Financial institutions collect mountains of customer data every hour and are trusted, sometimes, with assets worth trillions. How can you use that Mount Everest of data to your advantage? And how is embedded finance changing the game? Here’s how a sharp bank data strategy can help financial institutions conquer data and beat their competitors to the summit.
What is embedded finance?
2021 has been the year of embedded finance. The term crept into the financial services lexicon, and now, everyone in banking is talking about it. Embedded finance is the acceleration of non-traditional financial businesses providing financial products via their platforms. For example, social media, telecommunication and ride sharing giants are expanding their revenue opportunities by offering debit and credit cards, digital wallets and lending services. This is great news for organizations’ business expansion and for consumers who are looking for an easy one-stop shop and value brand loyalty.
Embedded finance can be an opportunity or a threat to traditional financial services firms. The outcome depends on how ready your data strategy is for digital-first business. The trend provides an excellent chance to expand business and further strengthen the customer relationship. On the other hand, banks that are lagging in technology innovations will soon be left in the dust.
Companies that offer financial services but are themselves not a financial services company often outsource their financial offerings to third parties to run it for them. Some financial institutions offer banking as a service (BaaS). Embedded finance is tricky for traditional banks outsourcing their BaaS talents because the bank may be behind on their digital transformation. Banks must invest in technology, unite fragmented data repositories and eliminate silos to not only remain competitive but to stay afloat.
Transitioning modern tech from paper to practice
According to Jennifer Manry, VMware Vice President of Global Industry Solutions, many banks have lofty technology goals; however, they’re often held up from ever making it into the day to day. Financial institutions understand the power artificial intelligence, machine learning (AI/ML) and blockchain will have on the future of the banking industry. Leaders are investing in pilot programs; however, Forrester predicts only 30% of blockchain pilots will make it to production. The hurdles that halt many pilot programs in their tracks are a shaky digital foundation, inexperienced internal teams and limited budgets.
Partnering with digital transformation experts who specialize in the financial services industry can provide tailored solutions to fulfill your unique business goals. A digital foundation that will work for you now and scale with your organization as it evolves must have the following:
- Consistent infrastructure
- Intrinsic security
- Consistent operations
These three pillars can then support cutting-edge technology, such as AI/ML and automation, and give you the tools you need to act upon your data strategy, the goal of which is to curate the best customer experience.
Customer behavior and strategic insights
The customer should drive every technology investment a financial institution makes: customer acquisition, customer engagement and the overall customer relationship. Customer-first banking innovations are all about the digital experience. Since in-person interactions were interrupted by the pandemic and are unlikely to return to pre-pandemic trends, banking institutions must sharpen their digital platforms and offerings to fulfill current demands and delight with futuristic features. For example, as a result of the pandemic, 76% of financial services C-level technology leaders are accelerating their digital transformation efforts. Banks must distribute digital services to match the new way customers consume them.
To remain relevant and resilient, banks must continuously innovate to create a top-notch customer experience. Like Ilan Buganim, FEVP and Chief Tech & Data Officer of Bank Leumi, sagely says, “Shape your future to avoid others shaping yours.” New technology will vitalize your competitive advantage and data can inform which innovations you should pursue first.
Another key component of a sound customer-first banking is the ability to scale quickly and safely. The only way to accomplish that is with a solid infrastructure, intrinsic security and a suite of modern apps.
Data’s relationship with security
Financial crime is a major blocker banking leadership faces today. Additionally, they must meet ever-changing and strict data security regulatory compliance rules. A breach not only puts customers’ data at risk but puts your reputation in danger. A data strategy that leverages AI/ML can predict activities to battle fraud.
It’s not a slight to humans, it’s just the truth: robotic process automation (RPA) and computers are better and faster than us at certain tasks. Making smart, quick and predictive decisions to neutralize fraud is one of those tasks. When you entrust certain tasks to automation, your human staff is free to work on other value-add tasks that only a human can excel at, such as customer engagement.
The future of banking innovation
The right data strategy, complemented by emerging tech transforms financial operations. It allows you to use data to unlock new revenue opportunities and business data to drive automation and efficiency.
Subscribe to the VMware podcast “Don’t Break the Bank: Run It, Change It” to explore what’s keeping financial services CIOs and their teams awake at night and the technology solutions that can prepare the financial services industry for the future.