The baseline business objectives for the Banking and Financial Services Industry revolve around the following aspects:
- Increasing customer profitability
- Identifying potential customers to cross-sell and up-sell products/services
- Acquiring customers with better business potential
- Improving risk management
- Accurately tracking customer information for improved auditing capability
- Efficiently adapting to mergers and acquisitions
- Meeting regulatory compliance
Banking and Financial Services, in general, is an intensively data-driven industry, managing large quantities of customer data and using analytics in areas such as capital market trading. Underwriting professionals work towards mitigating risks by analyzing large amounts of data, making data a governing force in the sector.
The following are the typical challenges that drive the Banking and Financial Services Industry into Master Data Management initiatives:
Volume of Data
Every day, it’s estimated that 2.5 quintillion bytes of data are created. For banks and financial services providers, the volume of data they generate, consume, store, and access will increase exponentially year over year. Banking is a complex operation dealing in varied data and applies complex business rules. This leaves organizations continuing to face the challenge of aggregating and accessing massive amounts of historical data, and many forms of structured and unstructured data. Mergers and acquisitions also bring in new data sources containing huge data stores. Finance companies also consume data from external data sources for credit scoring and marketing purposes.
Complex Data Architecture
The sheer volume of data is managed by numerous stakeholders, leading to a lack of data ownership. Each business unit (Retail, Loans and Deposits, Credit, etc.) stores data in specific silos and mostly in legacy systems. Integration of data between these systems, for cards, payment processing, etc., remain a challenge and only lead to crippled decision-making for the business as a whole. Data ownership is still predominantly fragmented, and is driven by multiple stakeholders and frequently measured at a departmental level, rather than at an organizational level.
The Banking and Financial Services Industry is almost, at all times, bound by strict compliance rules like FATCA, BASEL, etc. Being unable to comply with these data standards, financial companies often end up paying hefty fines. Banks are mandated by laws like the Gramm-Leach-Bliley Act, EU Data Protection Act etc., and standards like PCI DSS (Payment Card Industry Data Security Standard) to protect and safeguard customer data, and the rules vary depending on geography. Unless data is digitally managed in a single repository, it is tedious to keep up with these regulations.
Advances in technology and communication have empowered a change in consumer dynamics, urging the finance sector to become a customer-centric industry and focus on developing an improved customer engagement strategy. About 70% of executives from the finance sector emphasize the importance of customer centricity. But, here come the questions:
- Do banks “know” their customers?
- Are the financial products “relevant” to customers?
- Are banks providing a “multi-channel” experience?
- Do customers “trust” bankers?
How Master Data Management Helps
Master Data Management enables the Banking and Financial Services Industry to make the best use of data for a competitive advantage.
Customer Intelligence Promoted
Master Data Management helps banks build a central repository of customer data by integrating data across disparate source systems. This helps in getting a complete picture of customers’ transactions with the bank, thus helping client executives nurture customer relationships. MDM consolidates and de-duplicates customer and product data to have a single source of truth, thus enabling trustworthy and quality data.
Reduced Customer Attrition
A study reveals that if banks know a customer is going to leave, there is a 50% better chance of retaining that customer. MDM can predict customer churn or attrition by helping banks understand customer activities that might indicate the client is considering moving their funds elsewhere, and by correlating this data and determining the statistical significance of each activity. Some of the indicators pointing to attrition could be cancellation of preauthorized payments, customer complaints, social media sentiment, and major withdrawals.
Increased Business Profitability
Being a central repository of all data, an MDM solution addresses the key objective of promoting revenue and margin. MDM helps in identifying the specific needs of customers to better cater to those customers, and aids in customizing services to drive new customer demands. MDM enables marketing teams to optimize cross-sell, up-sell, and product bundling offers, thus helping banks increase customer acquisition, increase revenue per customer, decrease costs to acquire and retain, reduce customer attrition, and improve product sales.
Early Fraud Detection
The realm of digital, despite all its pros, does come with the huge challenge for banks to tackle frauds and scams. MDM helps banks understand customer spending patterns, customer anomalies, etc., to be able to detect fraud at an early stage, by cross-verifying changes. Banks can gain better visibility in understanding customer behavior through MDM, thus preventing fraud and improving regulatory compliance.
Compliance Risks Eradicated
MDM allows organizations to understand and mitigate compliance risks by helping organizations manage data quality, centrally. Every MDM solution in the market comes decked with features, which enable organizations to identify and eradicate any data quality issues. This effectively ensures clean and accurate data is consistently sent to audit teams to reduce, and even remove regulatory fines.
A well-defined MDM strategy, compounded with reference data management and improved data governance processes, establishes a holistic view of the customer, thereby constructing robust relationships leading to healthier business.
Many financial companies have enabled a single customer view across online and offline channels, improving the lead conversion rate by over 100%. Mastech InfoTrellis’s Master Data Management solutions can help achieve this in an optimal time frame.