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IS MONETISING DATA THE KEY TO COMPETING IN PAYMENTS?

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Simon Wilson, Co-Head Payments at Icon Solutions

 

As competition in payments has increased, data has long been touted as the cure-all for incumbent banks. If banks could charge a transaction fee for every time they are told that ‘data is the new oil’, then there would be no need to worry about competing. But the inconvenient truth is that despite the vast amount of customer data that banks sit on, the ability to use it to add value to clients and generate revenue has so far proved elusive for many.

We are now starting to see a concerted effort address this challenge. Banks are reconceptualising data as a “strategic asset”, and investment in initiatives to monetise payments data has doubled in the past year. But for these initiatives to be successful, it is crucial to understand where the concrete opportunities lie, how potential can be translated into action, and the considerations that should be taken into account.

 

Solving corporate pain-points through data

Banks keep hearing that they need to monetise data, but it is not clear exactly how this works in reality. In fact, a key challenge for incumbents has been a lack of clarity about which data-driven products and services will create the most value for customers (and subsequently revenue for banks).

Although there is no single killer use-case, it is increasingly apparent that the corporate banking space promises the greatest revenue generation potential for incumbent banks.

Simon Wilson

Through services such as liquidity management and cash forecasting, banks can do more than just facilitate the moving of money around the business. Rather, they can establish partnerships with corporates to enhance commercial insight and realise significant efficiencies, while also addressing fraud and compliance requirements. McKinsey predicts that improved liquidity management and cash forecasting has the potential to drive 10% revenue growth, and this shows that banks do not need to reinvent the wheel to stay competitive. Instead, it is about using data to enhance existing services to solve customer pain-points.

 

ISO 20022 migration – translating potential into action

A key challenge for banks in delivering new cash and liquidity management services to corporates (and in fact any data-driven proposition) is organising and transforming the data they have to ensure it is useful.

ISO 20022 upgrades will be integral to this process. Although a mandated regulatory requirement, incumbents should proactively prioritise strategic ISO 20022 migration to benefit from standardised, relevant, and enriched datasets that are directly associated with the payment message. This will allow banks to improve and extend the payments-related services they can provide to customers, supporting the move from pure transaction-based services to value-added insights.

This is by no means an easy fix and presents significant budget and resource headaches, with NatWest describing it as a “huge task.” But the opportunities suggest that the juice is worth the squeeze, so incumbents should resist the temptation to only do the bare minimum necessary to be compliant if they want to ensure their future competitiveness.

 

Balancing data with trust

When it comes to data, we cannot ignore the elephant in the room – data privacy and protection.

To date, incumbents have excelled in this area (and in fact should be more vocal on the issue). This is reflected in a survey undertaken by PwC and Strategy which found that 94% of customers trust their bank to protect their data and use it responsibly.

In comparison, big tech is facing fierce scrutiny into their data practices. Payment platforms, having benefited from relatively light-touch regulatory oversight to date, can also expect increased focus on their use of customer data as their marketplace position strengthens.

In a bid to compete and stay ahead through data, however, banks must not squander their inherent trust advantage. Trust is hard-won and easily lost, and with privacy poised to become one of the defining issues of the 21st century, shifting from a transaction-based to a data-driven model presents plenty of potential regulatory and reputational potholes.

But by leveraging their experience of highly regulated environments and robust compliance procedures, incumbents can continue to ensure industry-leading best-practice in the storage and deployment of customer data.

 

How can banks monetise data?

To stay competitive, banks should commit to a long-term transition from a transaction-based revenue model to a data-driven approach. But it is crucial that banks recognise that data itself has no real value.

The key to monetising data is the ability to organise, translate and deploy this data to make their customers lives easier. And to do this successfully requires a clear understanding of the technical, organisational, and cultural changes that are needed, as well as a clear strategic roadmap to realise them.

 

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EXPERIAN LAUNCHES VERIFICATION SERVICE TO SUPPORT FASTER, MORE ACCURATE LENDING DECISIONS

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Work Report™ is the UK’s first service that automates the digital sharing of payroll information on behalf of the consumer

1 in 3 employees set to benefit through partnerships with Salary Finance and Sage

Consumers in the UK will be able to get access to better financial products and services, as Experian launches a new service to help lenders provide even faster, more accurate and bespoke lending decisions.

Work Report™ is the first digital verification service that will allow consumers to consent to digitally share their payroll information with another organisation. It provides connectivity to an employer’s payroll data to provide direct confirmation of a consumer’s gross and net income, as well as their employment status and tenure, in a matter of seconds.

For example, for lenders, the solution can be used as part of their affordability and credit checks when a new customer applies for financial products and services. It helps to provide a faster, more accurate, lending decision, reduce credit risk and create a better overall digital experience.

Work Report™ is part of a suite of configurable verification services provided by Experian that enables a consumer to confirm their identity and consent to share verified credit information, income, and expenditure in a single data exchange.

