EXCLUSIVE: “Doh… it’s the data, stupid!”- Krystle Ritchens, J.P. Morgan; Boris Bialek, MongoDB, Kieran Hines, Celent and Toine van Beusekom, Icon Solutions in ‘The Paytech Magazine’
Celent’s new report on what corporate clients really want from their banking relationship throws a spotlight on an asset that ISO 20022 will make increasingly valuable
Cross-border payments have long been hampered by the friction associated with the use of different, incompatible data messaging formats. This explains why standardised data formats, such as ISO 20022 and, increasingly, APIs, are now recommended as banks seek to streamline, improve and automate their processes.
In fact, you can’t really talk about payments modernisation – and the potential of payments data monetisation – without first considering ISO 20022, an emerging global and open standard for payments messaging. ISO 20022 creates a common language and model for payments data across the world’s markets; one that provides higher quality data than other standards, which should translate into higher quality payments for all. Sounds good, doesn’t it?
Whilst it’s no longer considered a ‘new’ standard as such, its profile has certainly been heightened by the global push for payments innovation and escalating preparations for SWIFT’s ISO 20022 payment message changeover in November 2022. It’s become very clear that banks are at different levels of readiness, though. Some are fully prepared and have ensured they’ll be compliant in time for the transition. The others should want to catch up – because while migration to ISO 20022 is a significant challenge, with big cost and logistical implications for financial institutions and for corporates that need to upgrade their systems to support it, the standard can also bring in a raft of competitive advantages that outweigh the investment.
Through its greatly improved data structure, extensible message set, and ability to interoperate between domestic and international payment systems, ISO 20022 conquers a number of crucial pain points. But, perhaps more importantly, it also gives banks valuable insight into customer behaviour and expectations, and how they’re changing over time. And because the standardised approach to payment messaging that ISO 20022 encapsulates applies to every type of payment, from corporate to consumer, cross-border, and everything in between, its potential is virtually limitless in terms of the scope of insights it contains to feed future business development.
We recently tackled this topic in a wide-ranging webinar with experts from Celent, Icon Solutions, MongoDB, and J.P. Morgan, which explored how ISO 20022 and other industry developments have created a head of steam and shunted the role of payments data in organisations’ strategic development right to the top of the agenda, raising the data’s worth exponentially.
“What’s important about payments data is the value that it creates, and that value is usually intelligence,” said panellist Krystle Ritchens, an executive director at J.P. Morgan who leads the Payments Industry, Regulatory and Network function for EMEA. “From an investment perspective, the focus on payments data is growing because a lot of enablers have been introduced recently, things like ISO 20022, open banking and real-time payments. They’re all here – or soon to be here, in the case of ISO 20022.”
“I think, as an industry, we were consumed with the issue of real-time payments, but it’s so much more than that. There’s another enabler as well,” added Kieran Hines, a senior analyst in Celent’s banking team. “It’s stepping back and looking at this from a whole-of-bank perspective. More and more institutions are viewing data as a truly strategic asset, and that also feeds into this conversation about payments data monetisation, because payments data is some of the most valuable data the banks have access to.”
It’s no secret that the world’s banks are sitting on more data than any of the new fintech players snapping at their heels, so can they use it to replace their dwindling margins with new, paid services based around partnerships rather than volume product pushing? There’s a school of thought that perhaps data monetisation can provide a life raft for banks that are struggling in the choppy waters of today’s highly competitive marketplace.
“It’s recently been announced that Klarna has a valuation that’s bigger than Barclays,” said Toine van Beusekom, director of the Payments Centre of Excellence for Icon Solutions. “Stripe has a valuation that’s bigger than BNP. So what do the banks have left? The data. They need to ask ‘what are the use cases and how can we monetise this?’. That’s why it’s so important to look at it more strategically.”
All of the speakers agreed that there’s little value in the data each organisation owns from a transactional perspective, for things like cross-selling, because of the limitations imposed by the wide-ranging jurisdiction of the EU’s General Data Protection Regulation (GDPR). However, it’s a priceless resource when it comes to better understanding customer behaviour in order to anticipate and react to industry trends and steal a march on competitors.
“You can’t simply sell somebody’s data,” said Boris Bialek, global head of enterprise modernisation at MongoDB. “That’s illegal. But the derived information you can generate from data drives additional value, whether it’s for credit scoring or better, more personalised customer service. So, there are a lot of reasons to enrich data to ultimately drive monetisation.”
Delivering on data monetisation
Earlier this year, Celent was commissioned by Icon Solutions and MongoDB to prepare a new industry report called Expectation Versus Reality For Payments Data Monetisation: Identifying The Data-led Services Corporates Want. The report is particularly bullish about Bialeck’s last point – how ‘now is the right time to invest in payments data monetisation’ and, specifically, the leveraging of that data to enhance services for corporate clients. It highlights that payments data monetisation is an increasingly key strategic priority for banks, with 38 per cent of those surveyed saying that it’s an objective of technology transformation investments. This is being driven by growing margin pressure and competition, evolving customer expectations and migration to real-time payment infrastructures and ISO 20022.
