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14-08-2014, 01:11 PM
Banks lust after customer data
PUBLISHED: 1 HOUR 2 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO
Banks lust after customer data
JAMES EYERS
Banks around the globe are quickly realising they can make money by examining the petabytes of data being shuffled around the digital economy – and Commonwealth Bank of Australia is keen to get on board.
As customer relationships are disrupted by technological upheaval in the industry, the analysis of “big data” has become one of the biggest strategic focuses for CBA chief executive Ian Narev.
Banks’ focus on big data is partly a defensive mechanism, protecting retail banking market share from potential competition from the large technology companies. But banks are also aggressively building up capability to push their prized customer relationships into new directions, enhancing their ability to cross-sell new products.
“The opportunities across the group [from big data] are literally endless,” Mr Narev said.
“This is a huge strategic focus. It’s a huge topic of conversation in the bank.”
Initially, CBA is using big data to analyse customer risk. “It can get better risk assessment by analysing business ongoing cash flow performance to have early warning of risk challenges,” Mr Narev said in an interview on Wednesday after delivering the bank’s record $8.68 billion full year profit.
Macquarie analyst Mike Wiblin describes the opportunity for the banks from big data as “humungous”.
“Banks will become tech companies,” he said. “Technology can inform risk analysis but the big picture is they are moving away from branches towards interacting with customers on iPhones and tablets. This requires a change in mindset.”
Banks are scrambling to change their cultures to ensure their institutions are prepared to capitalise on the technologies that have thrust customers into the driving seat, radically reshaping interaction between borrowers and lenders.
At the Financial Services Council annual conference in Cairns last week, big data expert and author Rebecca Costa pointed to its power to help strategic decision making. “Ninety per cent of the data we use to make decisions is unstructured, and to me unstructured means unusable.”
She also warned that financial services firms that weren’t attempting to understand the space should brace themselves for a shock. “You should be scared if you are not using big data analytics,” she said.
Companies other than CBA are also getting on the front foot. The financial system inquiry interim report, released by former CBA chief David Murray last month, highlights the “growing amounts of structured and unstructured data being collected, stored and used by private sector firms and governments, a phenomenon known as ‘big data’.
“Firms increasingly seek to extract value from these vast stores of data through information analytics to create and capture value in new ways. In particular, many are seeking to influence a greater share of consumers’ spending.”
Reinventure Group, Westpac Banking Corp’s venture capital fund, is understood to be considering investing in big data start-up companies.
The potential of big data is becoming more cost effective as computer storage capacity sky-rockets. According to the FSI interim report, cloud services revenue is projected to grow at a compound annual rate of 15.3 per cent from 2012 to 2017. The report said two-thirds of global banks expect IT infrastructure spend to grow by between 1 and 6 per cent in 2014, driven primarily by cloud computing investments.
A CHEAPER CLOUD
In the interview on Wednesday, Mr Narev said: “Storage costs are going down dramatically and your ability to search across it is going up exponentially in an unstructured way. That gives us all sorts of opportunities.”
CBA has five million active online customers; its apps are used by 2.6 million people. It is also planning to push new proprietary technology out to point of sale customers via its Albert device (named, modestly, after Albert Einstein), which will attack traditional eftpos terminals by creating a new platform for merchant/customer interaction. Data will flow into CBA’s systems.
Mr Narev is getting on the front foot because he knows competition in the future could arrive from any industry where companies maintain a strong relationship with a broad customer base. Qantas, for example, already issues payment cards via the small Heritage Bank, while Coles already sells insurance and is nudging in on other financial services. Ominously for the banks, financial services provides a way for retailers to better understand how existing customers transact.
Retailers have been leaders in dig data. Tesco pioneered the use buying histories of 13 million loyalty card holders. Locally, Woolworths, paid $20 million for a 50 per cent stake in data analytics company Quantium last May to help it analyse the shopping habits of Australians.
