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Banks can thrive in the data-rich future, but they’ll need to adapt to survive.

As the global shift towards digital payments accelerates, banks and financial services providers need to brace themselves for the increasing importance of ‘big data’ across the payments ecosystem.

The Thredd team

June 13, 2022

This richer, more structured data brings a multitude of operational and commercial benefits for financial institutions, as well as leading to better, more tailored services for customers.

Here we discuss the benefits of rich data for banks, brands and consumers, and talk about how traditional financial services providers can future-proof their services by proactively embracing big data.

ISO 20022 and the next big opportunity in payments

The ISO 20022 standard has long been synonymous with rich data in finance, but global adoption has varied between markets and financial services providers. It was first pioneered throughout Asia and Europe, largely driven by agile, digital-first start-ups, and is set to be implemented officially by both the US and the UK in 2022. The standard aims to implement a consistent global framework for the exchange of metadata between financial institutions, and will revolutionise how businesses process payments and the data that goes alongside them.

The advantages of standardisation are manyfold. From a greater scope for cross-border interoperability between financial institutions, to enhanced regulatory efficiencies, ISO 20022 is already delivering operational and commercial benefits to the countries and companies that have adopted it.

Fintechs are able to utilise the enhanced metadata to more accurately detect cases of fraud and automate previously manual, time-consuming elements of the payments process.

Consumers, likewise, are benefiting from better access to a wider range of financial services, that can be closely tailored to their individual spending patterns because of the data held by their chosen financial institutions.

The challenge for banks

Held back by complex legacy architecture, however, incumbent banks and traditional financial institutions have been slower on the uptake, understandably concerned about the financial and operational impacts of overhauling large elements of their technology stack. However it’s vital that banks understand the potential long-term advantages associated with rich data and identify the key areas for commercial growth.

Currently one of the main areas of focus is around operational efficiency. The enhanced messaging format established by ISO 20022 enables banks to streamline and increase the resilience of their operations in myriad ways.

Banks can reduce operational overheads by paving the way for hyper-automation of payments, which will eventually lead to a more efficient, cheaper service that they can pass onto their consumers, improving the value they deliver.

Furthermore, from a regulatory standpoint, a standardised messaging framework is both easier to police and more straightforward to manage. In a space that is increasingly governed by external regulation – from GDPR to PSD2 in Europe alone – ISO 20022 can empower banks to proactively identify and prevent breaches, avoiding expensive penalties and the indirect costs that come with loss of brand faith.

Collaboration or competition?

Two key components will be vital in banks’ journeys to embrace this data-rich new normal: cloud-native technology and collaborative partnerships.

The benefits of cloud computing are well established; cloud-native technology stacks can provide additional security through third-party specialists, reduce the risk of downtime and error associated with managing your own servers and – most importantly – provide efficient, API-driven development environments for sharing rich data. Embracing the speed and efficiency of cloud computing will be integral as banks transition away from cumbersome legacy systems.

Perhaps more crucially, however, banks and traditional financial institutions will need to rethink their collaborators – and competitors – if they are to succeed moving forward. Partnering with more agile fintech players – perceived by some to be the successors of traditional financial institutions – could enable banks to better embrace ISO 20022 and its benefits.

By working with digital first, cloud-native providers, and outsourcing elements of their technology stack to trusted third parties, banks can affordably future proof their systems and architecture for a data-rich environment in the short term.

This means that they can be developing the talent and processes internally at the same time, to eventually bring these elements back in house – if they choose to bring it in house at all. It could prove more cost-effective to keep this area with a specialist third party.

Partnering with innovative fintechs won’t only deliver the aforementioned benefits, but will simultaneously allow banks to scale and enter new markets in an increasingly connected world. Working with partners with proven global experience will be vital for banks to expand their reach and customer-base. At Thredd, our technology and talent have established us a trusted fintech enabler, having helped financial services providers to launch and expand cross-border through API driven technology and next generation payments services. Through the Thredd Apex platform, we offer integration with over 40 card manufacturers globally through more than 90 open APIs, all through a single integration.

A new relationship with data

The benefits of rich data in payments for both consumers and financial institutions have already been proven many times over. What’s truly exciting, however, is the potential for innovation that ISO 20022 brings.

In a more connected financial services economy, where a joined-up approach between global players is the norm, time and resources can be better spent on innovation and the delivery of better financial services for consumers.

Banks who prove capable of utilising rich data can play a vital part in the lives and spending patterns of their consumers. In doing so, they’ll enter a new relationship with data, one in which they’re trusted custodians over huge amounts of customer financial data. If they’re able to adapt their technology stacks and services to meet the data-first approach, the potential for monetisation of and innovation with this data is colossal.

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