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September 14, 2017

Could big data failings cost banks their customers?

Banks are about to face a fundamental change with the arrival of PSD2, and innovation is essential to fend off the agile competition of emerging third-party service providers.

By Tom Ball

UK banks are still failing to enthrall consumers with new, innovative banking options due to lacking efforts to harness technologies such as big data.

Only 10 percent of UK consumers are satisfied that their banks equip them with useful information, with 68 percent simply describing the relationship as ‘transactional’.

This data has been presented in a report from the financial services advisory firm GFT, which makes clear that the lack of proactive innovation is leaving a massive amount of business untapped.

A massive 67 percent of UK consumers said that they would be encouraged to set up loans, mortgages and credit cards if tailored advice was provided. Adding to this, 55 percent would be happy to have their spending habits monitored if it allowed for disposable income advantages.

Christian Ball, Head of Retail Banking at GFT said: “With PSD2 soon to be implemented,

UK banks behind on big data with PSD2 looming

the drive for greater competition will bring bank data, customer data and third party providers together. Ultimately, it will impact the current banking model in two key areas. Firstly, the relationship between banks and their customers, as banks move to identify how they can improve the customer experience through data. Secondly, there is the opportunity for banks to grow market share and improve cost efficiencies through access to new customers via ‘marketplaces’, and with greater flexibility for how banks consume services.”

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The incoming PSD2 directive is set to disadvantage these UK banks by relinquishing their control over customer data. This means that they must innovate and bring new technologies into play to keep customers engaged amid the influx of new third-party competition.

“If banks are to thrive in this new banking ecosystem, they must focus on a wider range of data sources to enhance their understanding of the customer and their effectiveness in matching them to financial products and services. Top of the agenda for banks should be to improve customer segmentation through greater use of transaction metadata gained from a smart transaction manager and personal financial management (PFM) engagement, as well as considering alternative sources of insight, such as social media activity,” said Ball.

PSD2 will come into force in January 2018, leaving the established UK banks little time to adjust their approaches before the influx of innovative options made available by agile third parties.

‘Invest or lose customers’ – the real threat PSD2 poses to banks
Will PSD2 spawn a PFM revolution?
Banks vs fintechs: The battle is on

Jacob Laurvigen, COO and Co-Founder of automation software firm, Dexi.io, said: “Banks stand to gain by building a detailed and accurate picture of each customer to inform the products and services they offer. To do this effectively, they must be ready to work with ‘Fast Data’, quickly gathering, assessing and overlaying data from different external, web-based sources in real-time. Automating this process will guarantee quality and consistency, as well as delivering significant scalability and capability benefits over human manual data gathering, checking and cross-checking.”

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