Thursday, 25 April 2024

Why most financial organisations are still not run as true data businesses

5 min read

By Andrew Joss

The ability to innovate and evolve into the more agile, analytical, customer-centric, and profitable financial services organisation (FSO) of tomorrow hinges on all manner of questions.

But there is one that probably trumps them all, writes Informatica’s Andrew Joss. What do you want to be as a business? And to fully answer it requires a crucial new mindset: a Data Culture.

What did you want to be when you were growing up?

An astronaut perhaps? James Bond? A proto-Greta Thunberg? Or maybe you fancied being the much lauded chief executive of a hugely profitable financial services organisation (FSO)?

If you decided to go down the FSO route, you’ll know that the industry is facing an array of challenges that wouldn’t have been thought possible not so long ago. Even this time last year.

Operating in unprecedented times

Whether you’re in retail banking, corporate banking, capital markets, or insurance, you’re likely to be under unprecedented pressure from all quarters. To cut operational and go-to-market costs. To move faster. To be more customer-centric, more compliant, more competitive. Especially with the agile, new, quick-to-market players seemingly now emerging from every cyber-backwater.

"You’re also having to navigate the business through globalisation, heightened security concerns, a fast-evolving regulatory landscape, potential trade wars, and other enormous socio-economic upheaval and uncertainty."

It’s essentially all about minimising and mitigating risk. Reputational risk, market risk, credit risk. Doing so often basically comes down to putting funds aside as contingency, but what good will that do you if you lose all your customers? Which, if they fail to act, is a realistic prospect for FSOs in the current climate.

In this context, risk, especially in its more generic sense, goes hand in hand with opportunity. And getting that wrong is, for me, perhaps the biggest risk of all right now.

All of the above, of course, is without the small matter of a global pandemic and its aftermath.

When will ‘normality’ return? When and how can we all get back to doing the things we were doing before? And so on. In all honesty, nobody really knows. Crucially though, in the meantime, the world of financial services goes on. It must. The whole world is reliant upon it, after all.

Data holds the key

A more pertinent and equally crucial question therefore, is how do we cope with what is happening right now? How do we identify, scope, and start taking advantage of the opportunities that ’now’ represents rather than simply trying to survive its difficulties?

"The answer? Data. By better managing it, extracting value from it, and leveraging it. And, through doing so, driving better, more informed decisions leading in turn to faster, better commercial outcomes"

Some market entrants are clearly already doing so. fintech, insuretech, and regtech start-ups, for instance. And while many are small and niche, they are also incredibly nimble, which is enabling them to make quite a mark. Bear in mind also that the biggest disruptions are coming not only from the industry itself, but from outside it. From completely different sectors in many cases, from players already geared for and expert in gainful, data-driven innovation.

Some well-known online stores, for example. And even telcos. Which have quickly become major players – and made rapid in-roads in complementary channels – by bringing an array of differentiated new financial services to market. In some cases, in fact, they are trying to redefine the very nature of the marketplaces they’re disrupting – all essentially by translating their embedded, data-driven, customer centric ethos into a financial services context.

Back to our initial question then. As a business, what do you want to be? Because here’s where it starts to get interesting.

Envision a digital future

What do these so-called ‘challenger-brands’ and out-of-industry disruptors have in common? They are all, by their very natures, data-driven innovators. Organisations for whom innovation is a natural, absolute, and ingrained behaviour. But they are ‘data businesses’ – not because they have to be, but because that’s simply what they are. Just like some financial services organisations.

All of which is vital to the central point I’m trying to make here: that many larger, more mainstream, more ‘brand’ financial services players – those that have tended to struggle where innovation is concerned – must now challenge themselves to respond. To up their games. To accelerate. their innovation. To ask themselves some searching questions.

What do they want their futures to look like? What kind of businesses do they want to be? What do they want to do? All presumably want to get to market faster. With better, more personalised, more diversified products and services. Those that their customers actually want, rather than those they happen to have at hand.

