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WHY DATA HAS BECOME BANKS MOST IMPORTANT COMMODITY

WHY DATA HAS BECOME BANKS MOST IMPORTANT COMMODITY

Christian Ball, Head of Retail – Atlantic Region 

Introduction

It is commonly recognised that the digital revolution sweeping the financial sector is a serious threat to traditional banks. The pace of change that has occurred over the last decade has left many institutions feeling uncertain on how best to embrace the digital future. Faced with new competitors and advances in technology, it would be easy to assume that traditional banks will inevitably be left behind as customers turn to challenger banks and third party providers for financial services and products. What is often overlooked is that as incumbents, large banks have certain advantages that their smaller rivals do not possess. Arguably the biggest advantage is that of data.

Banks have always held vast amounts of data inside their organisations but their ability to interpret and extract value from this commodity is something they have historically struggled to achieve. With new regulations to be introduced and more competitors in the marketplace, this situation is set to change. The Competition and Markets Authority (CMA) and the European Union directive PSD2 are at the forefront of this change that is driving banks towards implementing an Open Banking strategy.

Open Banking will make it easier for customer data to be shared between banks, customers and other third party providers – transforming the relationship between banks and customers. This access to data gives challenger banks and fintechs the opportunity to develop new innovative financial products and services but traditional banks have an ideal chance to improve their customer experience through the vast amounts of data they hold.

How to create value for customers through data becomes an important factor in the digital economy. It means establishing a more accurate understanding of customers and the context in which they consume services. Communicating with customers about products and services in an appropriate and timely manner and ultimately creating a more enhanced customer experience through the value of data.

The emergence of Cognitive Banking

A more personalised form of banking is beginning to emerge through enhanced data analysis. This ability to extract more value from data through learning, understanding and analysis is leading towards cognitive banking; where artificial intelligence and machine learning are changing the customer experience.

Cognitive banking is about having fast data and good User Experience and Interfaces (UX & UI) for customers. It also includes automatic or robotic artificial intelligence deployed in executing data quickly, accurately, cost effectively and predictably, thus significantly improving the digital banking process. In the world of digitalisation and the digital economy, cognitive banking expresses all the digital requirements and more.

As well as providing services in this way, banks must reach conclusions on the engagement strategy with their customer base, either directly or indirectly on real time data from multiple sources. This forms part of the cognitive banking process which encompasses the analysis, processing and production of insights resulting in new products and deeper more targeted customer value.

Banks and financial institutions are working towards establishing new business opportunities by identifying how customers consume and are made aware of products. Decisions can be made on which additional services can be offered to secure customer loyalty, along with understanding how banks should communicate specifically with individuals through applying more behavioural analytics to segmentation.

If banks apply greater machine learning and artificial intelligence techniques and technology, a far more personalised and focused message is created, one that is targeted more effectively and with the added benefit of improving each customer’s appreciation of what their bank can do for them.

 Moving from Big Data to Fast Data

Deriving greater value and insight requires ‘Fast Data’. The defining feature of Fast Data is the rapid gathering and analysis of data in real time. It is about the ability to consume, analyse and execute on the insight generated from multiple data sources. Unlike big data, which focuses on storage. Fast data is a consumption orientated view and provides a richer context in terms of analysis and decision making. This allows banks to provide a more enhanced and personalised customer experience.

The value of data 

Faced with increased competition, traditional banks must utilise data effectively and transform themselves into data-driven organisations that will deliver knowledge banking. This will lead to better financial products and services for customers that suit their needs and expectations.

Banks can however go one step further by extrapolating valuable data from their large established customer bases and segments – something challengers do not have. This data can be monetised by allowing third parties to access segmentation information about their own customer base, detailing consumer behaviour. This permissive data which customers have agreed to share is an important development. This opportunity to sell insights based on segmentation knowledge offers the possibility of a profitable new revenue stream for banks.

Shawbrook Bank “cautiously optimistic” as it Publishes Half Year Report for 2020

Shawbrook Bank “cautiously optimistic” as it Publishes Half Year Report for 2020 1
  • Financial performance impacted by the pandemic
    • Expected credit loss (ECL) charges of £45.8 million recognised on loans and advances to customers
    • Profit before tax (PBT) was impacted by the adverse effects of COVID-19 and the subsequent provisions set aside, reducing by 89% to £5.9 million
    • Customer deposits rose by 25% to £7.6 billion while capital remained strong with a CET1 ratio of 12.3%
    • A total of 15.9k payment holidays granted across the Group
  • The specialist bank continued to operate effectively through COVID-19
    • 98% of employees moved to remote working within days and no staff furloughed
    • Successfully achieved accreditation under UK Government’s CBILS
    • Continued investment in technology to digitalise the business
  • Shawbrook “cautiously optimistic” as momentum begins to return to certain specialist sectors

Shawbrook Bank has today (Monday 10 August 2020) published its half year financial results for the period ending 30 June 2020.

