While the vision for data lakes has always been focused completely on making data more quickly available, few companies have managed to meet the challenge of satisfying the needs and of business end users as a central focus.
The reality for many banks is that the data contained within most data lakes is not accessible to the average business user, who are relying on central engineering teams to construct queries to extract the data sets.
There are two stark realities when it comes to serving business users (or not, as is often the case):
This bank had built its data lake, including many ingested data sources over a number of years.
However, instead of being focused on building analytics and improving the quality of the data lake, the central engineering team spent their entire time dealing with requests to ingest new data sources, doing little data improvement and only focusing on building the first few layers of the transformation.
The bank’s analysts and data scientists had become frustrated because the central engineering team had become a bottleneck. To get any new data source in, they had to go through the central data lake engineering team to go through an approvals process. This involved so much manual work in ingesting new data sources that it slowed down the entire analytics journey.
In dealing with its custom engineered data lakes, the bank’s senior IT executives dedicated extensive budget to building a huge team with excellent capacity. The team then spent months bringing in data sources without really consulting the businesses with what the use cases should be.
Ultimately, IT didn’t get the buy in because the business didn’t understand how to get value from the data. Because it took so long to ingest a new data sources, productionise the new uses cases and manage the data quality and governance, the business got bored and went away to find another tool.
The end result was a userless data lake with no subscribers and no stakeholders involved.
If data lakes are standing in the way of business users easily accessing data or use cases articulating a clear path to decision making that will lead to ROI, banks know they’ve got a problem. Here, we discuss three changes businesses are making to data lakes to ensure that relevant use cases see the light of day and that business users can put them to the test.
Rising to the Self-Service Challenge
From the outset, the main purpose of data lakes has been to give business users immediate access to all data, freeing them from relying on data warehousing teams to model that data, or simply to give them access.
The point is that nothing was meant to stand in the way between business users and data, but the reality is much more complicated than this. Business users often struggle with self-service using data lakes and ultimately end up relying on engineers to construct complex queries to extract that data, which slows the release cycles. This is simply because open source tools do not feature any sort of self-service capability and so this has to be built.
In order for use cases to be timely, relevant and useful, business users need to be able to get to and query their data. Data discovery needs to be made simple, allowing user to build queries to access the data to build data products that support analysis.
One of the important differentiators in the next generation of data lake platforms is that they feature self-service capabilities for non-technical users. Many feature Google-like search functionality against both data and metadata, allowing users to quickly scan the schema catalog for relevant resources.
Fixing Data Quality Control Issues
Simply put, business users must be able to rely on the quality of data in a data lake, which is something many companies cannot guarantee.
Data in data lakes that have been custom engineered tends to devolve over time. Without the proper approvals process over the data quality tools in place, people often continue to engineer in new data sources and integrate these into the data lake as one-offs. This ends up being a quickly forgotten process that does not focus on the quality of data.
So what can companies do to ensure data quality is monitored and maintained? Automation must be put in place to ensure data is refreshed regularly, and to monitor the quality of data. Without this automation, over time, data quality begins to degrade and becomes useless in analysis.
Get Governance in Place
Companies often don’t have the experience, capability or skills or fully enable the governance or security they need to safely and productively maintain a data lake. While the flexibility of data lakes is one of their top selling points, without data lake governance, a data lake can quickly become a data swamp.
Metadata management, as well as data cataloging and indexing are essential if user are to be able to query and use data in data lakes.
In order to be able to be able to build the features that excite the business and solve real problems, banks need to put the next generation of data lake platforms to the test. Solving the path to self service, data quality and governance are great steps in the right direction to making data lakes user-centric and straightforward, and to solving banks biggest analytics dilemmas.
Maurizio Colleluori is Principal Data Engineer for Kylo™, Think Big Analytics
Swedish Bank Stress Tests in Line with Recent Rating Actions
The Swedish Financial Supervisory Authority’s (FSA) latest stress test results show major Swedish banks’ robust ability to absorb credit losses. The results support Fitch Ratings’ view that short-term risks have abated in recent months, and are in line with Fitch’s assessment of major Swedish banks’ capitalisation at ‘aa-‘, which was a factor when Fitch removed the ratings of Handelsbanken, Nordea (not covered by the FSA’s stress test) and SEB from Rating Watch Negative in September.
The FSA estimated about SEK130 billion of credit losses over 2020-2022 for the three largest banks (Swedbank, Handelsbanken and SEB) under its stress test. This represents about 220bp of their loans, or about 70bp annually. However, the banks’ pre-impairment profitability in the stress test could absorb credit losses of up to about 110bp of loans annually. Fitch’s baseline expectation is for credit losses below 20bp of loans in 2020 and 8bp-12bp in 2021.
Capital remained strong under the stress test. The average common equity Tier 1 (CET1) ratio fell by only 2.8pp (1.9pp if banks did not pay dividends) from 17.6% at end-June 2020. The capital decline was not driven by credit losses, which could be absorbed by pre-impairment profitability, but by risk-weighted asset inflation.
The three banks’ 3Q20 results showed that capital has been resilient despite the coronavirus crisis. The banks had a CET1 capital surplus over regulatory minimums, including buffers, of almost SEK100 billion (excluding about SEK33 billion earmarked for dividends). SEB had a CET1 ratio of 19.4% at end-September, Handelsbanken’s was 17.8% and Swedbank’s 16.8%.