As such, it’s not just about running their businesses, running them better, or even running them better than those of their rivals. But deciding how their business needs to look tomorrow and in the future, if they’re going to compete.

To do that, FSOs must start to think and act like the organisations they want to be. Their future selves. Their more data-driven rivals in fact. They must become data businesses.

Financial services organisations are data businesses

Luckily, there’s great news in that regard. They’re already data businesses. They always have been. They just don’t realise it. What has been missing is a mindset predicated on unlocking the value of that data and using it to power the business forward.

Go back to the origins of the world’s central banks. Apart from issuing money, their occupation was always looking at the economy and how it works. Planning, forecasting, modelling. What are all those activities if not almost entirely data-based?

Capital markets companies are the same. They absolutely live and die by their data. And yet they still define themselves as ‘capital markets’ companies. Do they typically truly understand the impact of data on their operations? Possibly not. More importantly, how much time are they spending on data problems without even realising that’s what they really are? Or understanding the financial implications of that?

By way of an example, there’s an insurance company I know that still keys orders manually; that just happens to be the way it works. But errors inevitably creep in, which is the starting point for many data problems. Key information being incorrectly typed in right at the beginning of the process. So, it’s now incorrect as it flows through processes as it gets used by the business. In some cases that can be materially very,   very significant.

“So, there’s always been a lack of appreciation of data’s role in FSOs. The difference now is that it’s becoming more obvious, more paramount, and much more urgent.”

Okay, so how do FSOs recalibrate around this? Re-evaluate their operations in the context of data? Start treating data as the asset it really is?

By adopting and developing what I would term a Data Culture

A what? Put simply, it’s just a structure for gaining a broader, deeper appreciation and understanding of data and its importance. Of what data means for and across the entire organisation. And for putting that understanding into affirmative action.

Simple things, like how changes made to data will  impact people and processes everywhere. What will happen if somebody gives me data that’s out of date or incorrect? Or if I push incorrect data into the cloud and it gets used incorrectly? Those questions rarely get asked. Why? Because not enough people recognise the need to ask them. Or even how.

“As such, data culture isn’t just about innovating technologically, but philosophically. Supporting data literacy and enabling data responsibility and accountability.”

Look at digital transformation (DX). True DX is about asking: “What is our business right now? What do we want it to be? How do we get there?”

That’s where data culture becomes so important and really starts coming into its own.

First, in that critical imperative of helping the FSO better manage, extract value from, and leverage its data. And so, as we have already touched upon, driving better, more informed decisions, and therefore faster, better outcomes. Which, of course, is what it’s really all about.

Data Culture is also invaluable in helping the FSO use its data to pinpoint, shape, and hone its value propositions. To develop a more innate and intuitive understanding of what and where its value propositions are, of what and where it wants them to be, and of how to ensure they evolve there smoothly.

In improving and better personalising the products and services it offers. In identifying the most pertinent, in-demand offerings across its chosen channels, target personas, and groups. In developing ‘combination’ products and services that give customers exactly what they want as opposed to what the FSO happens to have available at any given point.

All in turn helping create precious customer and client loyalty and stickiness and allowing the FSO to become a long-term partner in its customers’ lives.

Continuing to nurture and improve your data culture will push data cost-bases down, but data value, impact, and outcomes up.

It will provide a greater understanding of what ‘good decisions’ actually look like and how to make them.

And the ability to do so based not on surmise or assumption, but facts, figures, and insights – data – you know you can rely upon absolutely.

In short, successfully nurtured, Data Culture will cut the time, risk, and cost of financial services innovation while simultaneously accelerating and monetising it.

And that makes sense whatever you want to be

How does an organisation enable, create, and ‘get’ such a Data Culture? And make it work for them? Where does it start? With the right foundations, the right technologies, and the right collaborations and partnerships.

And there really are none better than Informatica.

Talk to us and find out why.

Andrew Joss is the head of business value at Informatica. This is a sponsored article and does not necessarily reflect the opinion of the publisher.

Keywords: Data, Risk, Digitalisation, Fso
Institution: Informatica
People: Andrew Joss
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