Woolworths is investing more on big data and online retailing, lifting capital spending from $1.3 billion to $1.5 billion this year, almost half on taking advantage of consumer spending habits and boost online sales, which now exceed $1 billion.
At its interim results on Wednesday, CBA’s technology spend rose 6 six per cent to $1.38 billion over the past year, after a faster rate of software amortisation and $70 million worth of software write-offs during the year. But the bank still has $1.8 billion worth of software on its books. In briefing slides lodges with the ASX on Wednesday, CBA highlights various apps, online capabilities and payments platforms it has rolled out under previous chief investment officer Michael Harte (now at Barclays), who was replaced by David Whiteing.
SME DATA TOOL
CBA is already selling a big data analytics tool to its business customers, known as Daily IQ. Launched in March as an iPad app, it provides cash flow reporting and business insights from similar industries in comparable locations to give businesses an idea of their success.
“To small business we are saying you might not be able to afford to do this but we can tell you how you are going compared to the butcher down the road. That’s just gold for a small business customer and helps make them better,” Mr Narev said.
Addressing his philosophy of applying big data capability to the bank, Mr Narev said: “The challenge we’ve got is making sure we prioritise [opportunities], go for the easy things first, nail them, and then move on to the next things rather than shoot for big dream and two to three years later realised you have achieved nothing.”
In a comprehensive report looking at the future of bank IT published last month, Mr Wiblin said big data capability is important for banks as it provides a “more sophisticated synthesis of bank, social media and other unique data sources with centralised customer data and ability to derive and test and learn different product propositions/campaigns with quantitative measures of success/failure”.
Big data analysis of social media would also “lead opportunities based on superior customer understanding and the ability to present customers real-time with relevant offers based on superior insight”.
On Wednesday, Mr Wiblin said the implementation of big data strategies by the banks “will be troublesome – they don’t have as clear a view as they would like But CBA are the only ones having a go, trying to control the ecosystem. I am not sure they will succeed but they have to try.”
The Australian Financial Review
PUBLISHED: 1 HOUR 2 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO
Banks lust after customer data
JAMES EYERS
Banks around the globe are quickly realising they can make money by examining the petabytes of data being shuffled around the digital economy – and Commonwealth Bank of Australia is keen to get on board.
As customer relationships are disrupted by technological upheaval in the industry, the analysis of “big data” has become one of the biggest strategic focuses for CBA chief executive Ian Narev.
Banks’ focus on big data is partly a defensive mechanism, protecting retail banking market share from potential competition from the large technology companies. But banks are also aggressively building up capability to push their prized customer relationships into new directions, enhancing their ability to cross-sell new products.
“The opportunities across the group [from big data] are literally endless,” Mr Narev said.
“This is a huge strategic focus. It’s a huge topic of conversation in the bank.”
Initially, CBA is using big data to analyse customer risk. “It can get better risk assessment by analysing business ongoing cash flow performance to have early warning of risk challenges,” Mr Narev said in an interview on Wednesday after delivering the bank’s record $8.68 billion full year profit.
Macquarie analyst Mike Wiblin describes the opportunity for the banks from big data as “humungous”.
“Banks will become tech companies,” he said. “Technology can inform risk analysis but the big picture is they are moving away from branches towards interacting with customers on iPhones and tablets. This requires a change in mindset.”
Banks are scrambling to change their cultures to ensure their institutions are prepared to capitalise on the technologies that have thrust customers into the driving seat, radically reshaping interaction between borrowers and lenders.
At the Financial Services Council annual conference in Cairns last week, big data expert and author Rebecca Costa pointed to its power to help strategic decision making. “Ninety per cent of the data we use to make decisions is unstructured, and to me unstructured means unusable.”
She also warned that financial services firms that weren’t attempting to understand the space should brace themselves for a shock. “You should be scared if you are not using big data analytics,” she said.
