Editor's Note: The following is the first installment in a two part series on data driven digital banking. Referencing several different analyst reports, this blog discusses how financial institutions can begin to monetize the plethora of consumer data available to them via their digital banking channels. D3 Banking licensed the reference reports for general distribution.
Financial institutions are awash in data that could enable them to construct the most intimate financial portrait of their individual customers in history including information about transactions, financial holdings, location, bio metrics, user experience and social media feeds.
They have the potential to know where customers shop, how much they spend, the strength of their cash flow, their borrowing capacity, the financial dreams that motivate them - and much, much more. While this amount of data about a consumer would make a retailer such as Amazon or Apple salivate, financial institutions struggle to utilize it to differentiate themselves with personalized service while at the same time monetizing their digital channels.
A report published earlier this year, (Vendor Landscape: Pick the Right Digital Money Management Technologies), by Forrester focusing on digital money management provides some insights as to why banks and credit unions struggle in this area. Essentially, the report asserts that personal financial management failed to live up to its potential because too many institutions deployed stand-alone PFM solutions by creating an additional tab or icon within their digital banking solution. The key to the rise and widespread adoptions of digital money management requires that organizations abandon this bolt-on approach for something very different:
"... the big lesson from early online money management initiatives - where advanced functionality was simply dropped into a separate tab in the website - is that money management features need to be tightly integrated into digital banking...across all touch points."
Integration, in this case, is not simply the use of an interface or API but rather requires that the common money management features, e.g., analytics of all digital accounts and transactions, automated categorization, etc. - be "embedded" within the digital banking offering across all digital channels.
This is a recurring theme that has emerged in research by Celent (see Defining a Digital Financial Institution - What 'Digital' Means in Banking) and Javelin (Transforming Data Into Dollars for Financial Institutions). Javelin analyst Mark Schwanshausser captures the overall view of most writing on the topic:
"... the industry is at a pivotal point that will require a philosophical shift regarding the strategic value of data mining. The important difference is that FIs typically use data today to perform services on behalf of customers to detect fraud, authenticate customers, and take other behind-the-scenes steps to ensure their money is safe.
Going forward, innovate FIs will mine data to empower customers. They will dispense relevant information individualized insights, and actionable personal finance advice that enable customers to make smarter day-to-day decisions and achieve a greater sense of financial control as they bank, shop, pay, borrow, save, and invest."
To achieve this type of vision, bolt-on digital money management solutions won't be enough since implementing these types of products increases costs and complexity for the bank and credit union. The type of data analytics needed to empower customers and members will need to be accessible at the very foundation for the digital banking experience.
The fact is, most financial management solutions in the marketplace that claim to fit this requirement do not. The Forrester report includes a vendor review that reinforces this statement. It also provides a playbook for banks and credit unions who are ready to start moving their organizations to a digital money management strategy that will help them establish a competitive advantage in the marketplace.