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BIG DATA AND BANKING – WHAT ARE THE OPPORTUNITIES FOR ANALYTICS?

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BIG DATA AND BANKING – WHAT ARE THE OPPORTUNITIES FOR ANALYTICS? 1

By Matt Pfeil, Chief Customer Officer and Co-Founder, DataStax

While the hype around big data has been at an all-time high for the past couple of years, the reality is that software products are changing things all around us. This is not limited to the banking sector. Boring things in your house like thermostats and weighing scales are themselves becoming connected to the Internet, and businesses are developing around this use of personal data. As people want to run their lives better, they turn to products and companies that can help them make better decisions based on the data that they create.

For banks, this use of data represents a great opportunity too, but at a much bigger scale. In 2014, Gartner estimated that 73 percent of organizations either planned to invest in big data over the following 12 months, or had already started their implementations. The finance sector is leading the charge to deploy new technologies that help improve decision-making and the customer experience. In particular, banks are looking at how they can make more use of data for decisions in real time across both investment and retail banking operations.

This involves being able to answer very specific questions as they are asked. For example, should a customer be able to carry out a transaction, or is it a risky one that might be fraudulent? What impact does an individual trade have on the institution’s liquidity, and how do each of those trading positions interact with each other? What does the big picture look like for the bank in the market?

To answer these kinds of questions, IT teams have to consider how they can manage the huge amounts of data that they are creating at any given point, as well as how to bring this data together in order to support the new services in the first place. By using this data in real time, IT can expand the usefulness of existing services and support the development of new products for customers. This is important as customers want to use multiple channels to interact with their bank, shifting over to online and mobile services for day-to-day transactions alongside traditional in-person sessions when they are necessary.

Part of this approach comes back to how banks see themselves in the wider market. One CIO I spoke with mentioned that he did not see competition coming from other financial institutions; instead, he was looking at how Facebook and Google are planning new services that might enter into what was previously considered the remit of the banking sector. In response to this new kind of pressure, he was looking at how to keep ahead of these potential competitors, rather than direct competitors. Recommendations and user experience were therefore at the forefront of his thinking. In essence, this involves traditional companies taking the DNA of businesses that were born on the web and applying it to the business of banking.

Investment banking and big data – getting more real-time insight

There are currently two areas where banks want to use real-time data within their trading operations, pre- and post-trade risk analytics and financial liquidity analytics. Each of these is concerned with both the long-term impact of decisions, and with how specific decisions currently affect the bank. Looking at these areas requires both the “thousand foot” view that comes with huge data sets that have been acquired over time, and the ability to manage the individual transaction too.

For trading, being able to model the wider impact of decisions before and after they are made can help those trades become more profitable for the organization as a whole. Looking at the overall liquidity that a bank may have at any given point is a critical requirement for all institutions to consider. Big data is therefore essential to meeting these business requirements.

Following on from the financial crash of 2008, banks have to maintain much larger levels of reserves in order to cover their trades and lending. The introduction of Basel III and the guidance from the U.S. Federal Reserve will compel banks to hold more of their assets to protect against potential risk. They have to demonstrate that they are holding enough capital to cover their trading operations at any given point in time. Using big data, the trading desk has the potential to analyze how potential decisions can affect the bank, and show whether additional liquidity will be required. Over time, this will mean a potential reduction in the volume of capital and assets that the bank has to hold while still meeting the needs of the regulators.

Here, big data can support more efficient use of capital and assets while allowing the bank to show it is in compliance. While the implementation of more compliance regulation does mean that banks will have to hold more cash and assets to cover potential risk, this approach can lead to significant efficiency around how assets are used in order to generate profits over time.

Big data in the retail banking sector

Matt Pfeil, Chief Customer Officer and Co-Founder at DataStax

Matt Pfeil, Chief Customer Officer and Co-Founder at DataStax

So far, much of this discussion around big data has focused on investment banking. However, big data can be used in the retail sector too. There are two main areas for this: fraud detection analytics, and implementing new services that take different data sources into account as part of the offering.

Fraud detection is a huge area of potential investment for big data according to Gartner. While many financial institutions have forms of fraud analysis in place today, the reality is that these are often limited to one channel only. For banks that are stressing their multi-channel strategies and abilities at online and (more importantly) mobile banking, this is a potential gap.

Analyzing transactions for fraud across multiple channels, and in real time, is a compelling use case for big data. Banking IT teams can look at the experience that online retailers and e-commerce sites have in order to learn and apply similar approaches. The likes of eBay have to monitor transactions and behaviour for fraudulent activity in real time, whether the request is being made via mobile app, mobile web or online channels, for example. As these B2C companies operate at huge scale, banks can learn from their approaches and apply some of the same techniques for web-scale IT.