Companies other than CBA are also getting on the front foot. The financial system inquiry interim report, released by former CBA chief David Murray last month, highlights the “growing amounts of structured and unstructured data being collected, stored and used by private sector firms and governments, a phenomenon known as ‘big data’.
“Firms increasingly seek to extract value from these vast stores of data through information analytics to create and capture value in new ways. In particular, many are seeking to influence a greater share of consumers’ spending.”
Reinventure Group, Westpac Banking Corp’s venture capital fund, is understood to be considering investing in big data start-up companies.
The potential of big data is becoming more cost effective as computer storage capacity sky-rockets. According to the FSI interim report, cloud services revenue is projected to grow at a compound annual rate of 15.3 per cent from 2012 to 2017. The report said two-thirds of global banks expect IT infrastructure spend to grow by between 1 and 6 per cent in 2014, driven primarily by cloud computing investments.
A CHEAPER CLOUD
In the interview on Wednesday, Mr Narev said: “Storage costs are going down dramatically and your ability to search across it is going up exponentially in an unstructured way. That gives us all sorts of opportunities.”
CBA has five million active online customers; its apps are used by 2.6 million people. It is also planning to push new proprietary technology out to point of sale customers via its Albert device (named, modestly, after Albert Einstein), which will attack traditional eftpos terminals by creating a new platform for merchant/customer interaction. Data will flow into CBA’s systems.
Mr Narev is getting on the front foot because he knows competition in the future could arrive from any industry where companies maintain a strong relationship with a broad customer base. Qantas, for example, already issues payment cards via the small Heritage Bank, while Coles already sells insurance and is nudging in on other financial services. Ominously for the banks, financial services provides a way for retailers to better understand how existing customers transact.
Retailers have been leaders in dig data. Tesco pioneered the use buying histories of 13 million loyalty card holders. Locally, Woolworths, paid $20 million for a 50 per cent stake in data analytics company Quantium last May to help it analyse the shopping habits of Australians.
Woolworths is investing more on big data and online retailing, lifting capital spending from $1.3 billion to $1.5 billion this year, almost half on taking advantage of consumer spending habits and boost online sales, which now exceed $1 billion.
At its interim results on Wednesday, CBA’s technology spend rose 6 six per cent to $1.38 billion over the past year, after a faster rate of software amortisation and $70 million worth of software write-offs during the year. But the bank still has $1.8 billion worth of software on its books. In briefing slides lodges with the ASX on Wednesday, CBA highlights various apps, online capabilities and payments platforms it has rolled out under previous chief investment officer Michael Harte (now at Barclays), who was replaced by David Whiteing.
SME DATA TOOL
CBA is already selling a big data analytics tool to its business customers, known as Daily IQ. Launched in March as an iPad app, it provides cash flow reporting and business insights from similar industries in comparable locations to give businesses an idea of their success.
“To small business we are saying you might not be able to afford to do this but we can tell you how you are going compared to the butcher down the road. That’s just gold for a small business customer and helps make them better,” Mr Narev said.
Addressing his philosophy of applying big data capability to the bank, Mr Narev said: “The challenge we’ve got is making sure we prioritise [opportunities], go for the easy things first, nail them, and then move on to the next things rather than shoot for big dream and two to three years later realised you have achieved nothing.”
In a comprehensive report looking at the future of bank IT published last month, Mr Wiblin said big data capability is important for banks as it provides a “more sophisticated synthesis of bank, social media and other unique data sources with centralised customer data and ability to derive and test and learn different product propositions/campaigns with quantitative measures of success/failure”.
Big data analysis of social media would also “lead opportunities based on superior customer understanding and the ability to present customers real-time with relevant offers based on superior insight”.
On Wednesday, Mr Wiblin said the implementation of big data strategies by the banks “will be troublesome – they don’t have as clear a view as they would like But CBA are the only ones having a go, trying to control the ecosystem. I am not sure they will succeed but they have to try.”
The Australian Financial Review