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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.

 

Finance

AIRBANK SELECTS YAPILY TO BUILD A FINANCIAL MANAGEMENT SOLUTION FOR SMBS

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Airbank, a financial management solution for European startups and SMBs, has selected open banking infrastructure provider Yapily to help its users manage their finances with ease.

Airbank provides a simple financial management solution that aggregates all bank accounts in one place and delivers more control, visibility, and automation to modern finance teams. Startups & SMBs use Airbank to access bank accounts, monitor cash flow in real-time, create reliable forecasts, and make business payments.

Airbank matches bank transactions with merchant and category data to give finance teams complete visibility into revenues and expenses, thus helping make their lives easier with cash flow budgeting, forecasting, and reporting.

Yapily’s API infrastructure provides Airbank users with a smooth, simple way to connect to more than 1,500 banks across the UK and Europe including Deutsche Bank, Commerzbank, Sparkassen, Volksbanken and neobanks. Airbank selected Yapily for its strong coverage in Europe, with a specific focus on Germany, France, Spain, and the UK. Yapily’s European bank connectivity enables Airbank’s customers to scale and grow across Europe, delivering forecast visibility anywhere they go.

The partnership with Yapily alleviates Airbank’s customers from spending time and resources managing their finances – giving them direct access to all the financial and contextual data they need in one tool. Historically, most businesses created budgets and cash flow forecasts in manual spreadsheets which is time-consuming and error-prone. With Airbank, customers save time and costs to focus on value-adding business tasks.

The partnership also enables Airbank’s customers to use its data enrichment platform and transaction categorisation engine to turn the raw data from bank accounts into meaningful and actionable insights. Airbank reconciles account balances, forecasts financials and helps business owners make smarter business decisions every day. Harnessing Yapily’s leading open banking infrastructure, Airbank can accelerate its adoption of digital banking services.

Airbank’s vision is to simplify financial management for SMBs and to create a unified platform that helps its users with the full cycle of financial management from cash flow analysis and forecasting, to accounts receivables and payables management, and more. Airbank has raised $3m seed funding from leading VCs, and counts hundreds of users in Germany, Austria, France, Spain and the UK.

Open Banking has enabled smooth integrations with banks, which we utilize to offer richer banking and payments experiences for our users. We’re building a business banking solution that connects all your financial accounts in one place. Our partnership with Yapily gives users a smooth and simple way to connect to thousands of banks in Europe, unlocking real-time insights into their cash flow. We eliminate the pains of finance admin so business owners can focus on what’s really important — growing their business.

Christopher Zemina, Co-founder and CEO of Airbank

Airbank helps simplify the daily routine of banking and finance management for small and medium sized businesses. By leveraging Yapily’s open banking infrastructure, Airbank can provide actionable insights to businesses – at a time where it’s needed. As a small yet fast growing company, Yapily is committed to supporting the SMB community and we are excited to see how Airbank delivers the benefits of open banking to many businesses across Europe.

Comment by Chris Scheuermann, Commercial Lead DACH at Yapily

 

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COULD YOU PROVIDE US WITH SOME BACKGROUND ON YOUR CURRENT ROLE WITHIN THE FINANCIAL SERVICES SECTOR?

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– Shanker Ramamurthy, Global Managing Partner – Banking at IBM, BIAN Executive Board Member

 

I lead the banking consulting practice across IBM Consulting, focusing on banks’ digital transformation, core banking, and payments. Additionally, I am the President of the IBM Industry Academy, a dynamic and diverse community of IBM’s industry experts aiming to form new solutions to help our customers win in a constantly evolving industry landscape. The Academy offers IBMers the chance to work together and collaborate with industry experts from all areas of IBM.

Since my career began almost three decades ago, I have been lucky enough to work across six continents in various consulting and leadership roles in the financial services sector. This experience, coupled with my current role, has provided me with a unique insight into the digital trends affecting all industries and enables me to serve IBM’s financial services clients better.

 

Can you explain more about your recent appointment to BIAN’s Executive Board and BIAN’s role in the industry? 

