How financial institutions can use data to turn regulatory pains into customer gains

220217 Frank Buters 1
Frank Buters
Apr 13, 2022 · 7 min read
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It’s no coincidence that the word “accountability” came from the word “account” and expressed the liability of being called to count or enumerate exchanged money. The word in this sense is traced back to 1400, though by the late 1600s, more figurative meanings also came into use for “account” – as in to give an explanation for – and “accountability” – as in answerability (hat tip to Etymonline). The accountability that banks and other financial organizations face today, which stems from their ability to literally count and track money, also holds them to high standards in figurative accountability. That is, accountability to meet security and compliance standards by national and international regulatory bodies; to deliver end users reliable services; and to benefit society at large by practicing duty of care and evolving with the times.

But because they process sensitive consumer data, financial organizations and others that operate in regulated markets often experience the rapid changes in standards and regulations as stressful or downright painful. Knowing that the impacts of mishandling data are extremely high, they want to shrink risk. Yet their low risk appetite makes them shy away from implementing new, more effective IT solutions. Hence, their conservatism toward change. Meanwhile, they may lose data-unlocking opportunities on the market to newer companies and startups. Younger and/or smaller competitors will likely have smaller client bases and less IT legacy, which makes implementing changes easier and involves a softer impact should something go amiss. In turn, these smaller companies can swiftly offer services that compete with – if not beat – what banks and other larger financial institutions can offer.

However, we believe that even for the large established institutions operating in regulated markets, regulations don’t have to be restrictive or a cause for pain. With the right IT partner, greater data accountability can be a gain. It can open the door to a new service or spark ideas for better customer service and greater market differentiation.

Unique complexity, added pressure

Banks and other financial institutions face uniquely complex data management challenges because they’re subjected to the strictest of regulatory oversight. In the first place, they need regulatory approval for a license to operate. They then need to report to multiple regulatory bodies, ensuring that both they and their end users stay compliant.

Not only is the level of scrutiny high to begin with, but reporting standards evolve so fast that organizations struggle to keep up. Nowadays, processing personal data within the limits of the General Data Protection Regulation (GDPR), for example, adds new pressure to know where personal identifiable information is stored and for which purposes it may be used. Thickening the complexity, third parties – such as public cloud providers, with their varying geolocations – are often involved in IT processes. And the more parties and geolocations involved, the more pieces to the GDPR compliance puzzle.

But compliance aside, service continuity is crucial in regulated markets. Because their mission-critical activities involve consumers’ most valuable assets, organizations must keep business running as usual. At the same time, how well they handle internal processes impacts how they handle processes that the external world observes and experiences. More than ever, banks and other financial institutions are under pressure to uphold their duty of care. This, in turn, is connected to their customer service, including the ability to communicate accurately and effectively with customers about the changing standards and procedures that affect how their data is handled. How well they take care of their consumers matters in the eyes of national bodies, such as the Netherlands Authority for the Financial Markets (AFM), as well as for sake of their public reputation.

Listen to the dreamers

The low risk appetite of companies operating in regulated markets makes them slow to make IT changes and process historical data. As a result, legacy IT and/or shadow IT are major issues that need to be dealt with, even for companies that may be just a few years old. For changes made outside regulated markets, there is less overhead, but inside a regulated market, waiting for approval from regulatory authorities or an audit also stalls transformation.

Even if the company starts using new software or another solution that promises to improve data processing, other assurances must still be met. That includes guaranteeing the uptime of the mission-critical activities and complying with all the aforementioned reporting to the authorities. Thus, it takes a long time to move to a new system. These requirements mean that projects can take many years, being outdated by the time they're finished. This alone holds back a lot of innovation because the people involved already know how painful it can be. It also prevents conversations about new solutions from even being initiated.

What’s more, even the most conservative of companies have employees who understand how data can transform business. We do well to listen to their ideas about how to realize data-driven business cases and value generation. These employees – we refer to them as the “dreamers” – usually just lack the means to execute their ambitions. But it’s a waste for them to keep their data dreams tucked away, filed under something like “Far-off future” or, perhaps worse, “At my next job.”

Multiple purposes and possibilities

So how can banks and other financial organizations channel their own dreamers’ energy to realize their visions all while still staying compliant? For starters, by effectively using and managing data. To this end, at Schuberg Philis, we integrate consultancy services in the work of our customer teams. Our consulting frameworks ensure companies are identifying value-generating initiatives and pursuing those that make the most sense all while integrating well-managed data into their IT solutions. For example, making data available for regulatory reporting can have the – wanted – side effect of making the same data available for other uses, such as to drive the next marketing campaign or provide insights for product development. Bottom line: our consultancy work seek ways to ensure our customers efforts are not just single-purpose, but rather unlock multiple possibilities for generating value.

Having well-governed high-quality data gives organizations more control. Once in control, a company can stop firefighting and focus on innovating. This can improve its position on and time to market. As an illustration: with high-quality data in place, we can make sound, solid recommendations to offer customers precisely the advice or product they need when they need it. Data handled right gives a company the agility to quickly respond to emerging trends, react to customer behaviors, and identify new prospects. It also helps make data easy for end users to tap into.

Accessibility and transparency are hallmarks of social accountability. As consumers and societies, we demand high levels of both when it comes to the processing of personal data. Companies that are accountable to their customers and, for that matter, society at large are more likely to be trusted. A relationship characterized by trust makes transactions easier, more effective, and enjoyable. This leads to better customer satisfaction, which for Schuberg Philis is the only KPI that ultimately matters. And which for any organization, no matter their market, is an undeniable gain.

By Jochem van Leeuwen and Frank Buters