This approach is also being used around designing new services. Banking IT teams can collaborate with the marketing division to support the extension of mobile channels with data. A good example is location – while many people have used social networking sites like Foursquare in the past, location-based services haven’t been adopted in the banking sector. This is now changing, as mobile apps can include data like location both to improve the user experience, but also as part of the security around the device and service being used.

If organizations do bring additional sources of data into these mobile apps, then availability of that data is an important consideration. When using location-based data as a factor in deciding what service to offer, or whether a payment should be processed, the data itself has to be continuously available to the application. Otherwise, there is the risk that mistakes are made and the customer experience suffers. Considering availability is important for services that are online and mobile – customers expect those services to be available at all times, performing at the same level. Amazon found that every 100 milliseconds of latency translated to a 1 per cent drop in revenue; for banks, the availability and speed of their services will increasingly be a yardstick that they are judged by. If services are perceived to be lacking or slow, then customers will move their accounts elsewhere.

This shift to using data also has further implications for the business around data security. Banks have always been targets for hacking attacks, whether this is on the IT infrastructure side or targeted at individual accounts. However, with so much data available and stored by banks as part of their services, the risk from a data breach goes up. This makes it more important than ever that data security is in-depth, structured and well-managed.

Changing technology approaches

According to Gartner, 32 percent of banking organizations surveyed last year are already implementing this kind of solution. However, many IT teams are facing challenges in getting these big data implementations from initial projects into full production. This is mainly due to the complexities of working at scale. Traditional technologies like Relational Databases (RDBMS) and Data Warehouses are approaching the limits that they can work at. To cope with these new channels and applications, banking IT teams are turning to new technologies like NoSQL databases and Hadoop are needed to handle the huge amounts of data that their applications require.

NoSQL refers to a family of new database platforms that are designed to cope with the volume of data that banks are now generating and using within their decision-making processes. While Google and Facebook originally developed NoSQL technologies to deal with the extraordinary volumes of data they processed on a daily basis, platforms like Apache Cassandra  are now being used to bridge the gap around scale and availability that RDBMS platforms cannot. As the banking industry is now approaching the same scale and complexity, IT teams need to use similar tools in order to deliver results that consumers and enterprise clients have come to expect.

Alongside this, there is a general move over to using cloud computing strategies rather than more traditional big iron servers. The ability to scale up on commodity hardware is appealing as banks can manage their investments in hardware in a more linear fashion, making it more feasible economically to invest in supporting new services.

With all this change from a technology perspective, there are also organisational changes that have to take place too. Rather than looking at IT from a functional perspective, it’s important to look at how companies can manage their operations from a data perspective instead. This encourages much more cross-team and cross-function working, which can spur greater innovation and better service delivery for customers.

Looking to the future

Banks are looking at how they can make use of data to maintain their competitive advantage. This approach means that there is more emphasis on how to deal with data in real time and at scale. At the same time, IT teams are seeing what lessons they can learn from B2C services and web-scale organizations. As businesses seek to become more data-driven, new platforms that can provide the necessary scalability, availability and speed will prove crucial to these efforts. The time has come for technologies like NoSQL to meet these needs.

Matt’s bio:

Matt is Chief Customer Officer & Co-Founder at DataStax. The company supports the delivery of Apache Cassandra to enterprise environments. Prior to DataStax, Matt built and managed the Email and Apps infrastructure development group at Rackspace.

Prior to Rackspace, Matt was at Webmail.us where he worked in various management roles in infrastructure and scalability. Matt holds a BS from Virginia Tech in Computer Science.

Banking

‘Act big’ now to save economy, worry about debt later, Yellen says in Treasury testimony

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'Act big' now to save economy, worry about debt later, Yellen says in Treasury testimony 2

By David Lawder and Andrea Shalal

WASHINGTON (Reuters) – Janet Yellen, U.S. President-elect Joe Biden’s nominee for Treasury Secretary, urged lawmakers on Tuesday to “act big” on coronavirus relief spending, arguing that the economic benefits far outweigh the risks of a higher debt burden.

In more than three hours of confirmation hearing testimony, the former Federal Reserve chair laid out a vision of a more muscular Treasury that would act aggressively to reduce economic inequality, fight climate change and counter China’s unfair trade and subsidy practices.