The specialist bank confirmed it had set aside £45.8 million of provisions to provide for potential future loan impairments caused by COVID-19. The bank reported it had also granted a total of 15.9k payment holidays to support its customers through the pandemic, of which 10.8k remained in force at 30 July 2020.

As a result of such provisions, the bank’s profitability was impacted with a reduction in PBT by 89% to £5.9 million.

Despite the challenging market conditions, the bank retained its active position in the UK savings market, increasing its retail savings deposit base by 25% to £7.6 billion. During the period, Shawbrook also successfully completed a £75 million Tier 2 re-financing to further optimise its capital structure.

Ian Cowie, Shawbrook Bank’s Chief Executive Officer, said that COVID-19 has had a clear impact on the bank’s financial performance, but Shawbrook remained in a position of strength.

He commented: “Prior to COVID-19, the Group had continued to make good financial progress, starting 2020 with a strong balance sheet and prudently positioned capital and liquidity base.

“To further optimise the Group’s capital structure, during H1 2020 we initiated a Tier 2 refinancing and, despite the challenging market conditions, successfully completed the £75 million issuance in July.

“We have also maintained our active position in the UK savings market. However, the longer-term economic impacts of the pandemic remain hard to predict and as a result we have recognised expected credit loss charges in the period on loans and advances to customers of £45.8 million and on loan commitments of £1.5 million.

“While this has clearly had an impact on profitability, our capital strength positions us well to support our customers and grow our business in line with appetite as we enter the second half of the year.”

Throughout COVID-19, Shawbrook maintained full operational functionality, with no staff furloughed and 98% of employees transferred to remote working within days of the UK lockdown being announced.

The bank adopted a series of concession opportunities across its product range to help alleviate the financial impacts of COVID-19 on its customers. During this time, Shawbrook also successfully achieved accreditation to the UK Government’s Coronavirus Business Interruption Loan Scheme (CBILS) to provide further funding support to its SME clients.

Mr Cowie added: “Since the outbreak of COVID-19, our focus has remained on supporting our staff, customers and partners while at the same time safeguarding the long-term sustainability of our business.

“When the UK lockdown was announced in March 2020, we acted with speed and agility, moving to an almost entirely remote operation within days. Led by a stable and experienced management team and with the support of new and existing technology, we have continued to operate effectively throughout this period.”

Throughout the first half of the year, the bank also continued to identify investment opportunities to further digitalise its proposition, with a core focus on its SME offering.

Mr. Cowie added: “Notwithstanding the pandemic, we have continued to invest in our business to help drive our strategic ambition to become the UK’s Specialist SME Lender of Choice. As well as the ongoing deployment of targeted digital solutions across the Property, Consumer lending and Savings businesses, our investment in the development of a new growth platform in our Business Finance franchise will serve to further modernise our offering, delivering an enhanced customer journey as well as significant operational efficiencies.”

Looking to the future he continued: “Although significant uncertainties regarding the broader macroeconomic impact and pace of recovery remain, we are cautiously optimistic in our outlook as we start to see signs of momentum returning to certain of our specialist sectors.

“Our management expertise and prudent approach to credit decisioning, combined with investment in our digital propositions, means we are well positioned to adapt and respond to opportunities as they arise throughout the second half of the year.”

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Banking

Better banking—everyday in everyway

Better banking—everyday in everyway 2

By Bruno Pešec president at Pesec Global.

Some of the most innovative companies are also great at continuous and incremental improvement. I want to talk about three key points when it comes to succeeding with implementation of continuous improvement.

First is acknowledging that employee empowerment is at the heart of continuous improvement. The second is striving for total involvement by everybody, everywhere, everyday. Final, third point is that improvement is improvement. Cents turn into dollars.

Let’s expand on each.

Employee empowerment is at the heart of continuous improvement

In “Kaizen: The Key To Japan’s Competitive Success” Masaaki Imai divulges following as the core principles of continuous improvement:

  1. Process orientation. “Before results can be improved, processes must be improved, as opposed to result-orientation where outcomes are all that counts.”
  2. Improving and maintaining standards. “Lasting improvements can only be achieved if innovations are combined with an ongoing effort to maintain and improve standard performance levels.”
  3. People orientation. “Improvement is people-oriented and should involve everyone in the organization from top management to workers at the shop floor. Further more, it is based on a belief in people’s inherent desire for quality and worth, and management has to believe that it is going to “pay” in the long run.”

These principles are interlinked and interdependent. Without empowered people there can be no improvement. Micromanaging and overbearing bureaucracy stifle human creativity and desire to do better.

Due to the nature of my work I have residence in two countries, Croatia and Norway. Consequently, I have bank accounts in both as well. On one occasion I was had to make a bank transfer while in Croatia, and went to my local bank office to do so.

