InvestmentsDec 15 2014

Embracing the ‘big data’ opportunity

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It is right. In fact, the challenge is likely to be of a comparable scale across the whole financial services sector.

This, after all, is the age of ‘big data’. We are all growing ever more aware that new ways of using personal information are transforming how organisations of every conceivable kind work with consumers and each other.

Moreover, we have barely started to scratch the surface of what may be achieved.

A key issue for many consumers is whether their data will ultimately be used for them or against them.

Their fear is that the wealth of personal information they generate – in tandem with the additional data produced by every element of the supply chain that delivers the services they use – will be employed to harm rather than to help.

This poses a tremendous challenge for the financial services sector, where the concept of big data has provoked surprisingly little enthusiasm in certain quarters.

With many customers unlikely to wait for their providers to catch up with the digital revolution, how might we explain this enduring and potentially self-defeating reluctance – and, more significantly, how might it be overcome?

The truth is that in the great scheme of things, not least in light of the technology now widely available, most financial services firms have extremely limited relationships with their clients.

Their use of customer data is extraordinarily narrow – the digital equivalent of looking through a keyhole. For example, retailers that offer loyalty cards have a much bigger window on their customers’ lives.

This seems a remarkable state of affairs when we consider the relative importance to the consumer of a financial services provider versus, to continue the comparison, a retailer that offers a loyalty card.

It is even more remarkable when we consider that data is now commonly referred to as ‘the new oil’ and that financial services providers, as a rule, are not renowned for missing out on highly attractive, long-term trends.

It is possible, of course, that providers, like consumers, may harbour concerns about the security implications.

Yet if we look elsewhere in the world of commerce – the airline industry, for instance, where almost every stage of the customer experience has been relocated online during the past decade – we see such a stance is conspicuously out of step with the proactive approach favoured by other industries.

Cost, too, constitutes a weak defence. The competitive advantage enjoyed by those firms that make the transition quickly is liable to be substantial.

McKinsey has estimated that banks could cut up to 25 per cent of their cost base by embracing the move to digital.

Perhaps one perceived difficulty lies in the belief that big data is yet another milestone in the journey away from what we might call ‘the human touch’.

Accusations of ‘facelessness’ have long dogged financial institutions, with everything from automated phone systems to bank branch closures feeding claims that service levels are at best perfunctory and at worst determinedly unavailing.

But that isn’t what big data is all about. Used correctly, big data is about identifying and meeting consumers’ individual needs.

This being the case, providers and customers alike should see it for what it ought to be: an extremely valuable and powerful add-on.

It should facilitate rather than debilitate. It should enhance relationships by generating and sharing information for mutual benefit, optimising the deployment of resources and refining service delivery to an unprecedented level of granularity.

Rather than further eroding the scope for face-to-face interaction, big data should make more time for the human touch.

The fact is that the balance between mass digitisation and good old-fashioned familiarity is eminently realisable.

Far from being mutually exclusive, the two invite collaboration and synergy.

Big data is not an inconvenience to the financial services sector, it is an opportunity – and an enormous one at that.

Duncan Shaw is a lecturer in information systems at Nottingham University Business School

Big data: How is it used?

Duncan Shaw, lecturer in information systems at Nottingham University Business School, explains why some people are apprehensive about the concept of big data, and why it needs to be a key focus for policy at the highest level.

“Apprehension is both understandable and well founded. Every act of misappropriation, from an A-list hacking scandal to a painfully familiar flood of spam, serves as a fresh assault on consumer faith. Encouragingly, there is a growing recognition at the highest policy levels that big data can work to best effect only if personalisation and precision go hand in hand with protection.

“But serious efforts are under way to provide acceptable and lasting answers to questions such as: who controls my data; what are the real implications of sharing it; and who will clear up the mess if something goes wrong?

“It seems reasonable to argue that once these anxieties have been satisfactorily addressed – in other words, if we succeed in avoiding the sort of ‘horse-meat moment’ that could deal a decisive blow to consumer confidence – the shift towards a big data society will be greatly smoothed. The momentum is already vast. The chances are that very soon it will be both unstoppable and nigh on all-encompassing.”

Advantage for platforms: Expert view

Adam Jones, senior consultant at Altus, explains why big data could provide an advantage in the platform market:

“While many traditional platform providers are ignoring the benefits of big data, a handful of firms such as Charles Stanley, Money on Toast and Wealth Wizards are embracing it to develop rich customer propositions.

“We have already warned those firms reluctant to embrace the use of big data that a new entrant from outside of financial services could easily come in with a new offering that would wipe out many of the traditional offerings. For years, financial services organisations have been sitting on a wealth of customer data, but have been hard pushed to do anything meaningful with it.

“With the proliferation of the internet and our move into a new age of data availability, this approach is no longer acceptable. Looking outside the financial services industry, we see many organisations thriving by collecting and making use of large volumes of data to improve their offering. These are the same firms that could be very well poised to emerge and launch a compelling direct-to-consumer proposition in the investment space.

“It is important for the industry not to be afraid of the use of big data and remember that customers are generally happy for their data to be used, as long as it results in clear and tangible benefits for them. That may be ease of use, perks and bonuses or simply reduced cost.”