Big Data Is Becoming Essential For The Future Of Banking

October 10, 2022  |  Mark Hillary
Banking is a very traditional industry that has been with us in the modern form for hundreds of years, although the concept of institutional lending and borrowing has existed for far longer. The industry has been undergoing rapid change in recent years thanks to the arrival of fintech - financial technologies.

Fintech is not just a single technology. It’s a wave of change that enables new companies to launch their own financial services, rivaling the services offered by traditional banks. This wave of new services goes from very specific single services, such as foreign exchange or small loans, through to full service banking. It’s too big for the traditional banks to ignore so all the major brands are exploring how to innovate or how to acquire their new rivals.

I wrote in this blog last July that the banking industry needs to use Big Data as a tool that can help them maintain the type of innovation that customers are expecting. Back then I mentioned several business processes that can be improved with Big Data, including fraud detection, loyalty, and customer segmentation, but I want to focus here on customer insights.

New banks launched today with modern back office technology are not just offering a better service because their technology is modern – there is a fundamental difference in attitude towards the customer and this is where Big Data can add value.

Look at the services offered by most traditional banks. A current account. A savings account. Loans, mortgages, and credit cards. It’s been a very similar mix of services for decades.

Now look at any of the emerging banks that have built their entire service offering in the past few years. Starling Bank is just one good example. They can connect child accounts to an adult account. They allow multiple cards to be linked to a single account – in case an elderly account holder finds it difficult to go to the shops and asks a friend to use their bank card. They make strong use of apps to give instant notification when cash is being spent and also categorize it immediately – so you know how much you are spending on travel or food each month. They also feature several tools designed to help increase saving, such as savings buckets for individual targets – like a holiday.

What’s the big difference?

This approach shows two major differences with the traditional idea that banking services are just account based. The first is that a bank that offers financial guidance and advice to their customers can insert their app into the lifestyle of the customer. The customer starts using the app to make financial decisions. The bank is an adviser, not just a service.

The second is that these emerging challenger banks are demonstrating that banks have an enormous amount of transaction data on their customers. They can see how much the customer earns, how much they spend, how much they borrow, and how they organize their finances. This sea of data can be analyzed to create recommendations and tips for the customer that help to nudge them into better financial health.

The customer has no idea that this is a Big Data strategy. All they see is that their bank sends a warning that they have spent 25% of their monthly income in restaurants. This proactive help with finance is increasing expected by banking customers and can only be delivered by organizing transaction data in a way that allows these insights to be generated.

Big Data in banking has an exciting and innovative side beyond database design. Customers are now expecting banks to help improve their financial health. What is your company doing to organize your data so this is possible?

Banking is an industry that has always been filled with data. We have already written about why Big Data in banking is set to explode. Moreover, the COVID-19 coronavirus pandemic has offered data analysts some great opportunities to study Big Data trends across the world. Read more about Big Data in a time of pandemic.

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