From data to insights: New revenue opportunities for commercial banking

To say that data lies at the heart of all financial services is to state the obvious, even though the journey into insights and their power to serve clients is only just dawning.

Clearly, finance is about data. Data is the connective tissue that brings context, value, and understanding of risks through its continuous, real-time flow. In financial services, as with other experiential industries, data is the pivot on which transformation is happening across all market segments, be they enterprise or consumer.

Becoming data-driven, however, is not just about technology or its cool tools. Rather, it entails a fundamental change in approach, particularly in traditional banks that have well-defined product silos with well-scripted domain experiences. In these institutions, being data-driven requires having a broader view of the bank’s role and potential, and the value it can bring to clients and the ecosystems that connect them. We might refer to this as intelligent banking.

Retail banking is a case in point. It seemed illogical that it would ever become a hotbed for data-centric change, given the well-entrenched consumer habits, data privacy concerns, and other mass-market challenges involved. Who knew that the ubiquitous adoption of smartphones by billions of people in a short period of time would facilitate such a wholesale transformation, with data as the prime driver of value?

For retail banks, the change came in the nick of time. The economics of their businesses were already under stress from a triple whammy of perpetually low-interest rates, consumer unwillingness to pay fees for routine services, and the high cost of brick-and-mortar operations. There was even doubt as to whether they could profitably serve multitudes of individual clients without a mass scale beyond that of most bank franchises. It was a perfect storm where the value of data insights saved the day.

Corporate banks observed this from a distance, seemingly immune from the forces of consumer adoption of mobile and the acceleration of e-commerce driven by COVID-19 shutdowns. Now, their staid world is fast approaching a similar inflection point.

Data: The key to commercial banking transformation

Cloud-native financial technology (fintech) has transformed retail banks by delivering appealing, low-friction customer experiences. They have also been savvy enough to anchor their business models around the value of data, for which the stock market has rewarded them with high valuations. Corporate banking, by contrast, involves a much richer palette of cross-industry data. Entire economies literally flow through business banking client accounts day in and day out.

Data is the heart and bloodstream of all working capital and contains an unparalleled richness of contextual information across all business-to-business ecosystems—such as those in manufacturing, logistical supply chains, and retail sales. These data flows are rich with insights and trend information that can be used, for example, to forecast cash flows that enable corporate treasurers to control enterprise risk and optimize operations. No longer will working capital be estimated through guesswork derived from spreadsheet manipulation. Rather, the role of a corporate treasurer will become more strategic in understanding the value of vast forests of data rather than the timber of individual trees.

Wholesale banking was the first to structure data flows around common standards beginning in the 1970s with the adoption of SWIFT messages. While that meant more efficiency in payment processing, it did not portend a fundamental shift in the use of messaging data to drive client value beyond rudimentary reconciliation services.

The new ISO 20022 standards, which are currently being adopted, hold the promise of redefining value-added services that banks can deliver through enriched, machine-readable extensible markup language (XML) formats. These new standards must be recognized as something more than expensive compliance projects. Rather, they hold the key to reimagining fundamental banking propositions. That much is self-evident. The question is where and how best to do it.

Where data and intelligence will drive new banking scenarios

As we have seen in recent financial crises, real-time flows move literally at the speed of light where counterparty risk analysis and decision-making need to be instantaneous. Similarly, dealing with fraud, crime detection, account takeovers, and money laundering all require a multifaceted view of data that only AI and machine learning can achieve. Anomaly detection in trade-based money laundering (TBML) is a typical example of a compliance challenge where banks are expected to decipher context and intent from subtle signals and telemetry. This degree of data analysis simply cannot be accomplished through manual operations. The volume is too heavy and the connections are too complex.

AI is also an essential tool for the modern and efficient operation of a bank. “Next best offer” is a typical use case of how surfacing the right data at the right time in client discussions can help achieve the best results for both the client and the bank. This is particularly true in modern banks where staff churn or the breadth of product portfolios is just too extensive for everyone to master the challenge of making the best suggestions all of the time.

Here, tools in the graph of a modern workplace—like Microsoft 365 and Dynamics 365 with Copilot-based suggestions—can be as empowering as they are powerful. In a regulated industry like banking, these tools are designed with security, privacy, compliance, and ethical considerations at their core while large language models (LLMs) make them easily relatable to real-world interactions. This is not the “data processing” of yore as we would have once imagined it.

The coming redefinition of banking

Banks, with their richness of real-time data flows, will evolve at the center of client relationships. No longer will a bank be a place to go simply for routine financial processes like making a payment. Rather, in the new world, banks become operating partners in achieving the outcomes their clients desire. AI-infused products, along with the agility that only cloud-based services can provide, will transform bank business models by adding data as a third economic dimension to the traditional two of accepting deposits and making loans in a spread business.

Learn more

In upcoming blog posts, we will continue to highlight the developments and opportunities we see in the evolution of banking. See our website for insights on how to reimagine banking and get in touch with your Microsoft representative or trusted partner to learn what our cloud can do for your business.