Why payments data is the key to unlocking new customer value

Payments data offers insights into customers’ behaviors and needs – enabling banks to deliver personalized digital services and experiences.

In brief

• Pressure on revenue through lower interest rates means banks need to find new alternative revenue streams.
• Technology, in particularly advanced analytics, has now matured to a point where gaining insight in real time in order to unlock value from data is possible.
• Insight that can be gleaned from payments data could enable new revenue streams — generating hundreds of millions of dollars for banks and payments companies.

The ability to move money is the most fundamental part of financial services and our economic system. Payments enable everything from the simplest daily activities such as buying a coffee and paying a utility bill, to the most complex international trade transactions. Despite this, payments have historically sat in the background, seen more as the plumbing that facilitates commerce. The data that flows through the pipes has been largely overlooked and undervalued.

Banks host accounts for people and businesses and process billions of payments for each. Payments data is at the very core of what banks do and provides them with a front-row seat to view the flow of commerce.

In this digital age, banks’ ability to convert data into insight, and insight into sustainable value can be a powerful tool to develop new revenue streams and commercial models, but it remains under-utilized. There are several reasons why this should be an urgent priority for banks:

• Non-interest income: An ongoing low-interest-rate environment continues to dampen revenues from traditional products, compounded by the pandemic and the recognition interest rates are likely to remain low for some time.
• Technology maturity: Technology now exists for banks to unlock their payment data faster and cheaper than ever before. Banks no longer need to budget hundreds of millions for complex IT projects to access and process valuable data.
• Competition: Big Tech firms are already adept at generating valuable insight from vast amounts of data, and delivering rich, personalized, digital experiences. These firms are becoming increasingly interested in financial services.
• Business and consumer expectation: Individuals and businesses now expect a high level of personalization and real time service in all aspects of their lives.
• Value-added services: New revenue streams can be found in data-driven, non-financial services, adjacent to traditional banking products e.g. to support small businesses in running more efficiently. The insight that can be provided by banks has to be data-driven to fully understand customer preferences, behaviors, and needs.

Payments can no longer be seen as the plumbing of the system. Bank executives need to see payments as a revenue driver — helping them better understand and listen to consumer and business needs.

There are three steps banks need to take to unlock sustainable value from payments data:

1. Enabling access to the data and managing it as a strategic asset.
2. Turning the data into insights that support specific customers and businesses.
3. Determining the right business models to deliver sustainable commercial value from those insights.

1. Treating data as a strategic asset

The biggest obstacle for banks has always been the sheer difficulty of accessing the right data and in real time. Advancements in technology such as data fabric and cloud adoption have made this cheaper and easier.

As well as enabling technical access to payments data as a strategic asset, ownership, and governance of payments, and payments data specifically, must be put in place. This is essential to ensure that insight and ultimately value can be created, whilst also remaining compliant with obligations to protect data and manage appropriate consent for its use.

It should also be recognized that it’s not just about the payment data. Additional data from other sources, such as behavioral and location-based data, when combined with payments data will drive richer insights and contextual awareness. This ability to generate specific, targeted insights using large amounts of data from multiple complementary sources is what the Big Tech firms have excelled at.

2. Driving insights from data

The key thing banks can do with this wealth of data is to build a richer and deeper understanding of their customers, consumers, small businesses, and large corporates. The goal is to create hyper-personalized insights, specific to the circumstances of individual customers, allowing banks to engage in the moments that matter to customers – deepening relationships, and moving away from a more transactional approach based on ‘broad brush’ segmentation. Where appropriate, engagement with customers can also be done in real time, recognizing the time and place that is most convenient and relevant to customers, making contact more valuable for both customer and bank.

Banks can use third parties to accelerate this process. For example, banks looking for a richer and deeper understanding of customers’ needs and behaviors should seek a system, such as EY Nexus for banking to bring together data from across their operations. This allows banks to anticipate needs and create hyper-personalized experiences/services, fuelling new sources of growth. This could be used to support customers throughout the entire mortgage journey, from house-hunting to moving in – engaging in a way that recognizes their personal context and increases mortgage conversion; or enabling merchants to better understand and serve their own customers through real time insight generated from payments data.

Engaging with customers in this way delivers benefit for all parties – customers through more relevant, targeted products (no more ‘generic spam’) and banks through increased revenues from better conversion rates on existing products, and new revenue from additional insight-led services.

3. Driving value from insights

To turn these insights into revenues, banks can learn lessons from other industries. For example, the way digital entertainment platforms make recommendations and commission programs based on viewing data, and smartphones recommend apps based on location and time of day. Similarly, banks can use insight gleaned from payments and other data when designing new products and services, creating solutions tailored to meet customer needs.

The rich insight that payments data offers will also enable banks to improve their ability to cross-sell. Effective cross-selling is highly dependent on how well you know and anticipate customer needs. Payments data, and the behaviors it reflects, can significantly improve banks’ ability to understand customer needs, allowing them to identify the right product and offer it in the context of that need, at the right time, and in the right place. The data can also enable a better understanding of the relationships across local/regional economies, building a richer picture of connections and dependencies – using this to better anticipate business needs. This is illustrated by a rise in banks creating specific ‘data’ or insight-led products, targeted towards larger small to medium enterprises (SMEs) / corporate clients.

There is still an opportunity to go further, partnering with third parties to provide deeper insights into specific industries (e.g. Agriculture, Hospitality). Or creating new platforms to drive engagement and connections across business or consumers, informed by the connections inherent in payments data, further enriching their understanding of needs and behaviors.

To make the most of these opportunities to improve engagement, it is also necessary to deploy new commercial models, for example, consumption-based or subscription-based models for insight. For some firms, this will require a significant shift in commercial and operating models in some areas of the business.

The time to act is now

If we accept that payments permeate all financial services and commerce, then it is clear that payment data holds a picture of the flow of commerce and the relationships between transacting parties. Banks can access this and other data, providing them with an extraordinary ability to understand what people need and to create the right products and services accordingly. The limitations of the technology are no longer a barrier.

Regulation is also cited as a barrier, but in many ways, it provides a useful framework (e.g. GDPR) to allow banks to safely leverage this untapped asset. This provides greater trust and transparency to customers about the value exchange taking place through more personalized, relevant, helpful engagement in exchange for using data to deliver that outcome.