‘More than the new oil’: Conclusions from Tearsheet’s DataDay Conference

We are moving to an era where banks, fintech startups and retailers are racing to deliver the most relevant products and services, based on data. 

The coronavirus pandemic has driven digital adoption and added pressure on financial companies to support customers throughout their product journeys. Meanwhile, the user experiences of Amazon, Google and other big tech players are driving new customer expectations. As a result, banks and fintech startups are using data to guide customers during product discovery and purchase stages, with the goal of building enduring relationships with them.

As banks transform from physical money vaults to digital information repositories, it’s often said that data is the new oil. But sitting on a trove of data alone isn’t enough: Success depends on growing business models, governance frameworks and partnerships to ensure that customers are well served. As practitioners at Tearsheet’s DataDay virtual conference earlier this month concluded, unlocking data’s potential means delivering value through personalized products and services. 

“There’s this notion that the data that the banks sit on is gold, or it’s oil, and they’ve just got to figure out how to drill it or mine it,” said Adam Carson, West Coast fintech lead at Point72 Ventures. “I don’t see it; I think there’s a big difference between having data and building a data business.”

At DataDay, discussions among bankers, startups, venture capitalists, data aggregators and nonprofits centered on the building blocks for success in a post-pandemic business environment.

Among the conclusions:

Put the customer at the center of your business model.

Whether it’s data sharing, using data to create new products, risk mitigation or permission management, consumers are at the center and will continue to be at the center and as we start to see this industry evolve.

Future business models will be driven by customers’ ability to channel their account data in ways they see fit. 

“[It’s a situation where] you have multiple apps, you have your holdings and your balances in multiple places and you’re regularly moving money into digital channels — it’s more a dynamic routing and connectivity-based system,” said Niko Karvounis, product lead for institutions at Plaid. “It’s sort of like a fintech highway where I don’t care what exit you get off at, but there are clear lane delineations and signage so that you get to the place you want to go to.” Institutions need to ensure they have the enabling infrastructure to realize this goal.

Greater data connectivity will allow financial institutions and startups to move past transactional customer relationships.

“If you look at the first uses of technology that [banks] brought about, it was all about the efficiency of the interaction,” said Brandon DeWitt, co-founder and chief technology officer of MX. “I think what we’re seeing now is a wave that’s crashing which is the effectiveness of an interaction.” The “nobility of banking,” DeWitt explained, is a concept where banks act as trusted stewards of customer data.

To achieve a more effective interaction with the customer, institutions need to look at technology that gathers a range of data points to create a holistic view of the customer’s financial life. “If you move from the efficient state to the effective state, we make sure that those interactions are incredibly meaningful and we can guide somebody on where they are and where they want to go,” said DeWitt.

SPONSORED

Standards matter a lot, and can help realize the goal of a future without passwords.

Through common standards for data sharing and data access, consumers will be able to make better decisions and gain more control over their financial lives, participants observed.

Don Cardinal, managing director of industry nonprofit consortium The Financial Data Exchange (FDX) said the goal is to unify the industry around a common interoperable data standard. The FDX, which has 114 member organizations, also works to mitigate the security risks of credential sharing, a process whereby third-party apps “screen scrape” user logins and passwords to access customers’ account data. 

Both FDX and Plaid spoke about the importance of getting as broad a swath of institutions as possible on their networks to ensure consumers are best served. Meanwhile, participants agreed that API-based data access standards are fast becoming table stakes expectations from customers.

“The notion that we’re going to be in an API world versus a password and ‘screen scraping’ world in the near future is probably going to happen, but maybe it’s the same as contactless payments — it’s going to take some big event like a coronavirus to accelerate it,” said Carson.

The effects of the pandemic on the industry will likely linger a long time after a return to business as usual.

COVID-19 has changed the game for financial services. The industry has shifted away from acquisition, marketing and growth to a more defensive posture focused on protecting customers and mitigating risks. For example, Cardinal highlighted the FDX’s work in helping institutions carry out identity verifications based on real-time data.

Participants also agreed that the pandemic accelerated digital activities and pulled forward the innovation cycles within banks.

“Although it’s a terrible thing happening to our world, COVID-19 has actually accelerated this concept of digital transformation in banks,” said Hossein Rahnama, CEO and founder of Flybits. “We are seeing that banks that had programs that ran for five years to a decade are now having to deliver their digital transformation in about a year.” Now more than ever, banks need to understand the context that underlies their interactions with customers, he noted.

Consumers are demanding tailored experiences based on data, driving a new “hyper-personalization.”

As consumers conduct their financial lives on various apps and banking platforms, there is new demand for control over how data is used and shared. Wells Fargo reported increased activity on third-party finance apps in the wake of the pandemic. In an effort to maximize customer control over data sharing, the bank has been building the infrastructure for safe and secure data access. 

“If you go through the Wells Fargo API connection, the customer will authenticate with us directly, and they’ll have a list of the account data that they can share,” said Anthony Burton, manager of digital data APIs at Wells Fargo. “Our philosophy is that they want to share as much as possible, so it’s an opt out for them.”

In order to share data safely, consumers should be offered opportunities to exercise “good data hygiene,” which means verifying which platforms can access account data, along with the right to disappear, according to Ryan Christiansen, senior vice president of data access at Finicity. Secure API-based data access should be governed by the principles of control, access, traceability and security, he argued.

Others raised possibilities of layering non-financial information alongside financial data to deliver contextually relevant experiences for consumers. 

“Think about supermarkets, airlines, energy companies, telecom operators — we bring all of them around the bank, and in a very privacy preserving manner, we enable them to share data,” noted Rahnama. This scenario creates possibilities for cross-channel services, he added.

In the realm of personal finance management (PFM), bank and non-bank PFMs can co-exist because they meet the needs of different sets of customers, argued Paul Diegelman, vice president of electronic payments and aggregation at Fiserv. “[Fiserv’s] PFM is not built for everyone, it’s in part why we’ve chosen to make the aggregation engine entirely separate and available to other PFMs that have a different focus,” he said.

AI is a popular buzzword for banks, but not all practitioners are convinced it’s solving the right problems.

Participants offered diverse opinions on the utility of AI-based tools. Some contended AI isn’t the panacea many banks initially thought it was, and that there are few practical use cases for it. Solutions that tap into machine learning and data could prove to be more useful, they argued.

“Put [forward] the press releases of a bank on how they talk about AI, and ask them, ‘can you please just show me one live use case?’” said Rahnama. “Banks should figure out their data strategies before they can scale their AI strategies.”

The “productization” of data will fuel new offerings.

Data will allow companies to launch new features and products. Stash’s chief product officer Sudev Balakrishnan described how data is being used to ideate new products and refine them based on a continuous feedback loop. Meanwhile, Nova Credit described how it can pull data from other jurisdictions to offer newcomers to the U.S. a U.S.-equivalent credit score.

“Feedback to me is data,” explained Balakrishnan. “Feedback in the product world is like drinking from the fire hose — you have to design it so that there’s a fire hose that gets information from so many places, and you drink from it.”