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Banks are just data vaults

There
have been several themes I’ve explored on the blog lately that are the
foundations of my latest presentations:

The themes of all of these blog
entries are that banks need to think about how they reconstruct themselves for
the 21st century.

What
this really comes down to is that banks are becoming pure managers of bits and
bytes of data.

It is the data that has the value
today and it is the data that is the basis of competitive battles in the future.

Data is our greatest asset and raw
material, not capital or people.

That is what the internet and
computing has done for 21st century
society and for 21st century banking.

I would
be at far more of a loss if I lost access to my online accounts, had my usernames
and passwords changed, had my identity copied and compromised online, or
similar challenges.

For some, they would feel their lives
were lost if their Facebook or Twitter accounts were blocked or  deleted
whilst, for others, their World Of
Warcraft
gold is more valuable to them than their total real world asset
base.

The core of all of these discussion
is data and data leverage.

By the same token, the data is where
we have our greatest opportunity and threat.  We talk about Apple, Amazon,
Google and Facebook with admiration, but the core of these companies is not
music, books, search and social networking.

It’s data management.

That is what Apple, Amazon, Google
and Facebook have made of these businesses: massive data mining drones that
allow us all to dump, tag, find, update and manage our online experience.

So then I come back to my core memes
of data being more important than money; that the internet of things will have
us all drowning in even more data; that data access is our greatest
vulnerability; and I realised that the bank of the 21st century is not a bank as we would recognise
it at all.

It’s just a secure data vault.

The vulnerability of data, and hence
the secure management of data, is where banks can truly leverage their capabilities.

If data is more important than
money, then the bank that securely manages my data  is the bank I will
deposit with.

If Facebook is leakier than a pair
of woollen underpants, then why should I trust Facebook to manage my privacy?

They don’t.  Instead, I should place my
most sentimental photo albums in my bank vault.

If the internet of things means that
my digital footprint can be predicted in real-time with proactive proximity
based servicing, then why shouldn’t I trust my bank to be my predictive,
proactive partner?

This is where the radical departure
takes place from last century banking.

Last century banking was predicated
on money, paper and the physical transfer of goods.

21st century banking is predicated on data,
context and the electronic transfer of goods.

It is why the branch has no place in
21st century banking
and why many of the so-called visionaries and innovators are dissing old world
banking as being dead as a dodo.

It is, but not yet.

For there is that transition time
between the old world and the new.

But, if you look at the new world
visionary financial services providers – Moven, Simple, Gobank, Bluebird,
Fidor, Jibun et al – they are all pushing the envelope of being vaults for
secure data.  Their premise is that the
leverage of data and the knowledge they can gather from your data, allows these
firms to improve the value you receive from your shared electronic relationship.

It’s context, proximity,
location-based proactive servicing of data value that these banks offer, and
that is how they will flourish and grow.

Meantime, you have new models of
finance emerging
 – Zopa, Friendsurance, eToro and more –
that will change the game again, as we see new niche opportunities emerging for
managing data value exchange.

Finally, we see a few hybrid banks
emerging – Alior being the most recent case in point – who offer the mixed old and new world
capabilities to reach the broadest audience with the deepest relationships.

Whichever model you believe is right
is up to you.

However, as a commercial strategist
looking for the opportunities three to five years ahead, I would far rather bet
on the secure data vault banks than the branch-based monetary banks.

The latter were built for the
industrial revolution.

We now need more banks built for the
information revolution.

 

p.s. I know I’ve blogged about this many times before.  Here are a few of the better blogs on the
subject:

       

      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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      3 comments

      1. Chris: one of the most important elements concerning data and ‘big data’ now is context, as you say. That can translate to lineage and traceability – key elements of the Basel and Solvency regulatory compliance philosophies, but also now the same is demanded for the telco, pharma, energy and retail supply chain sectors, as they all grow to depend on their data, and start to be regulated under the ‘know your customer’ banner.
        Since most large institutions have heterogeneous IT environments, the key to context is control of your metadata (and in turn, your ‘big metadata’). This trend will augment, and in my opinion eventually replace, ERP systems, datamarts and enterprise data warehouses.
        And no-one wants to convert to,or pay for,a single platform/system any more. That means the ‘spaghetti’ architectures and code will persist and obtaining a proper enterprise view will rely on metadata control to present unified data for boards, regulators and shareholders.
        Just as in the 3rd Pillar of the Basel and Solvency regs, embedding this transparancy and traceability in day to day operations is also good business practice, and might permit you to release capital reserves as a business, or confidently deal with your loyal customers as they ask for better deals.
        So let’s hear about metadata soon in the same breaths as data and big data. I know it’s technical, but so are the phrases ‘IP address’ and ‘URL’, which have now passed into the public vernacular.

      2. Chris — Once again, you hit the nail on its head. A few of us have been arguing this point for more than a decade … I am glad that we are on the same side of the argument.

      3. For Big Data… it is worth reading up on the lessons from AI, specific Rodney Brooks / Marvin Minsky’s approach on representationless models (http://people.csail.mit.edu/brooks/papers/representation.pdf). It is wise to look into evolving ontologies (emerging metadata).
        Where this hits the road… lately I’ve been wondering how damaging it is to advocate renewal with outdated tools… Some business professors i know were very enthusiastically advocating “balance score cards” but never bothered to keep track of the further evolutions in that space. Companies that (in)directly follow these guidelines, while in need of a future, update from the distant past to a recent past, but it’ll never allow them ahead.
        Accounting itself has become quite outdated and incapable of dealing with the variety of new ways of cooperation and collaboration, outsourcing and insourcing, the shift to a knowledge economy… where credibility and goodwill dominate, where a customer is a collaborative provider of a company’s demand and income, instead of a sort of garbage bin at the end of a sales pipeline.
        In that sense normal accounting and CAPEX vs OPEX ideas may have grown wrong.. There needs to be a new way of accounting, based on swarm intelligence, gestalt theory, power laws, event simulation and other paradigms. I wonder how damaging it is for investors and the economy that we’re still using administrative tools that are modelled on 19th century thermodynamics.

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