The future of banking is in the hands of transaction data

Collaboration with fintech companies will allow the banking sector to innovate, create new income sources and improve its business proposal.

By Marc Torrens

Over the past decade, the banking sector has seen how new competitors have emerged on the playing field, particularly fintech companies, telecommunications operators and technology giants.

Additionally, the increase in digital technologies, IT marketing, data storage, crypto technologies, artificial intelligence and new regulations have all allowed these new players to challenge the current banking business.

Yet despite all such efforts, the banking sector continues to lag behind other sectors.

Banks need to design new business models that go beyond traditional banking and use innovation to position the sector as a leader once again.

When faced with threats from these new competitors, the banking sector has reacted through the use of different measures. Some banks, for example, have increased their investments in new technologies. Others have become associated with fintech companies.

New customers want to feel that their bank anticipates their needs

Most of these initiatives, however, only attempt to protect existing business models. And if the macroeconomic context is added to these threats, it would seem that the current banking business model will not be particularly sustainable in the future.

What will the future look like?

At present, banks hold knowledge about their customers that is too simplistic and they offer a highly complicated set of products with very subtle differences between each one. All of this is at a time when consumers are changing at a rate of knots. Now they are demanding omnichannel communications and product simplification.

Banking industry
Banks must customise their services and make them tailor-made for each customer (Photo: Natsicha/iStock)

Customers demand convenience, customisation, accessibility and usability. New clients want to feel that their bank anticipates their needs, not that it is bombarding them with offers of irrelevant products.

This means that banks must not only make custom-made products that suit each individual customer, but they must also learn to offer them instantly, at the right time.

Transaction data – the key

In this new scenario, transaction data has become one of the most valuable assets for banks, capable of differentiating them from fintech or technological companies. 

Transaction data codes everyone’s daily lives in a very concise way. “Tell me how you spend your money and I will tell you who you are.” A subtle difference, for instance, from the aspirational data that marketing campaigns promote.

To illustrate this difference, imagine a customer who loves sports cars. He visits many car websites and belongs to thousands of sports Facebook groups. His online behaviour reveals that he loves this type of sports car. But the truth is that he owns a boring utility vehicle. Only the transaction data can code the type of car he has, which is extremely valuable information that the rest of his digital footprint cannot reveal.

Transaction data has become one of the most valuable assets for banks

Transaction data is incredibly useful thanks to its historical records. Banks have been recording transactions since the 1960s and this can give a new perspective over customers when analysing their preferences. “Tell me who you were and I will tell you who you are.” 

Banks have an enormous opportunity to create new business models based on the information that they have been collecting for so many decades. 

Likewise, thanks to this knowledge, the customisation that customers and the sector are seeking will be easier to reach. But this use of information might not be a great enough transformation on its own to uphold a sustainable banking model

Why? Due to open banking: a regulation that obliges banks to open up their data and services to third parties of all kinds – both financial and non-financial – and that could make even greater inroads into the banks’ sources of income. 

The role of the banking sector as a platform is going to be decisive. Banks that opt for integrating agents from other sectors will be better positioned to compete. And what is more, they will be pioneers developing the disruptive capacity that is needed to transform other sectors.

Exploiting the great value of the data that banks have been collecting for decades opens up the door to many business models.

The key will lie in whether banks realise that their future is to be found outside the banking sector and that it will be strongly linked to the value of this data. Otherwise, there will be no future.

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