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Banks set to use data to better serve customers, says industry report


Banks are set to use the data they hold about customers to help them manage their finances more closely and to draw their attention to local retail offers they are interested in, according to a new UK banking industry report.

The British Bankers' Association (BBA) said "rapid innovation in the technology that allows financial information to be processed" could deliver a data-driven revolution in banking.

"There are two, interlinked types of services that this evolution of data processing will help deliver which are being widely discussed in banks," the BBA said in its latest 'Way We Bank Now' report. "The first of these is Personal Financial Management – often referred to as PFM. These features give customers greater knowledge and insights into how they are spending their money, for instance by breaking down spending into categories such as food, household costs and leisure activities. Harnessing payments data will for instance give customers greater understanding of how their spending habits compare with other people in their locality."

"The second type of services that is ripe for rapid evolution is the sending of highly tailored alerts and advice directly to the customer. The more simple of these could be an alert saying that your bank has noticed that you pay significantly more for your energy than similar households in your street, and that those who opt for a certain provider typically spend 10% less. However, bank digital experts say that when you marry this data processing with GPS-enabled smartphones there is enormous potential to give very timely alerts that save customers money, provide useful information and ultimately improve their lives," it said.

The BBA said that banks could also use the data they hold about what customers buy to "offer far better tailored financial products" to those people. It said this could help make mis-selling "less likely" in future.

"Only promoting products and services to customers where the bank has good grounds from its data to believe they are suitable surely reduces the likelihood of us ending up with an inappropriate mortgage, loan or insurance policy," the BBA said.

Expert in financial services and technology law John Salmon of Pinsent Masons, the law firm behind Out-Law.com, said: "The traditional banks face increasing competition from new challenger banks entering the market, payment service providers, financial technology companies and retailers. By harnessing the vast sets of data they collect, banks can differentiate their services to customers from rivals."

"However, this will involve linking new data analytics software and implement customer-facing technology with core banking systems that may have been in operation for years. This can pose data security and systems and controls issues that banks need to consider. In addition, banks need to obtain customers' permission to use their data to offer targeted advertising or personal finance recommendations or reminders not only to comply with data protection laws but to avoid eroding trust in their handling of personal data," he said.

In a blog posted alongside the new report, BBA chief executive Anthony Browne said it is "absolutely vital" that data-driven services from banks are "optional" for bank customers and "introduced in a safe, secure manner". "This must be about offering customers carefully tailored, relevant offers – not bombarding us with spam," Browne said.

Banks could also use anonymised data to help businesses learn more about their customers, such as their average age, demographic and earnings, the report said.

The BBA said that banks must "completely reinvent their customer processes to offer customers the exceptional but simple experience they seek, as well as choice, flexibility and transparency" and "deliver this change in a way that is rapid and agile". However, it acknowledged that banks face a number of challenges in digitising their business, including increasing regulatory complexity, overcoming traditional "product or business siloes" and in integrating new technology with legacy IT systems.

The report also highlighted the potential for banks to involve themselves more in wearables technology, and it said that new "biometric security features, such as facial, fingerprint or voice recognition" could also be put into use to cut down on the time it takes for customers to log in to digital banking services and remove the need for people to remember passwords.

A study the BBA commissioned into UK bank customer habits found that mobile banking is now the most popular form of banking. It said that by 2020, customers will manage their current accounts 2.3 billion times in total. This will be "more than internet, branch and telephone banking put together", the report said.

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