BIAN stands for the Banking Industry Architecture Network. It is a collaborative, not-for-profit organization of institutions and professionals from the financial and technology industries, including leading banks, technology providers, consultants, and academics from all over the globe. Member organizations are committed to lowering the cost of banking and increasing the speed of innovation adoption in the industry. Members draw upon their combined industry expertise to define a revolutionary banking technology framework that standardizes and simplifies banking architecture to overcome limitations preventing growth and efficiency and encourage ease of management in their existing environments.1

The opportunity to become a member of the BIAN board was an invitation I could not turn down. I am honored to be part of BIAN’s executive board to provide counsel and support their work in helping financial institutions negotiate this time of immense opportunity and disruption. For the financial services industry, BIAN’s open framework, services-oriented architecture, and standards model are more critical than ever before.

 

Shanker Ramamurthy

After working in the financial services industry for a number of years, what is it that makes you so passionate about the industry? 

I am delighted to see the impact of exponential technology on financial services because these innovations provide an opportunity to bring positive change to people’s everyday lives. I am also a strong advocate for financial inclusion and emphasize its importance as part of my practice. Financial services should be accessible for all, regardless of financial means and where you are in the world. In this respect, I am committed to helping banks widen the availability of banking services and reduce the cost point of doing so.

 

The importance of financial inclusion is evident. But what measures can global banks take to increase the availability of banking services and keep cost points low?

The financial services industry still has much to do to achieve inclusive banking globally. Having said this, incumbents, fintechs and techfins have made significant investments in technology and innovation, with this end in mind. Unfortunately, we live in a world where globally, billions of people still do not have access to basic financial services. Critical areas such as payments – particularly cross-border payments – remain costly, and access to credit continues to be a challenge for so many.

Global financial institutions will find success for their own business processes and their customers through a technology and business strategy to support the bank of the future and by prioritizing innovation powered by hybrid cloud and AI. Although there is much work to be done, it is encouraging that the combination of innovation will help democratize and transform finance like never before.

 

What can banks do to prepare for the future? 

Banks are facing an evolving landscape due to COVID-19 and changing regulatory environments. This is something banks and fintechs are navigating. At the same time, the financial services industry is being shaped by new consumer trends – from the rise of a cashless society to the pandemic-driven shift towards online banking and mobile payments.

The focus on technological development to accommodate these changes will continue. The banks that succeed will be the ones who have a technology and business strategy to support the ‘bank of the future,’ in which much of the middle and back office gets almost entirely automated and focus shifts to customers and customer value-adding functions. This transition requires rapid digitization and the adoption of exponential technologies powered by the hybrid cloud and AI. BIAN has an essential role in helping banks do just this.

 

What does the shift towards digital banking, including the increasing use of mobile contactless payments by customers, mean for the bank of the future?

Digitization drives innovation, new business models, and efficiency while simultaneously enabling extreme competition from traditional and non-traditional competitors. In tomorrow’s banking eco-system model, the value is increasingly accruing from customer-facing functions supported by platform-based business models. By extension, this has meant competition from both fintech and importantly, techfins (large technology companies that are moving into the less regulated aspects of financial services such as payments, electronic wallets, BNPL – buy now pay later models and more).

Banks in the future will automate extensively, and likely extend their business models to create ‘beyond banking platforms’ to support their customers in areas outside of the traditional banking value chain. The future of such models is being written in Asia by banks such as DBS in Singapore, State Bank of India, among others as they evolve their business models to combat the growth of ‘super-apps’ like Alibaba, Tencent, Grab, Gojek, and more in that part of the world.

 

How can the industry find its footing after such a change?

Banks have several natural advantages that come from incumbency, customer loyalty, and material regulatory barriers preventing non-traditional competitors from quickly breaching their businesses. Regardless, mastering the future will require banks to ask themselves three questions:

  1. Is our strategy ambitious enough?
  2. Are we executing fast enough?
  3. Do we have the talent and capabilities to win?

Answering these questions honestly and then putting in place programs to execute relentlessly is the only way for the industry to continue to thrive and take advantage of the extensive opportunities in the near future.

 

 

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