Banking on customer data

Banks have to find ways to obtain efficient, low cost data about their customers to make analytical decisions and adapt their business models to a changed regulatory and market environment, according to Hank Prybylski, a partner and advisory leader in Ernst & Young’s Americas Financial Services Office.  

Banks that are too tied to a large number of legacy systems are not going to be able to harness the customer information they need to position themselves to benefit from changing customer behaviour. They are not going to meet regulatory and client requirements and they will be at a continual cost disadvantage. 

“The bank of the future will be a data management company,” Mr. Prybylski said, speaking at the Cayman Islands Bankers’ Association social event at the Westin on 10 July.  

However, he noted, only a quarter of his clients are undergoing a major data engineering project. The high investment costs make the centralisation and upgrade of data systems at a financial institution a large, high-risk programme and potentially an investment trap. 

Yet regulators are already forcing banks to invest in their information technology infrastructure to clean up their risk and compliance data, for example, to be able to provide US customer account information under the US Foreign Account Tax Compliance Act.  

Banks that have to spend time and money on transactional data for risk and compliance, should spend that little bit more to get the analytical data that they need to drive their business, according to Mr. Prybylski, who says the successful banks of the future will be analytical companies. 

Retailers and consumer product companies have been using transactional client data for a long time. Initially a system to measure sales activity and manage inventory, these businesses employ market research techniques to determine which products they should develop and sell, the correct price point, including the size and timing of discounts, and which marketing vehicles are the most effective. 

Consumer companies combine this data and market research with social media information, which supports customer segmentation and enables a more targeted marketing and product development.  

Retail and consumer product companies are also entering into the traditional realm of banks by occupying parts of the payment chain through loyalty cards and digital payment methods. 

Mr. Prybylski does not think that regulators will allow consumer product companies to become banks, but there is a potential for diminishing the role of banks with cash and credit card transactions falling away. Most banks, however, see this development as a major opportunity.  

They want to be the service provider and data architects that provide the backbone in the smart commerce space – the connection between merchants, customer, payment systems and loyalty programmes, he said. 

Applying advanced analytics to customer transactional data will be all the more important in banking, because customer experience is the key to growth, Mr. Prybylski said.  

The proportion of customers willing to change their bank is rising, as is the proportion of customers with two or more banks. “Your core customer is now with multiple banks, looking for a change.” This customer is “up for grabs”. 

More and more customers are using social media. They compare pricing on the Internet and they want to bank across different channels from the personal service in bank branches to online transaction.  

Overall, there is a general trend toward flexibility. Customers want to pull in their service, by doing their own research and learning about products first, rather than being pushed to it through marketing.  

Segmentation of customer service is also accepted by the consumer, which means they are satisfied with a low-cost digital channel when it makes sense, but also expect a premium service if they are premium customers. And, as in the consumer product space, banking customers now expect loyalty programmes.  

The velocity of this change is a significant opportunity for banks, Mr. Prybylski said. “If customers are changing their behaviour, the banks that get it right will be the ones that grab the customers. And it is those core customers that are really going to be the growth engines of the future.” 

But to take advantage of the change, banks need to adapt their organisational model. The segmentation of data use in various parts of the business, such as risk or compliance, leads to “polluted information”.  

The bank of the future will need to develop its risk, finance and customer analytics and consolidate the management of data under a chief data officer function.  

This change in architecture is further required because the biggest limiting factor to the use of customer data are privacy risks, which need to be managed.  

Mr. Prybylski

Mr. Prybylski