The SEK130 billion credit losses under the latest stress test are lower than under the FSA’s spring 2020 stress test (SEK145 billion), which also covered a shorter period of two years. However, they are still larger than the actual losses incurred by the three banks during the 2008-2010 crisis. This is despite tightened underwriting standards by the three banks in recent years, including, in the case of SEB and Swedbank, in the Baltics, the source of most of their loan impairment charges in the previous crisis.
In its baseline economic forecasts, the FSA assumes a harsher shock to Sweden’s GDP in 2020 and 2021 (-6.9% and 1%, respectively) than Fitch’s baseline (-4% and 3.4%), although it assumes a similar recovery by end-2022. It also assumes real estate price corrections, which appears particularly conservative in light of a 11% housing property price increase over January to November 2020.
The ratings of Handelsbanken (AA), Nordea (AA-) and SEB (AA-) are on Negative Outlook due to medium-term risks to our baseline scenario. The rating of Swedbank (A+) is on Stable Outlook, reflecting significant headroom at the current rating level following a one-notch downgrade in April due to shortcomings in anti-money laundering risk controls.
Future success for banks will be driven by balancing physical and digital services
Digital acceleration due to COVID-19 has not eliminated the need for bank branches
Faster service (23%), smaller queues (26%) and longer opening hours (31%) are among customers’ biggest asks of their bank branch, new research from Diebold Nixdorf today reveals. But with 41% consumers saying they would be comfortable to engage with all banking services via an app, it is vital that banks respond to the full spectrum of customer needs – balancing and evolving their offerings on multiple fronts.
A third (35%) of customers say they will always want access to physical, in-branch banking services in some capacity and one in ten (10%) consumers will never bank predominantly online in the future. This demonstrates that there remains an important role for the services a branch provides. This role, however, continues to shift away from purely transactional banking:
A quarter (26%) value face-to-face advice when it comes to their banking needs
One in five (18%) seek advice on different products
17% want to speak to the staff or other customers.
Matt Phillips, Diebold Nixdorf vice president, head of financial services UK & Ireland, said: “The majority of banks have spent the last decade focusing on their digital strategies and investing in improving – or establishing – their online customer experience. However, the data shows that there is still an essential role for physical branches. Banks now increasingly face the challenge of continuing to provide customers with access to a range of physical and as well as digital services, giving them the flexibility to choose the best service for them at any given moment in time.”
When looking beyond the impact of COVID-19, planned branch visits by customers are expected to rebound to 28%, following a dip to 11% during lockdown. And when asked about the new services they’d like to see inside their bank, sixteen percent of respondents said more self-service machines would improve their in-branch experience.
Matt Phillips continues: “In a world that is fast evolving and where the future is digital, there’s no doubt that high street banks must, and are, responding to the needs of highly digital customers. But not every customer requirement is digital. There is still a strong need for physical bank branches and the interaction and services they offer, and striking this balance between physical and digital is where the industry must come together to provide solutions. For example, building a strong, leave-behind strategy is something we’re seeing across the board when banks have to close branches, ensuring customers have access to self-service machines to complete all their transactional needs.”
RegTech 2020: The rise of Open Banking
This month on the RegTech 20:20 podcast, host Alex Ford is joined by industry experts Gavin Littlejohn, Chairman of The Financial Data and Technology Association (FDATA) and Jamie Leach, Regional Director of FDATA ANZ and Founder of Open Data Australia, to discuss developments in Open Banking, and the place of RegTech.
Today, the focus is on the digital customer experience and the insight offered indicates that there has been a major shift in the FinTech ecosystem as a source of potential innovation for banks, rather than being a direct competitive challenge.
In the podcast, Alex quizzes Jamie on the concept of sharing data and the impact of the introduction of Open Banking rules under the Consumer Data Right (CDR) in Australia. Jamie shares that it is an exciting time to be involved in the sector:
“…what we really need to consider is that Open Banking in Australia is very different to Open Banking in the UK. Really, what has spurred Open Banking in Australia under the Consumer Data Right is the pursuit of creating greater competition and greater innovation, while allowing consumers to do more with their data.”
Gavin, who has many years of experience in the industry and, as well as his role with FDATA is also a key member of the UK Open Banking Implementation Entity, speaks on the theme of advocating Open Finance in the UK.,’
Delving deeper into Open Banking, he highlights the fact that it has been an interesting journey and states that “the important thing to understand is the difference between the UK’s Open Banking order and the wider payment services directive.”
Not only concentrating on Australia, Jamie also works across the sector in the UK and, also looking at its evolvement here, she suggests that the people creating the rules are now taking notice, adding: “We are just getting started – the UK has been at it for nearly three years and it is still gaining momentum.”
With regards to future predictions, Jamie believes “It’s going to take 12, 18 or 24 months before we see any mainstream major adoption and where the potential of Open Banking can go in this market”
Moving to the differences between Open Finance and Open Banking. Gavin defines the latter as “payment initiation and access to payment data, which enables a third-party provider or fintech with a customer relationship to initiate a payment and get access to the data relating to transactions.”
“…the concept of Open Banking is a bit like electricity – you don’t use it directly; you use an appliance that uses it. This could mean loans, money management apps, or cloud accounting platforms, which all use Open Banking.”
Throughout the episode, both guests provide interesting insights and hint at the significant potential of Open Banking.and the connection to RegTech within this domain.
It is clear that what we see today is only the beginning. Despite the industry still being in the early stages of implementation in almost all cases, there is increasing interest in moving beyond this to include a far broader spread of financial products.
You can listen to the full episode at https://www.encompasscorporation.com/regtech2020-podcast/ or across all major platforms, including Apple Podcasts, Google and Spotify.
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