The banking and financial industries face significant challenges and added regulation in the year ahead. While the number and degree of these challenges will likely shift throughout 2018, the below list covers the most pressing and how your organization can leverage data management solutions to ensure preparedness.
1. Rates will Rise
Enacted in 2008, the Federal Reserve’s policy of quantitative easing is now being phased out. This phase-out will result in rising interest rates. The Federal Reserve raised interest rates three times in 2017 (March, June, and December), and communicated that it will raise rates again in 2018.
In order to respond to this challenge, the acquisition of low-cost deposits is more important than ever. This means that financial institutions need to expand and deepen the relationship with existing customers, while continuing to attract new customers. Over time these customers, anchored by checking accounts, will mature into profitable service relationships with sustained loyalty.
A sound data strategy is required to maximize gains in cross-sell and upsell opportunities, customer experience initiatives, and multi-channel marketing efforts to garner low cost deposits. The quality and completeness of data, the manner in which it is organized, integrated, and shared, data usage governance policies, and leveraging the data for analytics are the underpinnings of these growth strategies.
2. Regulation and Compliance Will Get More Complex
In the past decade, there have been significant efforts to establish legislative controls to prevent a reoccurrence of the 2008 financial crisis. The enacted legislation not only imposed new regulations on banks and financial institutions, but created new regulatory agencies and expanded the purview of existing ones. The expansion, along with the new mandates, have produced a regulatory reality that can be difficult to navigate. The key takeaway here is that looking ahead, financial institutions can expect more regulation, not less.
The most reliable strategy to address this ever-changing regulatory environment is to adopt a robust data governance solution. Why data governance? Data governance is more than just knowing data attribute definitions, and how to utilize them. Data governance encompasses the full spectrum of data access and authorization, data acquisition, data quality, data integration, data storage, usage, and distribution. A robust data governance solution provides a framework to support not only the bulk of data requirements for regulatory compliance, but also strengthens the “Three Lines of Defense” risk model.
Fig. 1 Compliance Regulations Supported by Data Governance
3. Know About Your Customer (KAYC)
Not to be confused with the regulatory mandate of customer identity validation, or Know Your Customer (KYC), Know About Your Customer (KAYC) is a business growth strategy. The demographic and personal data details available to the bank are the tip of the iceberg. Leveraging the largely untapped additional data in most financial institutions will provide insight into customer behavior. Customer behavior data enables enhanced outreach activity, service offerings, and marketing tailored to the individual, driving improved customer experience and loyalty.
Analytic models built to drive insights on customer behavior are powerful tools to leverage existing data and drive revenue and competitiveness. Surveys continue to show that customers are seeking greater, proactive engagement with their financial institutions. When banks leverage analytic outcomes to drive innovation and growth strategies, they capture greater market share, promote customer loyalty, and enjoy referral-driven business. Proactive analytics, the step beyond predictive analytics, are a key component of your data strategy.
Attracting new customers, maintaining and deepening relationships with existing customers, and being prepared for the ever-changing regulatory environment are top priorities for financial services. A sound data management program is necessary regardless of industry, but methodologies for these practices are key in the financial sector:
- Risk and compliance readiness
- Enterprise Architecture
- Data Governance
- Master & Reference Data Management
- Data Quality
- Cloud enablement & migration
- Data warehouse modernization
- Data lake architecture
- Data Integration
Leveraging these practices can ensure your organization’s readiness for the coming challenges in 2018.