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EBAday 2020: ISO 20022 catalyst for banks to harness connected data

The ISO standards roll-out and open banking will galvanise banks’ efforts to compete with data-driven big techs, despite “vagueness” about how best this might be accomplished.

Speaking at EBAday, Simon McConnell, Emea head of payments and clearing, Citibank, hailed the development of ISO 20022 as the vehicle through which banks will leverage and navigate the “tough” data challenge around payments.

“The next couple of years is going to be game-changing for us as banks in the high value clearing space. I think the challenge for us was to not look at this as just a compliance change, but how to leverage investment in our technology sector, to make sure that the bank platform is market leading going forward,” McConnell said during the Day 3 lunchtime roundtable at EBA, hosted by Finextra and Microsoft.

McConnell mentioned the added complexity of serving clients with very different appetites and ambitions, listing three groupings of clients. Those who don’t have the budget and look to Citi to innovate new services on their behalf; “middle tier” clients, interested in open banking and APIs and having Citi enhance their processes; and the third, more “technically literate” cohort.

Fellow panellists Peter Hazou, director of business development, Microsoft, and Daniel Szmukler, director, Euro Banking Association (EBA), expressed frustration regarding the understanding and speed of the banking sector to get on top of the challenge.

Hazou stressed the importance for banks to view ISO as a strategic springboard, and not as a compliance effort, citing a vagueness on the part of banks to get to grips with the opportunities data can bring.

“Banks have the richest data in the world. It’s such a shame that the big techs have such high price-earning ratios and banks have such terrible ones when the banks are the ones that have the richest data. Entire economies pass through banks day in day out. The big techs wish they had all that insight,” said Hazou.

He continued, these big techs “don’t have the silo mentality, they’re driven by the value of data. The data contains insights, it’s a completely different business model and game. And it’s a matter of connecting it up to enrich in so many different directions. ISO is a great way that helps all that, it should not be considered a compliance effort.”

Szmukler lamented the lack of banks’ immersive approach to data. “I just don’t see at this stage that banks have a data culture the way big techs have. I still feel much of the insights are being used to make the bank operate more efficiently, or on the compliance side,” he said.

“In Europe more data scientists are being hired as opposed to conventional relationship bankers but I don’t always see that AI and ML are being fully exploited to the benefit of the end customer. I get the feeling today many banks don’t understand why the payment was made, the context. And as long as you don’t know why the payment was made, you haven’t understood your customer,” Szmukler added.

The panel agreed open banking will shine a spotlight light on weaknesses.

McConnell explained Citibank’s enterprise-wide positioning of data, with a global vertical now dedicated to the importance of data as part of its strategic direction.

“Data [now] cuts across every part of what we do from compliance, getting the right identifiers on our payments as they go out, right through to commercial opportunity in terms of cost efficiency and business decisions. Data is absolutely critical. We can’t underestimate the importance of data and leveraging that data to be successful.”

The panel discussed competitive differentiators and technology as an enabler with regard to evolving a continually data-connected business model.

Szmukler said, “Banks are looking for scale, speed and differentiation. Technology is an enabler for scale and speed but not necessarily for differentiation. It’s important that intellectually we structure the debate between where technology can enable and how the business model has to evolve in order to stay competitive”

“The balance is not about economic competitiveness alone, it’s about data competitiveness and data security,” said Daniel. “We need to strike the right balance between data and security”.

Rupert Nicolay, FIS solution lead, Microsoft, set out three key pillars by way of clarifying use cases and strategies around connecting and leveraging data:

  1. Consolidated, connected, real time data for which financial crime is a primary use case, given particular attention in the COVID world and early detection of non-performing loans.
  2. Implementing ISO 20022, a data-driven project, out of which consolidated status reports can be offered to treasury functions for cash flow forecasting
  3. Collaboration- strategising with another organisation on a joint product offer, for example financial crime. “This collaboration is supported by a new class of privacy enhancing technologies without disclosing some of the detail to others.”

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Nicolay stressed the importance of having “one’s own unique combination of data once it’s connected, one’s own skills and competency to build models and to take action on the insights.”

The panel discussed the importance of workforce education regarding the potential of data, and that banks are embarking on educational programmes, and partners will enable organisations to build out competencies and abilities at speed.

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November 30, 2020, published on Finextra

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