Wholesale banking’s data-driven journey to client centricity

24 January 2022 Consultancy.uk 9 min. read
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Facing growing competition and changing customer requirements, wholesale banks are under pressure to become more client centric. Nikhil Shah from management consultancy Elixirr outlines how banking leaders can successfully embrace a client-first approach – by putting data at the heart of strategy and operations.

Wholesale banks, or banks offering financial services to large institutions, know that they need to pivot to client-centricity. To get there, they need a single and holistic view of static client data across their entire organisation – static client data being any data relating to a client that has unalterable characteristics, for example legal entity name. Banks have every intention of reaching this goal, but given the magnitude of the challenge, historically, few have been successful.

To put things in perspective, how much client data do you think infamous data giants Amazon and Google hold? Well, banks have a whole lot more.

Nikhil Shah, Manager, Elixirr

So, is this good or bad? To answer that, let’s begin with a critical point. Currently, banks are being heavily challenged on their top-line revenue figures. They’re being pressured to boost profits by reducing costs. This is, in part, due to the climate of the wholesale banking industry, where return on equity has been circa 9% to 10% pre-pandemic, which is falling short of investor expectations.

The cost of bad data

If client data was the new oil, banks would be booming. But unfortunately, the reality is quite the opposite. Banks have bad quality data, and what does that mean? Data management issues, and huge upfront cost burdens with the majority of it having very little use. To put it in context, global revenue for investment banking is roughly circa $80 billion per year, and bad data costs between 15-25% of revenue; the cost of bad data is huge.

The majority of the problem is internal. For decades, banks have treated the different business units, and sometimes regions, within their various units as separate entities. This lack of collaboration has resulted in isolated organisational structures, creating a federated approach to how each business line manages static client data.

Furthermore, banks have spent millions on implementing data lakes (a system or repository of data stored in its raw format) to try and pool client information together, with the hope that this would be their golden nugget to becoming client centric. However, the lack of data governance has led to data lake ‘pollution’, rendering the data as invaluable.

The case is clear: wholesale banks must put in place a foundation for data-driven client centricity through a well-managed data transformation journey. If this is left too late, or even ignored, banks will be left behind.

The transformation journey to client centricity

When it comes to becoming client centric through data, banks need to learn to walk before they can run. The act of simply offering up large quantities of client data to internal business units can not be deemed as successful, nor will it help in providing exceptional customer experience.

Most banks today are also guilty of being ‘data wranglers’, using their data scientists to create a single view of data required for specific use cases through building in-house tools. Not a good utilisation of their expertise. This often leads to the data being unusable for other scenarios therefore having a short shelf life.

Initially, banks need to take specific baby steps. They need to make a simple investment into understanding their client base at the highest level based on static attributes. They need to also break out of the dangerous mindset of being able to solve everything on their own, or they risk being overtaken by the institutions that embrace the fintech ecosystem to unleash innovation and results at speed.

BBVA, a Spanish multinational financial services company, exemplify the value that a data strategy underpinned by a centralised view of static client data can eventually bring. BBVA has a 360-degree view of their clients regardless of which BBVA business unit they interacted with, enabling them to personalise client communications and maximise sales conversion by better meeting their clients’ needs. This didn’t happen overnight, and it started with the fundamental; having a single static client data view.

Achieving a holistic view of your client base is a difficult task and there is no denying that. However, it’s a non-negotiable. Unless they want to get left behind, the wholesale banking industry needs to act now. If they fail to address the problem, they will fall victim to rising client expectations and competition from data-centric fintechs, and will struggle to catch up.

So what should banks consider when undergoing the journey to transformation? Six key themes:

1. Provide management with immediate benefits
The tenure of management at banks is becoming shorter. This means that those in the strategy driving seat are under increasing pressure to deliver tangible short-term benefits, as opposed to undertaking long-term programmes. This leads to the question, what incentive does each business unit have to reach a centralised view of static client data if the data on its own does not enable the provision of the “sexy” client experience?