To my surprise they requested my debit card. I explained that I’ve forgotten it, but surely that shouldn’t be a problem as I’m here in person, have my national ID as well as passport, and cash required for transfer. The bank teller explained that he can ask branch manager to approve it, but it takes seven days.

Since the manager was right there, I asked why can’t we do it right now, since we are all here. “Sorry, such are the policy and procedures. I know it doesn’t make sense, but we must follow them.”

Banking is a highly regulated industry; fraud detection and anti-money laundering processes must be impeccable; but above is neither.

Everybody, everywhere, everyday

Bottom up is usually brought up when discussing implementations of continuous improvement. While it is true that those closest to work are most suitable to improve it, they often lack decision making power and budget to do so on a scale.

That’s why “everybody, everywhere, everyday” is a better mental model. No one is absolved of improvements. At any given moment there are at least hundred things you can improve right now, right here.

Think deeply about following:

  • Everybody in the organisation should be aware and have an understanding of organization’s strategy and objectives. There’s shouldn’t be multiple interpretations, and it should be unambiguous. Without clarity improvement efforts are going to be scattered and without impact.
  • No elitism, no absolution. Everybody should be actively committed to daily improvement, regardless of their rank or seniority. Leaders should be especially cognizant of leading by example. After all, how can they demand from others what they themselves are not doing. That’s hypocrisy at its finest.

    Bruno Pešec

    Bruno Pešec

  • To improve is to learn, and to learn is to improve. Unlock even more value from your continuous improvement efforts by capturing the learning and sharing it broadly and deeply within the organisation. Ideas spawn ideas, perpetuating a virtuous cycle. Peer learning is also a powerful intrinsic driver.

Improvement is improvement

Director of one European bank invited me to their customer service centre, and we were to discuss how could they innovate better. After the meeting I asked him to take me on the walk around the office so I can observe the processes. He was more than happy to oblige.

The walls were plastered with wallpapers and dashboard, colourful metrics were displayed one the hanging screens, and there was a special area dedicated to the “Hall of fame.” Much to my delight there was a wall dedicated to the improvement ideas.

It was covered with large sticky notes, each with few sentences about the problem and potential solution. I picked a few at random, and noticed that they have dates written in bottom left corner. All of the dates were months ago.

Perplexed, I asked the nearby call operator to illuminate me. What’s going on? She fired her response like she was just waiting for someone to ask her that question:

“After each call we used to write down some improvement ideas. At the end of the week we collated and submitted them to the improvement department. They were constantly rejecting our proposals for either being too small or not innovative enough. After few weeks we stopped sharing and tried to implement what we can. That resulted in one of us being scolded for taking initiative without approval, so we just stopped altogether.”

Director was blushing, but hasn’t said anything. I thanked the operator for her honesty, and told the director that he should find time to fix this. By ignoring small, incremental improvements, they are effectively atrophying their organisational muscles. And not to mention all the savings that are left behind, lost forever. Cents turn into dollars.

Better banking

I’ve talked about three key points in regards to the role of employee empowerment in the implementation of continuous improvement, and what you can do to use them well. Let me remind you that if you really want to engage in this, the first thing to do is take any of them and start today.

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Banking

UBX appoints new Chief Investment Officer

In line with its strategy to explore and invest in companies and platforms of the future, UBX—the Fintech and Corporate Venture Capital arm of Union Bank of the Philippines (UnionBank) — is announcing the appointment of Matthew Kolling as the company’s Chief Investment Officer (CIO).

Matt Kolling

Matt Kolling

As CIO, Kolling will be managing UBX’s Corporate Venture Capital (CVC) fund. He will also play a key role in raising capital for UBX while assisting the company in key corporate transactions, including the structuring of joint ventures and acquisitions.

Prior to his appointment at UBX, Kolling has been Head of Venture Investments at Aboitiz & Company since 2019, wherein he had been working with UBX on investment portfolio decisions. Before that, he held senior positions in Private Equity, Venture Capital, and Investment Banking at firms such as Providence Equity Partners and Morgan Stanley in New York.

Kolling has more than 20 years of experience in managing investments and deals in the Technology and Telecommunications industries and is active in Venture Capital and startup communities in the Philippines and the Southeast Asian region. He currently chairs the Manila Angel Investors Network, among others.

“We at UBX are excited to welcome Matt as our new CIO. We firmly believe that Matt will be instrumental in driving value creation opportunities, both within the CVC fund and our corporate ventures. We look forward to working with him as we fulfill UBX’s vision of a future where banking services are embedded into everyday experiences that matter,” said UBX president and CEO John Januszczak.

Meanwhile, UnionBank president and CEO Edwin Bautista said, “The addition of world-class talents in our pool reinforces our strategy to future-proof the organization and our business as we prepare for many new opportunities that come with the changing times.”

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