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Information as a competitive weapon

A year ago, I was hugely influenced by a 16-page technology supplement in the Economist that talked about information wars.

The stand-out quote from that report was from Craig Mundie, Head of Research and Strategy at Microsoft, who stated: “ Data is the greatest raw material of business, on a par with capital and labour. What we are seeing is the ability to have economies form around the data and that, to me, is the big change at a societal and even macroeconomic level.”

Now this is where it gets interesting, and shows some of my data mining background.

The essence of data mining is to dig deep to find relationships between diverse and fragmented pieces of data. In banking, it honed in on the single customer view, with the idea of deeply mining customer transactions to find out how to leverage sales.

This was typified by Martha Rogers and Don Peppers’ book on 1:1 Marketing concepts, alongside others such as Friedrich Reichheld’s views  on customer loyalty.

We churned out all the old nuggets about a customer satisfied is ten times more loyal than a dissatisfied customer, and that dissatisfied customers tell ten of their mates how fed up they are with you … blah, blah, blah.

Excusive my cynicism but over a decade later nothing much has changed and, if anything, services is worse. But at least you can serve yourself now, via mobile and internet, so some things have improved.

Now we all talk about the experience economy – thanks to Joe Pine and Jim Gilmore – and engagement banking – soon to be launched, thanks to Brett King and Chris Skinner!

But I sit and think about all of the above and just wonder whether any bank really gets it?

Y’see, going back to my data mining days, the whole focus of data usage was on sales. Get more cross-sell, get more relationship depth, get more profit, get rid of loss-making losers … nothing was really focused upon customer service in that lot.

It’s similar to the days of Business Process Re-engineering, where my push was for banks to reinvent the customer relationship from the external interaction viewpoint inwards … instead, most banks opted for purely incremental improvements to internal processes to lower costs.

Now there is a big change.

That big change is the information economy and the ability of new players to use information as a competitive weapon.

What do I mean?

I mean that deep data mining can now be used to purely leverage electronic relatinsihps that deliver the depth, loyalty and sales that banks were seeking a decade ago … and it can all be done today without a human hand involved.

We see this with Apple, Amazon, Google and more.

On Apple, you download an app or iTune and suddenly get recommendations of a thousand others. Using Ping, their new music social network, every artist you listen to pings up five others you might like.

The same with Amazon and what Google does today is even more interesting.

Google things and your IP address gives out local information along with adverts that relate to your search history.

Everything is being sensed, analysed, algorithmically processed and then personalised so that the 1:1 marketing vision of a decade ago can be delivered cheaply and easily.

So what are banks doing with this?

Not sure.

I haven’t heard one bank publicly talk about how they use customer transaction data as a competitive weapon.

I know that some banks do, and are, but they’re not talking about it.

The only one that comes close is Visa who, in the Economist’s supplement, say that they now crunch through two years worth of customer transaction records, or 73 billion transactions amounting to 36 terabytes of data, in 13 minutes using cloud computing (FSClub meeting on this on 10th March), compared to a month with traditional methods of internal computer processing.

What does it mean?

It means that you can sense customer’s lifestyles, needs, relationships and desires.

You can then target bank offers to those needs and desires automatically.

Suddenly, you get mobile adverts for loans as you pass the BMW car showroom because the bank knows you purchased your last BMW three years ago under a loan agreement that terminates in two months.

You get a mortgage offer five minutes before you walk past an estate agent because the bank knows you were looking at mortgages online last night.

You get a credit card balance transfer offer online, as the bank has seen you’re making large direct debit payments monthly to a competitive provider.

You are told about a new and improved account that would suit your lifestyle needs, thanks to comparisons with other customers and the accounts they use … they’ve found customers like you and determined a better fit.

What I’ve described above is nothing new and Mint, MBNA, HSBC and others have experimented or provide all of the above.

But none of this is bank wide enterprise IT.

It’s piecemeal data sets being analysed in pieces.

So what I’m talking about is a mainstream bank completely rearchitecting their enterprise technologies to enable deep data mining across all data, and creating semantic marketing programs that sense customers’ needs proactively and pre-emptively.

Like algorithmic trading in capital markets where algorithmic news feeds allow trading in equities to move in real-time high frequency blackbox strategies that maximise returns, we’re talking of applying the same technologies to retail transaction services for customer loyalty and wallet share.

That’s the battle about to begin as we move from managing data to using information as a competitive weapon.

  • “Information about money has become almost as important as money itself .”
  • Walter Wriston, CEO/Chair, Citibank, 1967-1984
  • “Banking is just bits and bytes.”
  • John Reed, CEO/Chair, Citibank, 1984-1998

 

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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13 comments

  1. An organisation that does systematically mine data is Tesco. The Clubcard is used to suck in lots of data from which all kinds of inferences can be drawn about the person, their lifestyle and their desires. This wealth of data will be used by Tesco when Tesco Bank is launched formally launched this summer, so then we will truly see a player in banking using customer information as a competitive weapon.