Taxes on corporations and the wealthy will eventually need to rise to help finance Biden’s ambitious plans for investing in infrastructure, research and development, and for worker training to improve the U.S. economy’s competitiveness, she told members of the Senate Finance Committee.

But that would only come after reining in the coronavirus pandemic, which has killed over 400,000 in the United States, and the economic devastation it brought.

Yellen, who spoke by video link, said her task as Treasury chief will be to help Americans endure the final months of the pandemic as the population is vaccinated, and rebuild the economy to make it more competitive and create more prosperity and more jobs.

“Without further action we risk a longer, more painful recession now and longer-term scarring of the economy later,” she said.

Yellen said pandemic relief would take priority over tax increases, but corporations and the wealthy, which both benefited from 2017 Republican tax cuts “need to pay their fair share.”

She raised eyebrows of some senators and Wall Street when she said that Treasury would consider the possibility of taxing unrealized capital gains – through a “mark-to-market” mechanism – as well as other approaches to boost revenues.

DEBT BURDEN

She also that the value of the dollar should be determined by markets, a break from departing President Donald Trump’s desire for a weaker U.S. currency.

“The United States does not seek a weaker currency to gain competitive advantage and we should oppose attempts by other countries to do so,” she said.

Wall Street stocks rose on Tuesday in reaction to Yellen’s call for a hefty stimulus package, as well as to positive bank earnings updates. Oil prices also rose, while Treasury yields fell slightly on her comments that parts of the 2017 tax reform should be repealed.

Biden, who will be sworn into office on Wednesday, outlined a $1.9 trillion stimulus package proposal last week, saying bold investment was needed to jump-start the economy and accelerate the distribution of vaccines to bring the virus under control.

Asked what outlays would provide the biggest “bang for the buck,” Yellen said spending on public health and widespread vaccinations was the first step. Extended unemployment and nutrition aid, better known as food stamps, should be next, she said.

“Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big,” Yellen said.

She said even though the amount of debt relative to the economy has risen, the interest burden – the amount the Treasury pays to service its debt – has not, due to lower interest rates. She said she will watch that metric closely as the economy recovers.

NEW CLIMATE POST AT TREASURY

Yellen also called climate change an “existential threat” to the U.S. economy and said she would appoint a senior official at Treasury to oversee the issue and assess systemic risks it poses to the financial system.

She added investment in clean technologies and electric vehicles was needed to cut carbon emissions, keep the U.S. economy competitive and provide good jobs for American workers.

Yellen said China was the most important strategic competitor of the United States and underscored the determination of the Biden administration to crack down on what she called China’s “abusive, unfair and illegal practices.”

Asked whether China had committed “genocide” in its treatment of Muslim Uighurs as the Trump administration declared in a last-minute proclamation, Yellen said China is “guilty of horrendous human rights abuses, yes.”

Biden’s transition team urged the Senate to move swiftly to confirm Yellen. Democratic Senator Ron Wyden, who will lead the Finance Committee after Biden’s inauguration on Wednesday, said he would push for a confirmation vote on Thursday. Republican Senator Mike Crapo said he would work towards an “expeditious” confirmation for Yellen.

She also received the endorsement of all former Treasury secretaries, from George Schultz to Jack Lew, who urged senators in a letter to swiftly confirm Yellen’s nomination to avoid “setting back recovery efforts.” A spokeswoman for Treasury Secretary Steven Mnuchin, who steps down on Wednesday, did not respond to a request for comment.

(Reporting by David Lawder, Andrea Shalal, Ann Saphir and David Shepardson; Additional reporting by Trevor Hunnicutt; Editing by Heather Timmons, Andrea Ricci and Kim Coghill)

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Banking

Open Banking: the perfect pandemic tool – Equifax comments

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How the application network unlocks open banking’s future

With COVID-19 related financial fallout set to dominate the credit landscape in 2021, Dan Weaver, Open Banking Expert at Equifax UK, believes Open Banking solutions can provide lenders clarity in a sea of uncertainty: 

“With lockdown once again in place across the UK, it’s clear 2021 will be a year of extreme financial flux. While the vaccine roll-out programme will provide an economic boost and eventual easing of restrictions, forbearance measures, such as mortgage holidays and the government furlough scheme, will be wound down. This will lead to income shocks for many, and the potential for a nationwide surge in personal debt.

“With the third anniversary of its implementation today (13 January), Open Banking is entering a new mature phase of its development. The initiative’s credentials are now widely established, offering creditors the perfect pandemic tool to assess the most accurate picture of an individual’s finances.

