By Simon James, Global Lead, Data Analytics, SapientRazorfish UK
Data is the key to winning in digital transformation in a time of regulatory change.
If Wells Fargo CEO, John Stumpf, is to be believed, this generation will be the last to use the term debit or credit card. Our physical relationship with cash, cards and wallets will soon be as alien as floppy disks and CD-ROMs to our children. Whilst the effect of digital transformation in many industries has been imperceptible, in retails banks the impact for millions of customers is conspicuous.
New legislation is accelerating the change
To add further fuel to the fire, European banks are undergoing this transformation against a backdrop of new regulation. The Revised Payment Service Directive (PSD2), in part designed to reduce the barriers to entry for new financial operators and improve security of digital payments, will fundamentally change the nature of competition amongst financial service providers.
For some financial service companies, already mired in the process of restructuring unprofitable aspects of their business, compliance with the new regulation is the goal. This means development of robust application program interfaces (APIs) to allow companies to build financial service applications on top of high street bank data. The obvious danger here, is that this reduces the role of the high street bank to a commoditised product provider, or leaves them only with complex products that require highly regulated advice, with little control over the customer experience or distribution channel. For other businesses who are more forward thinking or in ruder health, compliance is the floor not the ceiling. As they recognise that the data itself is a significant source of insight to explore and develop new products, services, open new customer segments and create new business models. It is likely that those that seek to thrive in this environment will have a greater opportunity for speculative growth than those who merely seek to comply.
Legislation in conflict
Ironically, at a time when the PSD2 regulation is encouraging the wider use and distribution of data, a second regulation is seeking to limit the use of consumer data, and widen the definition of personal data. The General Data Protection Act (GDPR), the first substantial new data privacy law since the explosion of high speed internet, promotes the notion of privacy and data protection by design. In particular the definition of personal data has been expanded to include many previously anonymous digital signals(e.g. your IP address), the rights of individuals to be forgotten and the right to access data held on yourself. Additionally penalties for non-compliance have been set at EUR 20million or 4% of global revenue.
This represents something of a dilemma for decision makers. PSD2 is increasing the flow of data between financial services providers and other wider third parties, particularly the tech giants who are perceived as a future threat. GDPR is seeking to limit the flow of consumer data without their express permission. What is clear, is that those businesses that have invested in data both in terms of people and strategy, APIs, scalable hosting and advanced analytics are in the best position to exploit the value being created by this perfect storm of digital transformation and new legislation.
But what about the role of Artificial Intelligence?
Much has been made of the opportunities from artificial intelligence for high street banks. Both GDPR and PSD2 are catalysts to creating a modern data platform, free from legacy technology limitations to exploit the speed and scalability of cloud computing. Without investment in de-siloing customer data and making it available through APIs, it is extremely difficult to capture value from artificial intelligence.
There are three key focus areas for exploiting AI in high street banks. The first is virtual assistants. Whilst today, the virtual assistant space is dominated by chatbots which predominantly focus on flowchart problem solving, knowledge retrieval and replacing call centre interactive voice response (IVR), as technology matures and competence levels increase, virtual assistants will take on more complex roles in customers’ daily finances.
The second area of application is attaching AI to back office operational improvements, particularly the current trend of robotic process automation (RPA). Just because a bank has a voice activated mobile app or robo-investment advisor, that doesn’t mean there isn’t a mountain of paperwork to be manually sifted through to ensure the correct documentation was submitted in the back office. Automating processes is nothing new, but going beyond automation and allowing machines to find better ways to complete processes
Finally, a less well defined opportunity is the killer application for AI, creating new products and service propositions from data. Only those companies that have hired the right data talent, coupled with an obsession with identifying and solving real customer problems are in a position to generate business innovation consistently from their data. To these businesses, legislation to open their APIs to the world is an opportunity to study what information is being ingested by which companies, spotting new competitors and innovative uses of data in real time.
Data and having the people to unlock its value are the two key ingredients to succeeding in such a volatile period of change.