  2. Wouldn’t this make the world an even worse place ?

  3. It may Jacques … but is inevitable I think.

  4. I was getting the feeling that you were impatient to see the development of these “semantic marketing programs”. Inevitable ? I didn’t realize you were such a fatalist. As voting citizens, we could absolutely make it illegal to spy on our data for purposes we do not approve of, such as tricking us into buying financial products we do not need, or destroying whatever remains of the idea formerly known as “privacy”.

  5. Hey Jacques
    It’s a two-way street.
    Information is being used actively as a competitive weapon, for example by Tesco as Jonathan points out.
    In return, consumers allow their lives to be data mined in order to get offers.
    Only the very few ‘activists’ who go off network, are unbanked, use no technology and avoid any loyalty programs, pay for everything in cash and demand to be paid in cash, etc, could achieve ‘privacy’.
    For the rest of us, we don’t really care. Just look at what folks post on Facebook ….

  6. @Jacques: Interesting use of the phrase “our data”. Is it? It may be data *about us* but does that make it “our data”? If we purchase an item using a credit card then the item is ours. But the data that is used to verify and settle the transaction, who owns that: the card company? Certainly; the Banks? Probably; us? Nah!

  7. Chris, privacy is not something you either have or don’t have; it’s a question of degree. Mankind has gone just recently from almost no privacy to decent privacy, and only in the most enlightened nations. And yet, through lack of education and historical perspective on the consequences, people are giving it all away bits by bits. They do no seem to realize what Hitler could have done with a “Jews database” extracted from Facebook. Or how the authoritarian regimes of the 20th century collected and used data against their own people. Were Zamyatin, Orwell, Huxley already forgotten ? Banks do not have such dark intentions, however remember how easily all this data can be subpoenaed by a government and then correlated with all other sources to find out essentially everything about you. Are you taking the chance for a few sales coupons ? Faust sold his soul to the devil, will you be giving yours away for free ? 🙂

  8. Jacques
    Deep … very deep.
    Will blog a bit more about this.
    Chris

  9. @Mike: you make a good point, it is very hard to define “ownership” of data; as far as I know, privacy laws do not even use that concept as such. By “our data”, I meant “any data about ourselves that we expect to remain private, or sometimes shared with another party for a specific, legitimate purpose that we consented to”. In your example, I do not believe it is possible or practical to define who “owns” the transaction data: it involves multiple parties in different roles. However it is possible to specify which party may do what with this data, how long it should/could be retained, when it should expire, how errors in its contents may be fixed, etc.
    Note that the consent part is complex: nowadays, it is trivial for the likes of Facebook to get people to consent to almost anything, simply because they have extremely limited understanding of the consequences. These consequences cannot be fully foreseen anyway, which is why the concept of prudence exists…

  10. Jacques, you’re right, of course. I recently purchased a trivial piece of equipment from Currys and was asked, at the checkout, for my address and postcode. I supplied it, of course, as I was in a hurry. However, thinking about this (seemingly innocuous) event does, perhaps, illustrate how promiscuous we’ve become with “our data” (data about ourselves).
    Do I really care that a retailer knows where I live? Maybe not, but if that piece of data gets transferred to “the cloud” – as businesses are being encouraged to do – then I, for one, won’t know who will have access to that data. I’ll trust that the custodians of my data will have thought through the consequences of dumping terrabytes of customer data (mine included) on a server farm owned and managed (almost certainly) by an American corporation who will, with minimal hesitation, grant access to any US government agency that requests it in the name of ‘national security’? More to the point, they won’t even ask me!
    @Chris – we don’t care about ‘privacy’ because, so far, we haven’t been *made* to care – like some unfortunate Facebook users have (http://news.cnet.com/8301-17852_3-20028656-71.html) As a developer, I understand the potential for deep data mining is, frankly, tremendous. I just hope that the techies at the big banks and retailers give as much thought to what they *should* be doing with the technology as to what they *could* do!

  11. BankSimple is a data-driven business model that uses technology to provide a better service to customers. The “Zappo’s of banking…” But you know that already. 😉

  12. Jacques – it is inevitable but in my experience as long as a) there is genuinely something in it for the consumer (eg timely, relevant offers and improved customer service) and b) there is a genuine mechanism for opting out, then it can be called ‘progress’.
    The fundamental issue here – and I think Chris touches on this in the blog post – is a philosophical one about how banks use data. The old, narrow, cynical approaches will not work. A genuinely new approach based on using data and analytics to:
    a) Provide genuinely helpful financial advice to customers based on their real situation and their real goals (not the narrow sales goals of the bank)
    b) Provide outstanding customer service – eg we’ve noticed that you could get a better rate of interest through transferring to a different savings product, shall we do that for you?
    c) Provide well targeted offers/rewards that use my data and your analytics to our mutual advantage
    d) Paradoxically, augment big data usage with the return of an element of personal relationships and judgement. This is what might re-invigorate the branch networks.
    would provide a genuinely differentiated banking model that could be really successful.

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