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Peter Fawcett, Head of Retail and Commercial Banking, Tata Consultancy Services, discusses how effective use of data and analytics, is crucial to helping retail financial organisations stay competitive in a challenging landscape.

These are tough times for retail financial organizations. Public trust remains low following a raft of high profile crises, and banks are burdened with increasingly complex compliance regulations. Alongside these challenges, technology and digital adoption continues to develop at a rapid pace, driven by consumer demands for more innovative and user friendly digital solutions.

New challengers
These changing consumer expectations have fundamentally changed the landscape, with only those producing the latest and most digitally advanced products managing to retain and attract customers. To add to this, it is not just other banking institutions that are a threat. There is also a growing expectation that new players – companies from outside the world of finance but with a wealth of digital expertise –can make a sizable impact on the market. Recent Europe-wide researchiby Tata Consultancy Services found that 71% of banks believe they will lose customers to retail, mobile or telecoms companies in the next five years. Also, with the introduction of improved account switching, digitally savvy consumers will be able to select, unbundle and change banking services very quickly.

In this technologically advanced era, the reality is that young, digitally native companies with the skills and capabilities more akin to Amazon and Google are well placed to fundamentally change the dynamics of the retail banking market. Those companies, that were born online or who acquired digital skills in parallel industries such as retail or telecoms, know first-hand how to use and manipulate the vast amounts of customer data that is generated through online interaction. This data-driven approach can provide valuable customer insights which can then be used to inform and create better digital services. For new world retailers and hi-tech firms like Amazon and Apple, data analytics is second nature, and they can easily leverage their knowledge of the customer to give a unique user experience. Indeed, the ability to provide new and exciting user interfaces, based on knowledge of customer need, is something banks often struggle with today. The threat is that new entrant companies can cherry pick attractive services such as payments or peer to peer lending, potentially leaving the incumbent bank with only unbundled and less profitable services.

The power of data
However, it isn’t all bad news. The fact is that financial companies have a potentially crucial advantage over new entrants to the market: they already have vast amounts of highly relevant data available to them, built over years of customer engagement. In many cases, this data lies untapped but, if used effectively, it could give banks a much needed competitive advantage.

The data that banks already have will be both structured data (statistics and numerical data) and unstructured data (phone call recordings, texts and social media posts). By fusing together this data, banks can build up a more complete picture of customer engagement, and can then build up predictive insights towards customer delight, satisfaction and needs.

Further, what many banks do not realise is that their customers have a powerful voice and viewpoint on their organisation, which they are already expressing online, to a range of different audiences, and on a range of different sites and channels – not just their own. This online voice is not only useful for building up a picture of customer behaviour; it can also be used to create compelling content for digital and social channels.

tcs tata
tcs tata

However, implementing sophisticated data initiatives can be costly and other factors – such as an increasingly complex regulatory system – can limit the funds available for these projects. The financial crisis has exacerbated the regulatory challenge with the number of mandatory regulations increasing and becoming more restrictive. This can put a strain on resources and increasing regulatory complexity is fast becoming one of the greatest pressures on financial services organizations.

Indeed, these cost constraints can mean that in some cases, banks cannot afford to invest in sophisticated new data systems, and antiquated legacy systems can often hold banks back from competing with newer, more nimble entrants, who have adopted the latest systems since inception. Accentuating this is a cultural fear of upheaval, which causes banks to focus more on short term performance measures, as opposed to investing in long term solutions such as the re-engineering of core systems. There is also a fear of putting existing systems at risk during the changeover process. All of this leads to legacy systems which are only replaced gradually over a period of many years.

Managing change
However, there are simple approaches banks can take to overcome these challenges. Firstly, banks can actually turn these periods of change to their advantage and use them to drive efficiencies. Often, complying with new regulations will result in some sort of upheaval or re-organization of operational infrastructure. By coordinating these compulsory periods of change with the implementation of new customer technologies, banks can actually make better use of compliance budgets and make them stretch much further.

Another strategy which can help work around budget restrictions is to start by effecting smaller and more manageable quick wins. This will allow banks to begin to make bold changes, without compromising the functionality of existing systems. Indeed, this streamlining of operational infrastructure should free up some capital which can be re-invested into better customer and data analytics.

Staying ahead

Peter Fawcett
Peter Fawcett

However, the process does not end there. Once banks have gained a stranglehold on data analysis and are using this insight to develop new and engaging products, there are a few measures they must take to ensure their continual success.
Firstly, integration is everything. Financial services organisations need to take a holistic approach with new and existing digital and social services and put in place the technologies and structures that will integrate them seamlessly with existing channels. Failure to properly integrate will make the business seem fragmented and confused to customers.

Secondly, effective measurement is vital for further innovation. By tracking social and digital strategies and rigorously benchmarking their success, organisations can continue to improve and develop upon services to ensure a satisfactory ROI.

Finally, a change in mind-set is critical. Banks need to stop thinking of digital enhancement as an ‘add on’. Rather, fully integrated digital solutions and faultless customer service platforms need to become minimum requirements, rather than luxuries. The ‘Clicks and Bricks’ approach of simply supplementing physical outlets with half-hearted digital solutions will no longer be adequate as we move into the next and more accelerated phase of digital consumer adoption. A ‘Laps and Apps’ approach of leading with application and mobile device platforms should be the new way to develop digital strategies. However, it is essential these are integrated seamlessly into all customer facing channels.

Many financial institutions across the world are aware that unless they continue to innovate and produce useful and exciting digital products for their customers, they could be left behind by new industry entrants in as little as five years. However, there are many approaches which will ensure survival and success in this increasingly challenging market. By learning from other digitally savvy industries, and making use of the data and information already at their disposal, banks can continue to retain and grow customers in this increasingly competitive digital era.

Peter Fawcett is head of retail and commercial banking for Tata Consultancy Services.