“Consider someone who has just returned to the workforce after being made redundant or placed on furlough. Traditional credit bureau or legacy data alone would not always provide potential lenders with the most up-to-date information on their current financial circumstances and ability to repay credit at the point of application. Open Banking platforms, through customer consent, pull live data directly from the user’s bank account, allowing creditors to make an informed, responsible and fair decision about their current affordability on the most recent data available – a game-changing factor amid such widespread financial upheaval and rapid change in people’s circumstances.

“Open Banking is a tool for our times and it’s vital more credit providers, not just big banks and finance but utilities, insurance, auto and telcos companies, accelerate its adoption. Throughout our society and economy in the past year, we’ve witnessed feats of great innovation, executed at rapid speed. In 2021, we need to apply this transformational energy to the Open Banking landscape, slashing the time it takes for creditors to test protocol and fully set up their solutions.

“Three years after its arrival, we’re seeing Open Banking platforms improve digital, real-time income verification rates by more than 25% * – which is no mean feat. If an industry-wide, mass acceleration strategy was successfully achieved in 2021, it would prove extremely valuable and timely, and lead to better customer and creditor outcomes throughout the credit space.”

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Banking

Over a quarter of Brits now have an account with a digital-only bank

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Over a quarter of Brits now have an account with a digital-only bank 3

Over a quarter of Brits now have an account with a digital-only bank 4 The number of Brits with a digital-only bank account has gone up by a percentage increase of 16%

Over a quarter of Brits now have an account with a digital-only bank 5 Almost 1 in 6 Brits (17%) plan to open a digital bank account over the next 5 years

Over a quarter of Brits now have an account with a digital-only bank 6 The top reason for opening an account was the convenience of banking online for the third year running

Over a quarter of Brits now have an account with a digital-only bank 6However, 16% of traditional banking customers who aren’t planning to switch said their bank had been helpful during the COVID pandemic

Currently over a quarter of Brits (27%) say they have at least one bank account with a digital-only bank, according to personal finance comparison site finder.com.

This is a percentage increase of 16% from last year when 23% of Brits said they had an account with a digital bank. It is also over 3 times the amount of Brits who had one in January 2019 (9%).

Finder’s 2019 research found that 24% of Brits intended to have a digital-only account by 2024. However with 27% now having an account, Brits have gone digital 3 years earlier than expected.

A further 17% of Brits intend to join them over the next 5 years, with 11% planning to do so over the next year. This could mean that 44% of Brits could have an account with a digital bank by 2026. If this percentage were applied to the UK adult population, it would equal almost 23 million people.

The top reason for opening an account continues to be convenience that digital-only banks provide, for the third year running (26%). The second most common reason was that users needed an additional account and setting up a digital account seemed to be the easiest option (20%). Customers also wanted to transfer money more easily (19%), making this the third biggest priority.

People wanting a trendy card is still driving signups as well, with 1 in 10 (10%) existing, or future, customers citing this as a reason to get an account.

Despite the increase in digital-only banking customers, the numbers who aren’t considering one have actually risen. Last year, 23% of respondents said they aren’t considering a digital-only bank account, but this has risen substantially to 42% in the latest survey.

This is likely a result of increased customer loyalty, 58% of those without a digital bank account said they felt as though their incumbent bank had treated them well and therefore had no desire to open a digital bank account. Additionally, 16% felt as though their incumbent bank had performed particularly well during the pandemic.

Over a third (36%) of those without a digital bank account said they had not decided to bank with digital providers because they preferred to be able to speak to someone in branch.

Digital banks are still most popular with younger generations, 46% of gen Z say they currently have a digital bank account, with a further 28% intending to get one over the next 5 years. This would mean that by 2026 just under three quarters of gen Z (73%) could have a digital bank account.

To see the research in full visit: https://www.finder.com/uk/digital-banking-adoption

Commenting on the findings, Matt Boyle, banking specialist  at finder.com said:

“This research shows that digital-only banks are here to stay, with the number of users in the UK rising for 3 years straight. On top of this, Starling and Revolut announced this year that they have made a profit for the first time, really demonstrating that digital banks are starting to become a serious part of the banking furniture.

“The pandemic has also played a role in the rapid digitalisation of the banking industry, with those who had never experienced online banking having no other choice but to take their finances online. It seems that Brits are starting to realise the convenience that can come with digital banking and this is reflected in our research.”

Methodology:

Finder commissioned Censuswide on 6 to 8 January 2021 to carry out a nationally representative survey of adults aged 18+. A total of 1,671 people were questioned throughout Great Britain, with representative quotas for gender, age and region

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