Everybody wants to know what “the next big threat in banking” is going to be. Chalk it up to a fascination with innovation, even among a group of people (community financial institution leaders) who typically view change as a risk worth avoiding. Well, I’ve got good news and bad news for you. First the bad news: the biggest threat to your institution isn’t what’s coming down the silicon superhighway, it’s the 800lb gorilla known as your data.
Next, the good news: you can do something about it. You can put the gorilla to work and use that mountain of muscle to power your future.
Preparation for the future
There’s a fundamental need for financial institutions to take control of their data. In fact, understanding your data and housing it in a way that approved third-party vendors can make use of could be the most important thing you choose to do in 2019.
You can either bite off the whole expense on your own, creating a comprehensive data warehouse and team to manage it, or you can partner with an expert in the space and ride the coattails of their investment and operational scale.
The cart before the horse
Financial institutions are eager to talk about new technologies and where the market is headed. But there’s almost no attention paid to what they must do before they can engage with an impending innovation.
The first step is putting your arms around your data. It’s not glamorous work, but without the ability to allow individuals to easily access, visualize, and analyze your data, you’ll be flying blind into whatever the market throws at you.
It is really difficult for most community banks and credit unions to acquire the talent in-house, because that talent lives in a tech hub, the institution has no capacity to hire or manage the talent, and/or because it’s expensive to attract it in the first place. That doesn’t mean it’s impossible, but before you decide which route to take, it’s worth assessing the overall requirements each approach demands.
Data is your lifeblood
Whichever route you decide to take, gaining control over your data is going to take a serious commitment from your entire leadership team, as well as a deep partnership between your marketing and technology teams. It’s not something that can be skipped or delayed either. If you want to see your institution survive, even for the next few years, you have to start this process today.
The same way that an institution wouldn’t dream of doing business without having an internet connection at every branch, they shouldn’t expect to function without a data strategy.
Banking has changed and it’s not going back
The days of “physical presence-based, relationship banking” as the method for community financial institutions to compensate for technological shortcomings are over. The majority of human beings in this country are connected to their money through devices. The majority of their transactions are happening digitally.
Some institutions may think otherwise. They may believe “that’s true for other banks and credit unions but not ours. Our data shows that our community only wants to use our branches.” This self-fulfilling prophecy does nothing to account for the swaths of account holders who do transact digitally and thus avoid your luddite institution like the plague.
Core processors aren’t the problem
It’s easy to complain about core processors; everybody does. This issue is important enough that if you can’t get data out of your core provider, you need to go through the heavy burden of switching to (or at least threatening to switch to) a different one who will supply it. Yes, taking full ownership of your data is that important.
Once you have access to that data, you need to start processing it through predictive modeling. Machine learning allows for rigorous, unbiased analysis of digital transactions. Armed with this intelligence you can begin to anticipate the needs of your account holders and take your “relationship game” to the next level, by offering what they want before they even realize they want it.
Build your house on a rock-solid data foundation
The biggest mistake that I see institutions make is that they adopt an attitude of complacency or optionality. Either they think they can tackle the challenge of data ownership “next year” or they opine that it’s something they can live without. Data is not a passing fad; predictive modeling is not a passing fad. Fortunately, you don’t need a degree in data science to make informed decisions about your data strategy.
Resources such as The Financial Brand and The Digital Banking Report, can give you a huge leg up. There are also podcasts galore, such as Brett King’s Breaking Banks, Around the Coin, and our own Thinking Outside the Vault. There’s no shame in starting with a simple Google search, as long as you’re embracing the mindset that everything you learn about data competency is building the future success of your institution.