To properly examine the scale of the payments data monetisation opportunity, Celent surveyed a combination of banks and corporate end users. Interviews with treasurers and CFOs at 217 large corporate entities identified common business challenges, demand for new services, and – crucially – a growing willingness to pay for service enhancements. In parallel, a survey of 168 senior bank executives has provided a unique understanding of exactly how banks plan to address these growing customer needs.
“What we’ve done with this report was to look at what banks are doing, but also how this maps back to the needs of corporate customers,” explained Hines. “So we spoke with corporate treasurers and CFOs, and found that what they want is all about automation – getting data faster, taking out manual workarounds and manual processes in workflows. That’s where the opportunity is for the banks – to provide enhancements that deliver on those needs. We then went back to the banks to say ‘well, what do you think about this – and what are you doing about it?’.
“We found out a lot of very interesting things about what it is that corporate clients really want from their banking relationships, and the role that data can play in that. There are some extremely important messages that have come through this work.”
There are two findings in particular from the research that Hines is keen to highlight. The first is that inaction on the part of banks is no longer a viable option. While corporate clients are prepared to pay for many value-adding service enhancements – like enhanced security and fraud prevention and a single, real-time balance dashboard across multiple bank partners – there are several additional areas that are becoming expected hygiene factors, such as virtual accounts, improved onboarding, and ISO 20022 compliance support. Corporates expect these free of charge and a failure to deliver them will simply see clients moving their business to new partners that can. So, while there’s a strong case for investing to support revenue growth, there’s an equally strong case for investing to protect existing business because corporates are more demanding than ever.
“Clients are no longer willing to pay for what they deem to be base services,” said Bialek. “It’s what I call the ‘Googleisation’ of banking. People want to have base payments for free, and this is why financial institutions need to be more clever about what they can do with the data afterwards, to fulfil that monetisation angle.”
“It’s all about the basics,” added van Beusekom, by which he specifically means faster processing. “As the report shows, banking doesn’t need to change as such. Corporates still want their cash balances, but now want them in real time. They want to do their payments and access their data, in real time, around the clock and on a Sunday.That’s the biggest challenge.
“The biggest surprise for me, around monetisation, is that it’s more about customer churn. That goes back to the commodity cycle nature of it all. You will walk away from your electricity supplier if your power is always down, or your utilities provider if your water turns brown. There’s no magic touch required, no screaming from corporate clients for things to be completely new, or a massive team of data scientists to develop algorithms on top. That’s all very cool stuff but, first and foremost, corporates just want their data in real time.”
The report’s second key finding is that data monetisation is not a product, it’s a product strategy and needs to be treated as such. Banks that view data monetisation through the lens of one-off initiatives and tactical product enhancements will struggle to achieve return on their investment and miss the much larger competitive opportunity that data presents..
“Banks need to see data as a strategic asset,” explained Hines. “You can’t think of this like traditional product development – you know, ‘we’ll improve this piece here this year, then maybe next year we’ll do this piece and then this piece’. This is about creating an approach towards data use that can support enhancements in the long term, and this will be one of the big differentiators in the market over the next three to four years – the banks that get this right will be the ones that succeed.”
The real opportunity is about much more than revenue – it’s about moving the relationship with corporate clients away from the consumption of banking products and towards acting as true partners for customers; providers that can deliver a wider suite of services, rooted in the power of data. “Gone are the days of a traditional product manager, who’s managing a single set of rails,” said Ritchens. “It’s now more about a client experience manager with a wider remit. A client, for example, may want your instant and standard SEPA rails, but is also searching for value-added service, like wallet products or other alternative payment methods.”
Expectation versus reality
We rounded off the webinar by asking the panellists their views on expectations against current payments data reality, with some interesting results. For example, while banks are busy creating API interfaces for clients and – thanks to open banking – trying to create interfaces around data, there are differing expectations around the pace of change.
“The expectation is that data is readily available and real-time today,” said Ritchens. “But while, in some instances, this is the case, the wider reality is that there’s still a lot of work to be done as an industry – from scheme rules to legacy applications and industry practices – to get there.”
“Banks’ expectation that there’s a lot of money to be made through data is there,” added van Beusekom. “But the reality is that clients will take a lot of it as ‘table stakes’ and won’t be willing to pay for it. And if you’re not offering it, you can be certain one of your competitors will – and your clients will willingly walk to them.
“The monetisation will happen on the front-end cycle, not the commodity cycle. That realisation really needs to sink in at banks, and they will need to lower costs and transform while thinking carefully about where they want to, and can, compete.” While there are challenges to overcome, Bialek is in no doubt where the future of payments lies. “Data will become the centre of payments more and more,” he explained. “What was once an afterthought will become the new centre of how people understand the value of a payment.”
ISO 20022 is primed to unlock the full potential of payments data monetisation. But promise will only turn into reality through real strategic thinking.
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