Additional to Work Report™, as part of the suite, the services include an Employer Search Engine powered by the UK’s first National Employer Database (NED), a single source of verified employer names, covering 99% of all UK employees. This can be used to accurately capture and standardise relevant data and enables verified employment information to be collected to inform a credit decision.

Employers who want to check the previous employment history of a new employee, with consent can also use the solution, as well as those wanting to automate sharing of payroll information to reduce cost and help employees access workplace benefits and services.

 

Paul Speirs, Managing Director of Digital Consumer Information at Experian, said: “There is an on-going requirement for people to share their personal financial information to access services – whether that’s applying for a mortgage, a new job or renting a new property. Work Report™ enables people to share their payroll data quickly, conveniently, and securely with their consent. It helps them to get access to better value services and proactively manage their financial lives. We’re excited to be playing such a significant role in moving these processes into the digital age.”

New Experian research shows that 97% of people asked to share their payroll data in the last three years did so. It also identified a healthy appetite to share payroll data with 72% happy to share data in a mortgage application and over 40% in other types of loans. Three out of four consumers willingly share their data where the value exchange and incentive to share is clear.

Younger people are more likely to give consent for direct access to their payroll data with 45% of 18-24-year-olds saying they would, compared to 37% of people aged 45-54. This trend has increased through the pandemic as lenders have invested in their digital services and consumers move online to source financial products, rather than talking to a representative, or entering a branch.

The service is produced in partnership with global Fintech platform Salary Finance https://www.salaryfinance.com/uk/ and recently onboarded payroll software provider, Sage. Work Report will give the opportunity for 1 in 3 (over 10 million) employees to share their employment details.

 

Asesh Sarkar, Co-founder and Global CEO at Salary Finance, said: “Salary Finance is working with Experian to create a unique network that will provide direct connectivity – with a consumer’s consent – to their employer’s payroll system to confirm their gross and net income directly from their employer, as well as confirming their employer and length of employment. This makes the sharing of payroll data quicker, safer, and more secure and has the power to enhance lending decisions and improve financial inclusion. The network is growing rapidly, and we expect it to reach 2 in 3 UK consumers by December 2021.”

 

Aaron Harris, Chief Technical Officer at Sage, said: “Our mission at Sage is to build experiences that connect, remove friction, and deliver insights to the organisations that make up our network. Sage software pays around 25% of employees in the UK. Removing friction between employees and service providers will provide the lender with verified, accurate, payroll information when offering items such as tenancy agreements, mortgages, loans, and other financial products and services, and the employee with a digital proof of employment. This will enable access to credit, in a new, frictionless faster way generating value to both parties as a trusted payroll provider.

“This is an example of the way technology can deliver value and knock down barriers, allowing individuals to harness the power of their data. At the centre of this service are our customers, who always remain in control of their data, deriving value from being part of Sage’s digital network.”

The launch of Work Report™ takes Experian’s verification services beyond Open Banking connectivity with the ability to now connect to payroll providers directly helping more organisations provide faster, more accurate and bespoke decisions online.

It signals Experian’s commitment to support the UK government’s Open Finance initiative which will enable consumers to take control of their personal financial information, share verified data with third parties and get quicker access to better value financial services.

 

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TENUREX AND ELUCIDATE PARTNER TO INCREASE FINANCIAL INCLUSION WORLDWIDE

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TenureX and Elucidate have announced a strategic partnership with a mission to increase financial inclusion worldwide and tackle the laborious and outdated approach taken by correspondent banks when onboarding respondent banks and managing the periodic review process of counterparties.

Both companies share the vision that everyone in emerging markets deserves the right to participate in global financial markets. To date, small and medium sized banks in emerging and frontier markets have been denied the ability to engage and create corresponding banking relationships which are the basis of fast, cost-effective payments across borders, often being inappropriately branded and de-risked solely based on their location or lack of scale.

Making use of the vast amounts of under-utilised data available, TenureX and Elucidate will together help small and medium-sized banks demonstrate their financial crime risk management capabilities, quickly access new payment methods and establish better, long-lasting correspondent banking relationships. These benefits ultimately result in a stronger and more transparent network, reducing friction and making the market work better as a whole.

Izhar Arieli, CEO of TenureX, stated: “We continue to focus on our mission to allow banks to de-risk a transaction and not to de-risk a partner. With our partnership with Elucidate, TenureX is adding to its offering a reputable regulated benchmark. Now, TenureX’s reflect the best in class enhanced due diligence report on a respondent bank, created in unpresented speed and quality. This partnership is synergetic for both companies, enabling fast growth, effective scale, and high quality services.“ 

Elucidate adds unrivalled value through a data-driven, standardised approach to identifying and addressing money laundering, bribery, corruption and other financial crime risks, and will demonstrate that banks on boarded by TenureX have consistently proven their ability to control risk, providing evidence of this control via an independent benchmark.

Shane Riedel, CEO and co-founder of Elucidate, stated: “This partnership between TenureX and Elucidate will enable people and institutions in emerging markets to access better, faster and more cost-effective payments and finance. This is the real value that our innovative approaches can bring to the market.” 

 

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