been acquiring Fintech players in response to what they see as a mounting threat to their hegemony. But a preferable stratagem might be to watch and learn from these flexible and agile digital rivals, then convert those lessons into new ways of doing business. Fintechs are an excellent showcase for what is possible with modern technology, a living example that’s there to be emulated.

Most banks are already some way down the track when it comes to deploying solutions to extract value from customer-centric data. They have a theoretical advantage here over digital alternatives thanks to their wealth of customer data. But they haven’t always leveraged this data for maximum competitive advantage. In fact, in their quest for digital transformation, many banks have struggled to get a reasonable ROI out of what has usually been a heavy outlay on new platforms. The latest data warehousing solution will only get a bank so far if they are still depending on legacy IT and a backward looking culture. Having one foot in the past will leave them unable to handle today’s massive data volumes.

It’s time for banks to migrate away from legacy approaches, which focus on pooling data in centralised locations then mining it for insights. Instead they need a different tactic that uses data integration to gather insights directly from disparate sources. That way, they can actually exploit their data advantage and respond faster to both opportunities and threats, better mirroring what Fintechs are already doing.

Better data management delivers in many important ways, not least by supporting a bank’s sustainability agenda. Environmental, social and governance (ESG) goals are becoming central C-level concerns. Analysing data in more effective ways means you can make better judgements, not just in obvious areas like risk and capital adequacy, but also about what lending and investing might mean in terms of carbon footprint and impact risk. The right approach to data means banks can track the progress of their green policies. With socially responsible investment funds performing better than ever in capital markets, this makes great business sense as well as environmental sense.

Banks must wake up to a whole new way of dealing with data, one that is neither centralised, monolithic or tied in to inflexible and expensive legacy systems. It involves taking a more distributed approach called data mesh. A data mesh, or data fabric, is defined as a federated data architecture that treats data as a shared asset. This model lets organisations address today’s data challenges in a unified and organic way and does away with the effort and expense of moving data to a centralised location. It’s about democratising data at scale to provide business insights, taking banks closer to the full automation of intelligent decision making.

Let’s consider some of the gains to be expected from such a strategy:

Lower costs and improved risk profile

Monetary policies and macroeconomic and competitive forces mean that financial players are under significant pressure to reduce operational costs and drive efficiency by automating internal processes. PwC estimates that traditional financial institutions will need to reduce costs by up to 50% over the next three to five years to remain competitive. By the same token they must work harder to cut their exposure to a range of risks. They are showing an increased willingness to invest in the digital infrastructure they need to handle both rising costs and emerging risks.

A better and more consistent customer journey

Today’s bank customers no longer base their purchasing perceptions solely on product or price. Expectations are increasingly being based on the quality of interaction and flexibility in services offered. Plus consumers don’t want separate tracks for online and offline engagement, expecting the same outcome regardless of the channel they use. Only the right systems will enable this. Data from past interactions, as well as current internal and external sources, can help build customised solutions that optimise the customer’s journey. Financial firms need systems that can integrate customer data across different end-user platforms to guarantee uninterrupted service continuity and consistency.

Improved automation

Banks have been worried for years that by automating more of their services they will alienate customers who value a real human connection. By using data in the right way, banks can personalise financial interactions even where all or part of the interactions are handled via software. Orchestrated automation with innovations in artificial intelligence (AI), machine learning (ML), cloud computing, and the Internet of Things are also part of developing better business resilience through reliable risk management and operational stability.

Sharper analytics

Success in automation relies heavily on predictive data analytics. Although acquiring insights from a myriad of sources can be challenging and time-consuming, data governance can deliver a comprehensive view of the situation for timely decision-making. Automated data management and a decentralised approach to data collection can also sift through large data volumes to isolate low-quality, low-impact, or non-compliant segments, improving outcome accuracy.

Exploitation of APIs for better interaction

As digital transformation and customer experience take precedence in the banking sector, application programming interfaces (APIs) are gaining significant traction as the ideal tools for connecting with customers through value-added services. As a result, banks are increasingly experimenting with APIs, copying Fintech’s success in using them to facilitate customer, and partner, interactions.

Better security and resilience

Banks at all levels are grappling with mounting data privacy regulations amid increasing concerns of data breaches and ransomware. Thanks to the ever-expanding sea of financial data and increasingly sophisticated cybercrime activities, institutions have data security and privacy at the top of their list of concerns. Financial organisations must approach data security from a more holistic viewpoint. They need to understand the data they have, its value, and all the ways it can be accessed. That way, they can deploy encryption appropriately and develop a solid, thoroughly tested data backup strategy.

By decentralising data and taking a meshed approach, banks are acting to ensure their relevance with a whole new generation of customers, giving them less reason to churn to disruptive alternatives. Indeed, data mesh is already working for banks in the real world. TIBCO recently worked with a major Asian bank, KBANK, which was looking for a faster way to provide data for the enablement of mobile banking apps. Traditional data warehousing approaches had proved unable to deal with either the volume or the complexity of the data it was handling. Using TIBCO’s Any Data Hub framework, the bank could achieve its aims and enable digital lifestyle banking. Customers are now better able to perform all banking activities on a mobile device, based on the use of a single platform for hybrid cloud data access. The result was the stability it needed for higher performance apps, better maintenance and support, and flexibility, all without the time and effort of physically moving data into a single source.

Data is traditional banking’s secret weapon when it comes to appealing to tomorrow’s customers. But this means deploying a robust integration platform in order to gain the kind of insights that are needed to really understand and therefore satisfy customer demands.