Big Data for Banks – Expert interview with Michael Eder
„The customer as an individual stays in the foreground“
Wimsheim, 7. April 2016 Big Data is for banks an important and an equally challenging topic: The individualized customer experience and prevention of fraud stand opposite to the aspects of data protection and in turn, a deep and trusting customer relationship, all of which belong to the basic decision criteria of the customer. Michael Eder, IT consultant WidasConcepts, speaks in the Interview about the opportunities and future models for Big Data in banks.
How important is Big Data for Banks?
Michael Eder: Digitization is currently, probably the crucial topic for banks. The operations of banks on the one hand are very strongly under attack from many small, highly specialized Fintechs – modern financial technology service providers. On the other hand from the big companies such as Google and Apple, which penetrate into certain banking transactions like payments through mobile payment. The banks have to somehow fight against this. Big Data is surely a major technical driver for it.
What are the new business models that develop from it?
Crowdsourcing and Crowd Financing are currently two important keywords on the market. There are Fintechs that offer a credit in a very short time or act as search mediation platform between investors and loan. This is possible because they dispense with the classic credit check, and operate like a bank. They support a credit decision, for example, on social media analysis. These platforms, thanks to Big Data technologies, are continuously getting smarter and thus pose a threat for conventional banks.
How can banks respond to this new competition?
The banks want to retain their customers. Because of competitive pressure coming from two sides, they are left in mean time with no choice, than to make their offerings more attractive. Customer expectations are growing more and more: Everyone wants to quickly and easily across all channels – including mobile – carry out their banking transactions and get personal consultation. Standard products are passé – the individual needs and wants of the customers stay in the foreground in the future. This is just where, the banks can catch up.
What does this exactly mean for Banks with respect to customer communication?
With its long-standing customer relations and the resulting relationship of trust, they have an important advantage over the burgeoning competition. In addition, banks know, for example through revenues and payments very exactly who the customer remains in contact with and what business relations he cares. In order to make targeted use of this knowledge and to process the mass of information, big data analysis methods are necessary. Through Big Data, banks can gain a 360-degree customer view. This means that they can win customers in a more goal-oriented manner, consult and support them and therefore offer a consistent, individualized customer experience, as do other industries have been already, for a long time. Thus, the customer satisfaction and customer loyalty demonstrably increase.
What can banks use this knowledge for?
By classifying customers based on various criteria such as income, place of residence or risk-tolerance into definite peer groups, gives an overview of the financial products these customers usually buy. The next step is to target those who do not have certain products, by making customized offers from the portfolio of the Bank. Through this cross-selling customers receive valuable hints on all channels, on what products could be interesting for them, be it Mobile or online banking or consulting in the branch offices. The customer gets a very advantageous sum-total package of financial products, services and strategic business areas. However, the bank should ask the customer first of all if he wishes for such analysis and deals in the first place.
What new opportunities does Big Data offer banks in addition?
With Big Data technologies one can analyze, for example, what indicators point to a termination or loss of a customer. This is quite obvious when a customer deletes his standing orders. But there are also many other signals that indicate which customer will soon follow. If one has done the analysis in the past, he can project these properties in the future, on customers who have not yet terminated. So one can daily determine, which customer lies on what risk threshold of termination and can actively act against with sales drives or also for example, with an interesting offer or with appealing conditions.
Which are the areas where Big Data analysis in real time is needed?
A very good example is the prevention of fraud, because these can basically be solved really well only with real-time Big Data. Here many sensor values turn up in a short time and it must be evaluated in a split seconds – 300 milliseconds time – to assess how high the risk of fraud in a transaction is. Only thus can a transfer be stopped and abuse are prevented with an account.
Based on what factors can a probable Fraud case be noticed?
There are a lot of sensors, on the basis of which the probability of a suspicious transaction can be evaluated/gauged. It is common to make a comparison with the usual behavior of this customer. A highly divergent behavior indicates a possible misuse. Often when there is a breach, there is an attempt to transfer a large sum to a specific account – even repeatedly, back to back. If a fraud is detected with certainty, a transaction can be immediately prevented and if not, further tests are initiated.
What trends determine the future?
The whole banking industry, in the future will run on many more channels than before. The trend is very strong in the direction of mobile: customers want to handle their banking via smartphone. One can view the account balance probably at any bank on the phone, but, for example, mobile payment is something that has not yet arrived right at the banks in Germany. The real-time capability also allows very fast response times – for example, when making credit decisions. If a customer wants to quickly have a loan with the smartphone, he does not have to wait till tomorrow or a day after for the bank’s decision. Rather, he goes to the next bank or a Fintech which acts accordingly faster.
On what areas lie the need for action?
Data protection is a barrier, in many places, against interesting Big Data technologies. Because the data collected may be used, in Germany in accordance with the Data Protection Act, only for the purpose for which they were collected. This is currently discussed in political debates. A degree of privacy is however important and also promotes trust. Because when customers know that banks deal confidentially with their data, they are also more willing to make a 360-degree customer view available to them.
How can a bank exploit the Big Data – potential?
For a bank, it is rather difficult to introduce Big Data technologies from their technical know-how. As a specialized service provider we are dealing since 2008 with Big Data and bring to the fore many years of experience in various sectors. We are very well versed with Big Data software architectures and have successfully implemented diverse projects.
Your predictions for the future?
Accurate prediction of specific technologies is difficult per se. Bill Gates, for example, called the Internet 20 years ago “a hype”. However, no matter what exactly is going to happen, the digitization is shaking up firmly established structures in the financial industry. The banks are well advised to remain agile to technology changes. For even the music and photo industry have shown that sometimes a complete realignment is necessary in order to not miss the change.
About Michael Eder
Michael Eder, Principal Consultant and Lead, WidasConcepts GmbH, Munich, completed his studies in computer science at the Technical University of Munich. After graduating, he worked for several years as project manager and IT architect at reputable companies in the financial industry. Since 2011 he has been in involved in various customer projects – mainly in the financial sector – as a project manager at WidasConcepts.
The Interview as it appeared: http://www.mein-geld-medien.de/wirtschaft/der-kunde-als-individuum-steht-im-vordergrund/
About WidasConcepts GmbH
The innovative IT consulting company WidasConcepts supports its customers since 1997 in successfully shaping their business processes. WidasConcepts develops modern and future-oriented concepts in the areas of Big Data, Internet of Things, as well as mobile and web-solutions. It aims to create intelligent business solutions that bring more success to the customers in the competitive market. The company serves its customers strategically from the business analysis up to the implementation of the overall solution for a wide variety of platforms and end-devices. WidasConcepts transports the bigger picture of IT. The company headquartered in Wimsheim, Germany and branch office in Bengaluru, India. WidasConcepts has currently 80 employees and is a member of the high-tech Association BITKOM.