The answer is simple. The incentive is that it begins to repay the investment through starting to address one of the most asked questions within financial services – “how do I improve my KYC processes and at the same time reduce cost”. Banks spend up to £300 million annually on KYC. A single static client data view across business units will start to ensure KYC is sped up and not duplicated, and will provide the foundation to unlock numerous other onboarding benefits.

2. Address static client data issues
Client data quality is a well-worn phrase within bank transformation initiatives. Yet, it is still one of the largest issues facing banks trying to obtain a single static client view. Failing to solve these issues at source will erode trust in wider future data initiatives. Data ownership and stewardship should be federated to each business unit at source to be accountable for future static client data with common core principles agreed.

In the short-term, a team will be required to undertake client static data remediation.

There are numerous Fintech companies, such as Qlik and Loqate, offering data cleansing and ongoing maintenance that should be utilised to help automate the majority of the data cleansing and will significantly reduce timelines. Banks should start by prioritising their highest revenue-generating clients, which will ultimately equate to the majority of their total revenue.

Going forward, it will be crucial for a centralised team to be in place. On top of this, they’ll need to be assisted by technology and automated rules to manually review static client data on an exceptions only basis. This will enable trust in the data and ensure future static client data remediation programmes are not needed.

3. Embrace the fintech ecosystem and tap into existing capabilities
Lengthy in-house build timelines are a thing of the past. To harness the benefits of cleansed data and scale, organisations must take advantage of the ecosystem of entity resolution providers. Firms such as Quantexa and Ripjar will enable banks to no longer use ‘siloed business units’ as an excuse for not creating a single consolidated static client view.

Moreover, it will stop them from having to undertake the arduous activity of moving data or building separate data platforms. These providers also have the ability to enrich internal data with trusted external sources to not only supplement internal data, but also make sure the bank’s client information is up to date. This is an added benefit in itself.

Creating an initial MVP through partnering with fintech companies will quickly demonstrate the potential value to the organisation. Moreover, it will convert a ‘concept’ into a tangible asset that stakeholders can buy into. Although, to achieve this there must be comprehensive and thorough rules in place.

5. Don’t stop there, continue bitesize future investments
It is essential that future application-led investments are made within each business unit. These should be built on top of the static client data view, leveraging the same technology to eventually build a subsequent client “golden” record comprised of product holdings, transactions and so on.

Incrementally, this then starts to create significant business value within each business unit based on their specific needs. It also starts to slowly build a single picture across the bank which consolidates core client data in one place. Business units should then take the next stride to use this wealth of information, collected across the organisation, as a formidable asset to run analytics and predictive decision making.

In turn, this sets off a domino effect, pivoting a historically transaction-focussed institution into one that truly knows their clients and can be on the front foot in catering to their evolving needs.

6. Break the status quo and become the leader in disruption
Becoming client centric requires more than just some high level strategy slides in an investor pack; it requires real action. Ultimately, the messaging on these slides – the usual spiel on what the organisation is doing to transform to data and customer centricity – is the same being communicated by every bank on the street. The only difference is their own branding.

Shareholders and clients are fed up of the wholesale banking industry constantly lagging behind other industries. They want to see tangible change based on their interactions with banks. Leaders within wholesale banks need to break the status quo of wanting to get to the end-state tomorrow.

The crucial steps to becoming a leader in disruption are patience and a laser focus on the core objective of each journey step, without losing sight of the fundamental reason for the transformation – their clients. Moreover, the removal of “historic egos”, which have long driven banks to exclusively build in-house, is equally as vital.

The bottom line

Let’s face it, this isn’t the most glamorous of transformation programmes. However, it is one that is vital in order to build the solid data foundation that banks need to progress. These changes will allow wholesale banks to embrace digital disruption and become truly client centric, data-driven organisations.

They will house the capabilities to offer clients a ‘one firm’ experience, no matter what part of the organisation they engage with, in addition to a single firm-wide client view. Doing so will unlock significant value now and in the future, from simplifying onboarding processing, holistic client risk analysis, unlocking of significant customer relationship management and revenue growth opportunities.