Is monetising data the key to competing in payments?

28 April 2021

As competition in payments has increased, data has long been touted as the cure-all for incumbent banks. If banks could charge a transaction fee for every time they are told that ‘data is the new oil’, then there would be no need to worry about competing. But the inconvenient truth is that despite the vast amount of customer data that banks sit on, the ability to use it to add value to clients and generate revenue has so far proved elusive for many.

We are now starting to see a concerted effort address this challenge. Banks are reconceptualising data as a “strategic asset”, and investment in initiatives to monetise payments data has doubled in the past year. But for these initiatives to be successful, it is crucial to understand where the concrete opportunities lie, how potential can be translated into action, and the considerations that should be taken into account.

Solving corporate pain-points through data

Banks keep hearing that they need to monetise data, but it is not clear exactly how this works in reality. In fact, a key challenge for incumbents has been a lack of clarity about which data-driven products and services will create the most value for customers (and subsequently revenue for banks).

Although there is no single killer use-case, it is increasingly apparent that the corporate banking space promises the greatest revenue generation potential for incumbent banks.

Through services such as liquidity management and cash forecasting, banks can do more than just facilitate the moving of money around the business. Rather, they can establish partnerships with corporates to enhance commercial insight and realise significant efficiencies, while also addressing fraud and compliance requirements. McKinsey predicts that improved liquidity management and cash forecasting has the potential to drive 10% revenue growth, and this shows that banks do not need to reinvent the wheel to stay competitive. Instead, it is about using data to enhance existing services to solve customer pain-points.

ISO 20022 migration – translating potential into action

A key challenge for banks in delivering new cash and liquidity management services to corporates (and in fact any data-driven proposition) is organising and transforming the data they have to ensure it is useful.

ISO 20022 upgrades will be integral to this process. Although a mandated regulatory requirement, incumbents should proactively prioritise strategic ISO 20022 migration to benefit from standardised, relevant, and enriched datasets that are directly associated with the payment message. This will allow banks to improve and extend the payments-related services they can provide to customers, supporting the move from pure transaction-based services to value-added insights.

This is by no means an easy fix and presents significant budget and resource headaches, with NatWest describing it as a “huge task.”  But the opportunities suggest that the juice is worth the squeeze, so incumbents should resist the temptation to only do the bare minimum necessary to be compliant if they want to ensure their future competitiveness.

Balancing data with trust

When it comes to data, we cannot ignore the elephant in the room – data privacy and protection.

To date, incumbents have excelled in this area (and in fact should be more vocal on the issue). This is reflected in a survey undertaken by PwC and Strategy& which found that 94% of customers trust their bank to protect their data and use it responsibly.

In comparison, big tech is facing fierce scrutiny into their data practices. Payment platforms, having benefited from relatively light-touch regulatory oversight to date, can also expect increased focus on their use of customer data as their marketplace position strengthens.

In a bid to compete and stay ahead through data, however, banks must not squander their inherent trust advantage.  Trust is hard-won and easily lost, and with privacy poised to become one of the defining issues of the 21st century, shifting from a transaction-based to a data-driven model presents plenty of potential regulatory and reputational potholes.

But by leveraging their experience of highly regulated environments and robust compliance procedures, incumbents can continue to ensure industry-leading best-practice in the storage and deployment of customer data.

How can banks monetise data?

To stay competitive, banks should commit to a long-term transition from a transaction-based revenue model to a data-driven approach. But it is crucial that banks recognise that data itself has no real value.

The key to monetising data is the ability to organise, translate and deploy this data to make their customers lives easier. And to do this successfully requires a clear understanding of the technical, organisational, and cultural changes that are needed, as well as a clear strategic roadmap to realise them.

Download Icon’s Competing in Payments ebook to learn more about who competes, how they compare and what banks need to do to stay ahead.

Simon Wilson