ACCURITY DATA VIBES: Data Contracts: The Cornerstone of Data Mesh and Governance


New Digital Challenges for Financial Institutions

Jan Rážek
June 23, 2022 | 7.5 min read
Historically, the banking industry and the broader financial sector benefited from a very robust and stable business environment. From our experience the priorities of the industry were on core IT projects like data harmonization, business data modelling, or new data storage creation in the form of a data warehouse, data vault, or data mart. The primary drivers of these initiatives were the regulations of the financial sector. Secondary, the banks were interested in data usability.

Driving the transformation to digital

Simplity has numerous experiences with these “traditional” financial industry projects. Nevertheless, lately, we have started to notice a shift in priorities and the industry might be starting to solve slightly different challenges. I believe, there are at least two major reasons for this.

New challenges for the digital revolution of finance

Around five years ago the business to consumer (B2C) industry began to experience pressure from small companies, which started challenging the way the big enterprises conducted their business. I am mainly talking about fintech start-ups. Several small companies began offering user-friendly solutions to investing, money exchange, borrowing (and lending) money, and basic insurance. Although the services provided by these industry newcomers were considerably limited, they could compete with the traditional players on better marketing, innovativeness, improved user experience, and a much faster time to market. These reasons contributed to traditional players starting to see an increased churn of their customers on some of their products.

The second reason why banks might feel like it is time to start investing more resources in customer experience and customer analytics is because of the impact of the COVID-19 pandemic. Apart from severe financial pressure on both B2B and B2C banking customers, or on the financial performance of the banks themselves, the industry players were forced to cope with the increased reliance of their clients and customers on digital channels (PDF - KPMG, Nigeria). However, the digital transformation and adoption of digital tools, accelerated by the pandemic, actually represents a massive potential for the sector.

Whereas, historically, banks had access to all transactional data of their customers, nowadays these data are enriched also by data about customer behavior. These get generated after every customer interaction with the website or banking application. This opens new possibilities which were, until now, limited only to purely internet-based businesses such as e-commerce or SaaS companies. And since the customer experience plays a significant role for such companies, the financial industry is now shifting towards customer-centric projects related to customer experience, customer journey mapping, customer matching, and customer retention.

Exploring a customer-centric project

One of the customer-centric use cases we will talk about here revolves around a “loan calculator”. This customer analytics project can help banks track customers who visited a landing page with a loan calculator and played with different loan possibilities but then decided to leave without applying for the loan. Since the bank has plenty of information about the customer it can conduct the following steps:

Step 1 - Enrich the (single) customer view, highlighted in the image below, with data from other sources e.g., social media, call center, or internal CRM system, in order to get a more detailed understanding of the customer behavior.

Step 2 - Decide which channel is ideal for follow-up communication, for example:

  • Retargeting advertisements across various channels e.g., email, PPC on Goggle, PPC on social media, for customers belonging to segment A.

  • Call conducted by the call center for customers belonging to segment B.

Step 3 - Provide the customer with personalized cross-sell and upsell offers.

Apart from the improvements mentioned above, the collected data can also drive continual improvements in customer experience, customer satisfaction, and customer profitability:

Step 4 - Find out what steps can be adjusted on the website so that fewer customers leave the loan calculator and conduct A/B testing.

Step 5 - Predict which customer segments are more likely to apply for the loan through the online process.

Step 6 - Predict which customers are more likely to be upsold or cross-sold, etc.

Diagram of an effective data framework with single customer view at its center | Simplity data intelligence professional services

Image 1: An effective data framework with single customer view at its center

Having single customer view enables the ability to analyze data gathered about the customer on their omnichannel customer journey and use it for the improved, online and offline, customer experience, resulting in better sales results for the bank, insurance group, or other financial services organization.

However, digital banking does not just bring positives, it can also lead to potential issues such as:

  • High numbers of customers all using the digital products at the same time is a challenge for companies. The robustness of the IT system needs to be tested and its stability in case of high website traffic verified.

  • Financial institutions need to continually offer new products to stay alive and thrive. Branches and bank advisors used to be an ideal channel to communicate with and educate some customer segments, but now limited use of branches can be a challenge to this channel.

  • Online fraudsters are getting more sophisticated with their cyber-attacks. This is a real threat to the industry and financial institutions will need to invest in continual cybersecurity improvements.

Overcoming transformation and modernization

Overall, the shift of the industry towards new digital experiences and new and exciting challenges is a trend that is happening. The companies that are willing to be agile and participate in this transformation and modernization have the potential to improve customer satisfaction and increase their profits. The customer count, as well as the revenue, of companies that fail to adjust to the ongoing change will likely decline.

Simplity is here to help. If you are interested in how the customer-centricity could be leveraged for your specific use case or understanding what your ideal solution architecture would look like, get in touch – we can schedule a free initial consultation where we will discuss your possibilities in depth with you.

Jan Rážek
Business Consultant