Accenture: a digital bank built on big data - Edwin van der Ouderaa

Banks have a wealth of data from which to construct personalised services for their customers, but combining these internal information sources with external data flows could see the birth of fully digital banks. We spoke to one of Accenture's analytics experts, Edwin van der Ouderaa, about what customers can come to expect from their banks, and how banks can reap returns from their investments in analytics.

In an industry that is just coming to terms with the implications of big data, it is surprising to hear talk of looking beyond this new paradigm, but that is what some data analytics experts are starting to do. As banks begin to use the deluge of data at their disposal to segment customers into ever-smaller groups to which they can offer personalised products and services, some are looking ahead to a time when this is just the norm.

At the cutting edge, some banks are already making the transition to a fully digital existence, delivering in augmented reality over mobile phones services that would once have taken many trips to the branch to work through extensive paper-based processes. Not every bank, however, will be offering instant mortgage offers through a smartphone any time soon, as most are just starting to get their heads around what they can do with big data.

"Banks are starting to realise what big data is and get a grip on it," says Edwin van der Ouderaa, Accenture's managing director FS EALA - Accenture Analytics. "It is not just an incremental change to classic analytics, but is actually fundamentally changing the business models of banks."

The term 'big data' is being redefined. For the financial institutions at the leading edge, it now means looking far beyond internal data sources.

"The original definition took in the diverse sources of data within a bank's walls, but now it means 1,000 times more than that," says van der Ouderaa. "It includes data from outside banks' firewalls and this dwarfs the amount of data they are used to. It means public data, transaction data and technical data from, for example, the log files of ATM machines. Before, this ATM data was only accessed if there was a problem with a transaction, but now it is a valuable database.

"Banks are also looking at all the emails exchanged with customers, and voice recordings of customer conversations, which can be converted into text and searched," he adds. "Big data also means external technical logs from, for instance, telecoms companies, which can be used to analyse geographic flows to identify where people are and when, and how they move. But it also means public data, which could be anything from traffic information to stock exchange transactions or weather reports, or demographics to production and shipping data for goods."

"The old models are meaningless. Banks can’t wait around for customers to walk into a branch and ask about products and services."

This seemingly endless amount of data could, van der Ouderaa believes, be coupled with the existing capability for micro-segmentation - the grouping of customers with similar product profiles - to enable it to propose offers that meet the specific needs of an individual customer at a given moment in time.

In fact, Accenture is already working on a pilot programme for one bank that combines transaction data, ATM logs and information from social media such as Foursquare, Facebook and Vkontakte to analyse where customers are spending money, what they are buying and when.

"Using the analysis of this data, the bank can then propose offers to customers through their mobile phones," he explains. "We can also see where micro-segments live, which ultimately allows the bank to adjust its branch network by moving to locations that suit their clients. Banks need to be at the right place at the right time and offer the right kind of interaction."

The fully digital financial institution?

Micro-segmentation, which means grouping customers with similar needs, not simply by age or location, is the first step in using big data to better effect.

"Only a few banks do this well, but more are starting to do it," says van der Ouderaa. "Once this is achieved, banks can use technical and external data sources to enrich their services by targeting individual customers with the offers they want. This is particularly important for retaining customers at a time when it is very easy for customers to change banks.

"Recent research by Accenture into loyalty and churn has shown that the parameters for loyalty are so complex that it is now an irrelevant term. It is only useful to talk about churn - predicting which customers are at risk of leaving and when they will leave - because the old models are meaningless. Banks can't wait around for customers with a savings account to walk into a branch and ask about products and services."

For van der Ouderaa, the future belongs to banks that reach out to their customers, giving them the level of personalised service they have come to expect from service providers in other industries, especially the retail sector. Furthermore, he believes that there are banks that are already stepping up to this level.

One example of the new breed of customer service that he predicts banks will all have to adopt comes in the form of the Republic of Korea's Hana Bank (which, like Denmark's Nykredit, triumphed at the recent Efma Accenture Innovation Awards 2013). It has already moved into an entirely paperless and digital business model for customer interaction, driving seamless and real-time interaction across all of its delivery channels. A striking example of the services this model engenders comes in the form of the instant mortgage offers it can produce for customers through augmented-reality applications on mobile phones.

"Using big data, the application can get information on an apartment, a house, a block of flats or a neighbourhood and couple that with data on the customer," van der Ouderaa explains. "Pointing the phone's camera at a property gives the customer not only its price but also a real-time offer on a mortgage. The pricing of the sale and the risk assessment has already been done and the customer can apply for a mortgage digitally too. They would only need to turn up physically to sign the mortgage papers.

"Another example is Nykredit, which offers loans in a fully digital, real-time way. Such banks still need physical branches, though more for having conversations with customers and not so much for paper-based processes. They will, however, need fewer branches, and fewer people in those branches. Some banks have been able to free up between 25% and 50% of their branch personnel through a combination of restructuring their branch network along customer micro-segment lines and paperless credit processes.

"This will free some people up to retrain as personal advisers. Branches now represent 60% of total costs for retail banks, so digital banking services offer a great opportunity for cost savings."

"Pointing a smartphone’s camera at a property gives the customer not only its price but also a real-time offer on a mortgage."

Financial services at your fingertips

With this new model, some personal interaction with advisers may still happen in the branch, but a vast amount will also happen online. Customer contact will increasingly happen through Twitter, Facebook or other digital channels, where advisors have access to real-time CRM data.

"It is possible to make everything digital; 98% of all transactions can be done by customers themselves using digital channels, so there is less need for consultation," van der Ouderaa explains. "When consultation is needed, it can be done online or by email, so there will be relatively few conversations by phone or in the branch. Advisers can respond quickly using real-time CRM data, and they will have a better view of the customer than they would in the branch. In fact, for the first time, some banks have been able to make the economics work in offering a named personal adviser to every retail customer.

"The result is better service from the customer's perspective and better economics for the bank. All of this is driven by big data. In the new world, customers can now interact with banks in the same way they interact with retailers."

If this all sounds a little like science fiction, then it pays to consider that Hana Bank has already written $4 billion in e-mortgages. For van der Ouderaa, this is strong evidence that the banks following in the wake of the industry leaders in innovation will soon be drawn towards a fully digital future.

"In two or three years, we won't be talking about big data because it will just be 'normal' data," he remarks. "Today, I can hold ten terabytes of storage in the palm of my hand; a petabyte is a box under my desk; and an exabyte - which is one billion gigabytes - is a rack as big as two refrigerators. And that is today, with commoditised technology; tomorrow, an exabyte will sit under each of our desks.

"New sources of data come along all the time and will be included in what we today call big data. Banks need to think about just data, not big data, and start moving fast to keep up with the leaders."

Edwin van der Ouderaa, Accenture’s managing director FS EALA – Accenture Analytics.
As technology progresses, personal interaction with advisers will still happen in branch, but a vast amount will happen online.