The future of the financial industry: banking on data
Did you know that Switzerland is a nation of data centres? According to a study by Coldwell Banker Richard Ellis (CBRE), the country is home to the second-highest density of data centres in Europe, per head of population. Back in February, the Swiss TV business programme ECO saw no signs of an end to the current uptrend in construction of new data centres. The exponential growth in data, driven by both private and state actors, is creating incessant demand for digital infrastructure. It is estimated that between 2021 and 2025, the global volume of data will triple, from 60 to 175 zettabytes*.
Growth in data is also impacting the financial sector
This trend is having a far greater impact on the financial industry than on other sectors. Moreover, few companies are under more pressure to reinvent themselves right now than banks. Big tech, in particular, is making ever greater inroads into their core business, while companies from outside the sector are increasingly encroaching on their value chains, attempting to set up their own customer ecosystems covering payments, credit and other services traditionally provided by financial institutions. On top of all this, mobile applications are gaining in popularity, as users switch to their phones to handle payments, savings and investments.
All these processes are generating larger and larger volumes of data that need to be transmitted, stored and processed, by both banks and other actors. This, along with the capabilities of new technology, is increasing the potential for systematic exploitation that ensures data are protected while yielding new insights that benefit companies, enabling them to understand their customers’ needs better and incorporate them into innovative business models, while at the same time improving the efficiency of internal processes and risk management. Banks need a legal and organisational framework that allows them to fully leverage that enormous potential.
Guidelines on handling data in day-to-day business provide an overview
Against this backdrop, the Swiss Bankers Association (SBA) has drawn up a set of guidelines on handling data in day-to-day business. They are designed to offer guidance to members of bank staff who are not legal experts but who face questions relating to the handling of data in their everyday work, and to provide the basis for the Swiss financial industry to address the issue in depth. In the SBA’s view, it is vital that customers know their data are protected and treated confidentially at all times; and that customers, as well as banks, are enabled to benefit from the opportunities opened up by advances in technology.
The guidelines illustrate some general rules on data processing via six different use cases drawn from everyday banking business, all of which directly add value for both customers and institutions. They are: using artificial intelligence for compliance purposes; credit checks; trend analysis and benchmarking; biometric authentication; personalised offers and advice; and data-based loyalty programmes.
Ultimately, it’s all about trust
The manifold issues involved in handling data go beyond the content of the guidelines: legal considerations, a company’s organisation, vision and strategy, staff training, aspects of culture and details of the technological infrastructure all play a key role. Outside the legal context, the issues that arise are in most cases extremely specific, and a “one size fits all” approach would not do justice to the diversity of the Swiss banking landscape.
But one constant that applies across the entire financial industry is the need for trust. According to a study carried out in the US by McKinsey, banks are trusted more to handle data carefully, both now and in the future, than other sectors such as telecommunications or e-commerce. Banks need to build on that advantage by offering customers greater transparency regarding what happens to their data and the benefits they can expect to derive from data sharing. One option would be to allow customers to choose not just whether data are shared, but also which data and how much. Once it becomes clear that both parties stand to gain from data sharing, trust will be enhanced and customers will be more willing to disclose information. The outcome will be that banks can access not just better data, but more data, while customers receive products and services that are of higher quality and tailored to their needs.