As the speed, volume and complexity of data and regulation increases, how can financial service firms effectively keep up pace and remain competitive – all whilst mitigating rising costs across both people and technology?
Today, businesses using hyper-connected data are facing unprecedented digital disruption and regulatory pressures. Transparency, accuracy and timeliness burden the entire capital markets post-trade cycle, whereas openness, experience and integration pile on additional digital demand – often halting the lack of product innovation, a conundrum for the financial services who are constantly being ‘disrupted’. Whilst hyper-connected data paves the way for information to be freely used, shared and accessed, it has undoubtably upset business as usual in the financial sector.
Initiatives such as Mifid II, the Open Banking regulation, the second Payment Services Directive (PSD2) and GDPR have created legislation promoting openness, transparency and facilitating the sharing of personal data. Together, they share a common purpose; to help preserve a competitive landscape and financial innovation whilst protecting the rights of the data owner.
This is hugely important. The market place continues to create new services and offerings that pique consumers’ interest, encouraging more interopibility between financial institutions. Some see the US at a disadvantage for not having similar initiatives in place – Donald Trump would clearly disagree of course.
With all this going on in the background, data control and data integrity are the catalysts driving a new wave of innovation in the global financial and banking sector. Put simply, it is hard to focus greater investment on innovation when the underlying strategic asset – the data – is not trusted.
The driving philosophy on the consumer side is to create a vibrant personal data economy, with customers able to take advantage of emergent price comparison apps and modelling tools to analyse their own financial data. On the institutional, transactional side, it is to avoid major losses, and to hold senior managers accountable for evidencing they have full control over their operations.
Keeping pace with this new regulatory environment is the technological development of application programming interface systems (APIs). Recent breakthroughs in advanced analytics, spearheaded by non-bank fintech companies, have cemented APIs as the primary conduit for controlled, yet seamless, data exchange. This coupled with fast data-streaming tech like Kafka and Kubernetes have enabled further transitions to real-time trusted data.
Traditionally siloed and vertically integrated, the banking industry now faces a period of significant disruption. Business models are having to adapt to compensate for the convergent trends of high-volume, high-velocity data exchange and the radical transparency mandated by new legislation.
Significant opportunities, equally significant risks
With regulatory demand at an all-time high, banks are increasingly turning to third-party services for support in meeting reporting obligations, and in the generation and dissemination of the required consumer-facing documents. Not only because it’s proving incredibly complex and expensive not to, but the maturity in vendor solutions is finally improving too.
In addition to significantly increased data management pressures, research by Accenture suggests that the rise of non-bank Payment Initiation Service Providers (PISPs) could erode core revenue stream, such as online credit and debit card transactions by as much as 33%.
Banks now face the potential “atomisation” of traditional banking services, with customers able to view transaction histories and account balances and initiate payments through a Third-Party Provider (TPP) without the need to engage with their bank at any point.
However, the benefits of quickly adapting to this new data paradigm are incredibly enticing. APIs represent a radical opportunity for banks to create new revenue streams, an improved customer experience, and sustainable service models for traditionally underserved markets.
Accenture expects the small and medium-sized enterprise (SME) market alone to generate an additional £8.5bn in new revenue streams based around API-driven and bank-led services that assist in the running of a business.
Exploiting the first-mover advantage
The current beneficiaries of the PSD2 and hyper-connect data movement are insurgent non-bank fintech companies. Quickly moving to capitalise on new legislation and API technology, companies such as MoneyHub, Bud and Trustly have been able to offer cutting-edge services such as account aggregators, personal finance managers and digital comparison tools. This has seen fintech’s revenue share in global financial services grow to 33% in 2018, with nearly one in six current insitutions being considered ‘new entrants’.
While challenger, retail-focused insurgents may have demonstrated the most traction so far, there is still a first-mover advantage to be had throughout capital markets. Firms who are agile enough to deliver tailored, innovative products can also maximise the competitive advantage granted by the trust customers have in established banking brands.
In order to capitalise on this first-mover advantage, banking organisations need to have their data house in order, as it were. Not only are breaches and loss events a sure way to lose the long-earned trust of customers, they also encourage regulators to hand down weighty penalties as a deterrent to other players in the market who might be tempted to cut regulatory corners.
Prioritising data integrity is the key to taking back operational control. This requires accepting that your data complexity and volume is now a challenge. Implementing modern control platforms that manage data flows across multiple channels is key to establishing holistic integrity and unlocking greater flexibility, scalability and transparency. Data becomes the bedrock banking organisations can rely on when developing new, enterprise-grade products at speed. The result of this innovation gives banks the opportunity to become industry leaders for regulatory compliance and innovation.
Building a new roadmap
Change is rarely comfortable, but those banking institutions best able to adapt to the new paradigm are the ones who have the best chance to remain competitive.
For some firms, there will be a potential loss of existing revenue streams – a direct result of the lowered barriers to competition. But those who get it right will be creating new products and services that offer value, security and convenience to win over commercial and retail customers, as well as the regulators.
For banks looking to get ahead of this new banking trend, they have the opportunity to approach data as a business strategy in its own right. Those needing to ‘open up’ and become hyper-connected can learn from the global API best practices from outside of the financial services industry. This can help them define a business-backed approach for various customer segments; such as retail, corporate, SMEs and fintech companies.
What’s next for the financial services industry?
The new paradigm offers an exciting opportunity for banks to have an active hand in reshaping their operational realities. To achieve this, digital transformation requisites – like complete data quality and data control and integrity – are essential for exploiting the benefits of increased time to market, transparency and automation, whilst reducing overall TCO across legacy platforms.
Investing in a best-in-class data integrity solution also means gaining a strategic position with regards to processing regulatory controls. It enables organisations to perform control checks in real-time from any number of complex sources, manage data of fluctuating volumes and flag any discrepancies to the right team.
Gresham Techs’ Clareti platform was developed for the new data-centric paradigm. Clareti represents the first bank enterprise-grade data integrity platform, deployable across an entire financial services institution, offering guaranteed data accuracy and availability at any time.
Named Category Leader in Chartis' FinTech QuadrantTM for Data Integrity and Control, the Clareti platform sets a new standard for data integrity and is now operational within more than 70 financial organisations worldwide.
Want to learn more about how you can regain control in an era of fast and hyper-connected data? Take a look at our Reconciliation Revolution Series and discover how you can start transforming your data integrity to remain competitive today.