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Five questions about banking in today’s digital age, answered

EY’s banking leaders discuss how banks can best use their data to make financial products more engaging, to better serve their customers.

In brief

  • Banks need to integrate their products with customers’ unique life moments, to engage with them in a more meaningful way.
  • We are in a new era of data-driven insights, and the value for banks lies in the density and richness of their data.
  • It’s essential for banks to invest in reusable, technical assets to continuously bring new propositions to market.

Jan Bellens, EY Global Banking and Capital Markets Sector leader, and Kathleen Calabro, EY Americas Digital Product Leader and EY Nexus Global Product leader, discuss how banks can leverage data to navigate rapidly evolving customer needs, how embedded finance will play a greater role in the future of the banking industry and why banks must make greater use of digital platforms to reimagine their future.

1. What will banking look like a decade from now?

Jan Bellens

“Banking is necessary, but banks are not” is a heavily used but timely quote, and it’s where I see the trend going. In the last decade, banks lauded themselves as being necessary for customers, but their financial products must be more engaging. These institutions need to integrate their products with customers’ unique life moments, to engage with them with in a new and better way. This is already happening in the payments space and will gradually creep into lending and even savings.

Opening banking and trust are at the heart of this movement. And overall, we will see a more dynamic environment with banks leveraging open banking to become more customer-oriented and tech-savvy. Banks that don’t do this – because of a lack of investment capabilities or the right talent – will become obsolete.

2. What role does embedded finance have to play in the future of the banking industry?

Kathleen Calabro

Today, the banking industry is increasingly focused on embedded finance, meaning that financial services touch elements of every sector across the global economy. However, without a strategy within banking that allows institutions to embed financial services into each of these sectors, banks will struggle to evolve. We often see that by the time new propositions go to market, the goalposts have moved, and banks are once again being measured against a new benchmark.

An open ecosystem, enabled by open banking, allows a greater degree of flexibility and adaptability for banks. The core business of banking – payments, savings, lending, and investing – is not going away. However, how customers interact within these domains will evolve, and that’s where embedded financial services come into play.

Jan Bellens

We’re starting to see banks looking at new ways to support customers – both in retail and the corporate and commercial space – throughout their banking journeys. For example, through partnerships and the bundling of offers, banks are striving to create more natural touchpoints with customers. And crucially, these new propositions are being driven by advances in technology and new ways of capturing data.

Eat now, pay later

One recent example from India shows the innovative way embedded finance can come about. A food services app is currently offering people small loans to order food at the end of each month, while these customers wait for their salaries to come through. This financial need has always been there, but now there is a digital product that makes this possible.

The food services app uses data from customers’ previous consumption habits to offer tickets generally worth US$20 or US$30, with the option of turning this ticket into a 10-day loan. Traditionally, a 10-day loan for $30 wouldn’t have been possible but through technology and data, the lender is exposed to limited risk. Bank can look at this as an example of how to use embedded finance to meet the needs of its customers and evolve its products to capture this real-time demand.

3. How can banks offer more personalized propositions, while looking to the next generation of banking customers?

Jan Bellens

Historically, banks have mainly played a conventional servicing role when it comes to mortgages. However, we’re starting to see institutions include themselves in the additional parts of the journey when buying a home, so they can anticipate customers’ evolving needs, better. In doing so, banks can target customers with more personalized propositions. If banks can offer a product that’s tailored to a customer’s particular profile, underpinned by data and as close to real-time as possible, they will have a greater advantage of retaining and growing their customer base.

Kathleen Calabro

Personalization and real-time offerings are of special interest to banks looking at ways to cater to the digitally native demographic. With needs extremely different from those of other customer cohorts, banks are beginning to grapple with how to service this “always-on” generation. Banks are considering questions such as:

  • Is there an opportunity to look at securitizing their future net worth?
  • Is there an opportunity to look at small businesses that sell products over TikTok, and capture data about them and their likelihood of success?
  • Should banks start to treat such successful individuals differently in areas such as credit risk scoring?

4. How should banks use data and technology to their advantage?

Kathleen Calabro

We’re currently in a new era of data-driven insights, and the value for banks lies in the density and richness of their data. Most FinTechs tend to focus on one or two core banking domains, whereas banks have entire consumer or commercial banking profiles at hand. As we delve deeper into this era of intelligence and the monetization of data-driven insights, banks are realizing the advantage they have over many FinTechs.

Jan Bellens

Cloud-based platforms such as EY’s Nexus for Banking platform work to accelerate a bank’s journey to build out digital propositions much faster. Traditionally, banks have been big collectors of data, but not great users. Additionally, due to their focus on compliance and reporting, banks haven’t been able to focus on how to leverage the data they have in the best interests of the customer and their overall experience. This is the next big battle banks will have to encounter.

5. How can banks use digital platforms to succeed in our digital age?

Kathleen Calabro

Banks must be able to adapt and continuously bring new propositions and new products to market. However, they are often hindered by their legacy systems, prohibiting them from moving quickly. As a result, many institutions have started to take a page from the big technology players’ books around platform-based businesses. It’s essential for banks to invest in reusable, technical assets, such as event-based architecture. The concept of real-time insights is enabled when banks build platforms to be event-driven.

These platforms really need to look at the problems that exist around data and create a taxonomy that allows data to be joined from multiple sources, to make it more powerful. This will help to create more personalized experiences for customers, helping to create new revenue streams. Issues such as data regulation, retention, and access, customer consent, and revocation of consent, need to be deeply embedded platforms when they are being built.

Jan Bellens

Innovation really starts to arise when institutions show that they understand the changing market, realize the gaps or friction that may exist for their clients and start to think innovatively about how to use data, partners, and technology to create propositions that continuously evolve. Having a very flexible foundational platform such as EY Nexus for Banking offers that ability. Banks also need to decide how to govern and manage the data underpinning these platforms. One bank we're currently working with is very keen to democratize their data and make it available to the whole organization, rather than solely to the different silos it existed in before.

The true value of these platforms lies in making them available at an enterprise-wide level so that these silos are reduced, and institutions begin to realize the significant efficiencies that can be gained across different business lines. The ability to aggregate different insights created through these platforms will result in real value creation for both customers and banks.

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    Embedded finance is of major interest to banks today. Banks that successfully integrate embedded finance into their offerings will enable greater flexibility and adaptability in their business models, improving their chances of engaging on a more meaningful level with all customers.

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