Many are pointing towards the fresh-faced startups as the winners of the new era of financial services but if they are ready to grow and evolve, it could still be boom time for established players. They already have the data, they just need to turn them into insights and new services.
Two elements are currently travelling on parallel tracks that will each have a huge impact on the future of financial services. One is the technology revolution that is seeing more customers ditch the high street for digital alternatives such as online and app-based services. The other is the PSD2 regulation that will blow the retail banking game wide open, enabling new players to enter the space.
New data came out recently that said that banking customers are using digital services in unprecedented numbers. According to the British Bankers Association and accountancy firm EY, 20 million people in the UK used smartphone banking apps in the last year. That’s 38% of the UK population. It represents a large swing in popularity, especially with consumers previously having reservations about making digital transactions.
The names Monzo, Atom and Starling will now be familiar to anyone with half an eye on the industry. But the truth is that these challenger banks won’t be the only new guests at the table. And although the doomsayers will allude to these companies eating the big boys’ lunch, any number of newer players could emerge from the woodwork. PSD2 is making data open for all and so financial services will be delivered in new ways by different people. Their names might not be ones you recognise today but will be unavoidable tomorrow.
This much is true, though. Tech investments to bring about innovation have troubled financial services firms for a long time. The legacy technology they have has been an albatross around their necks. And it’s a stark contrast to the nimbler startups that don’t have this hindrance. But in today’s marketplace, it is vital that tech innovation does take place for two reasons. Firstly, making better infrastructure decisions will help improve services that benefit both staff and customers. Also, it helps with the introduction of added value services that will help drive customer loyalty in the increasingly competitive sector.
How does all this work though, particularly for the established players who have the biggest of battleships to turn around? The first thing to note is that the front end isn’t so much the problem. As swish as many of the new players are, there’s plenty of know-how in the industry about making a service that looks great. The biggest stumbling block is what happens behind the scenes to make sure new services can come to market quickly, with the required functionality and security. The driving force behind all of that is the data and how it’s connected, consolidated and presented back to the relevant stakeholders in a timely manner.
Within financial services, the typical picture seen throughout the industry is one where complex layers of data from diverse sources become problematic. They cause a labyrinth of dots to join that in turn present challenges to businesses looking to create the cohesion needed for new services. Add to that the problem that custom code and environmental configuration issues can create a fragile infrastructure that increases security risk.
The approach that many organisations take to customer data consolidation is the use of enterprise data warehousing. This type of solution supports batch processing and after the fact analysis. However, because data warehouses are primarily designed for reporting, they struggle when it comes to real-time interaction.
An alternative would be to leverage the application programming interface (API) available form software providers to gain the system access needed to perform various tasks on data from the various sources. To make the use of APIs more efficient, we’ve seen setups whereby an API platform connects to a back-end database and application APIs. On the other side, it might connect to a front-end Web server or other apps that were previously connected directly to the APIs.
Clearing The Clutter
So what does this all mean in real terms? Well, the use of an API platform streamlines the data integration development process and simplifies interfaces. It’s a great advantage for managing existing services but it’s also just what the doctor ordered in terms of smoothening data aggregation when rolling out new services. In short, companies will spend more time listening to customers and tweaking front end systems, as opposed to performing heavy lifts at the back end.
Agility is the name of the game in this new world of financial services. Customer preferences are changing and the industry must have the tools in place to move with them. The quality of the source data that powers new services is important. But the real challenge is in enabling different data sets to talk to each other and produce meaningful outputs that the users care about.