By Abhishek Veeraghanta
Do you know where your data is? This has become a critical issue as banks are under significant pressure to understand their customers better. In today’s increasingly digital economy, consumer data is like gold. With data, companies can offer hyper-personalized services like tailored budgeting apps, loans and investment products that better serve customers. Understandably, there is a growing demand for access to this valuable asset.
It has become increasingly difficult for financial institutions to access their own customers’ data and, therefore, find ways to add value to their customer relationships. Not to mention, it is nearly impossible to aggregate customer data across disparate channels. This is partly due to financial institutions partnering with an assortment of technology providers over the years, whether for back-office needs, compliance requirements or to meet heightened customer expectations with more digital functionalities.
So, after implementing a new system or software, many financial institutions are left wondering: What is happening to their data behind the new technology? How are customers using certain product features? What correlations can be observed between financial institution offerings and customer behavior? Which customers are most likely to open a credit card? Why are your customers having trouble with online account opening?
These questions could be easily answered with data, but unfortunately, that data is likely siloed between different vendors’ systems with no real way of accessing or extracting it.
In the current market, banks often struggle with understanding the true source of data and in some cases don’t have access to the data’s audit trail. Between the various types and sources of data, such as customer data, transactional data, alerts data and external data, along with the generation of more data with each customer transaction and interaction, managing this intel across systems has become overwhelmingly difficult.
To illustrate, consider the following scenario. When updating and verifying a customer’s address, banks must keep this information consistent and updated across multiple systems. Any lapse in this information could lead to irrelevant marketing messages or service offerings being pushed to the customer. At worst, a gap in data can create an inaccurate risk profile for the customer, which could open the potential for fraud to go undetected.
Furthermore, siloed systems hindering the flow of data mean that banks have to deal with data duplication. This data is difficult to consolidate and when a bank has several thousand account holders, the massive amounts of duplicate data can pose problems. Banks have dealt with these data issues for years, especially since the 2008 recession. Following the recession, an increase in regulatory requirements led many banks to implement new software systems for the sake of compliance. Then, as banks sought to keep up with customers’ demands for new digital capabilities, more systems were bolted on, which exacerbated banks’ problems with accessing data and made it a challenge to best serve their customers.
Additionally, switching vendors is harder when data is held hostage. As it stands today, there is no standardized method for formatting and storing data, which means technology providers and financial institutions often approach data governance differently. This issue became increasingly apparent following the recession when bank mergers and acquisitions were at an all-time high, as consolidating account holder data and moving to a new system posed significant challenges. Many of those challenges still exist today. When switching to a new system, the process of migrating data into that new operating environment can be time consuming and expensive due to siloed channels and lack of data standardization.
While open banking models and APIs have gained traction in the financial industry, banks have been repeatedly called out for monopolizing customer data. However, some of the responsibility falls on vendors for limiting banks’ access to data. As fintech companies and solutions providers, we all should offer more transparency over how customer data is managed within the systems that banks leverage. Ultimately, this will enhance our products and ensure banks, as well as their account holders, maximize the value from those products.
Abhishek Veeraghanta is vice president, marketing and product management at VSoft Corporation. He has significant expertise in the banking industry with an emphasis on financial technology. He has product management experience from leading technology providers and holds a bachelor’s degree in Business Administration from Georgia Tech.