For the last decade, headline after headline has predicted the demise of banks at the hands of the tech giants. Why? One word: data.
Finance is — and always has been — a data-dependent business. Providing a commercial loan relies on knowing how likely the would-be borrower is to default, a rudimentary data-processing task that is exactly the expertise that Big Tech has. These companies, which include Amazon.com, Apple, Facebook and Alphabet’s Google, can generate and leverage large-scale, granular and real-time data on their users, and have used this to build the largest and most valuable businesses in the world.
By comparison, many banks still don’t fully appreciate the value of their data, and have yet to generate meaningful financial returns from it. This is because most of their data is siloed and sprawled throughout the organization across customer onboarding, marketing, financial crime and fraud and credit risk. Instead of being regarded as a valuable commodity, data is seen as a potential temptation for hackers and a cost that needs to be managed.
If banks can learn to leverage their data like these technology giants — embracing digital transformation to lend faster, smarter and more to businesses — they can beat Big Tech at its own game. Unlike Big Tech, banks have long-worked in regulated environments that require all participants to follow the same rules. As a result, they figured out how to work collaboratively with regulators at speed and at scale, and established robust processes and governance around areas such as data ethics and privacy. This has helped build consumer trust and burnished relationships.
This proved to be a powerful combination over the last 15 months as Covid-19 forced states and businesses to temporarily shut down. The government turned to banks, not Big Tech, to help support businesses, via initiatives such as the Paycheck Protection Program and the Main Street Lending Program.
West Reading, Pennsylvania-based Customers Bancorp rose to this challenge and leveraged OakNorth’s ON Credit Intelligence Suite to identify which industries in its portfolio were more stressed and which metrics it should use to determine risk profiles. Data helps banks such as Customers identify overlooked market sectors and business types that are good credits, but could be difficult for lenders to take on without the data or analytics to make an informed decision. Embracing technology to leverage data effectively allowed Customers Bancorp to provide over 100,000 loans and become the sixth-most active PPP lender in the US – a substantial feat for a bank with $18.8 billion in assets.
Regulatory know-how, proprietary data sources and specialized services offer ways for banks to compete with — or indeed, collaborate — with Big Tech. This has been demonstrated through partnerships such as Goldman Sachs Group and Apple, and JPMorgan Chase & Co. and Amazon. Leveraging data and digital transformation will empower banks to discover gaps in the market and even attract borrowers which Big Tech is unable to. After all, not every business will be keen on the idea of borrowing from the same company that helps them share goofy photos with their friends.