Dollars in the detail: banks pan for gold in ‘data lakes’

LONDON (Reuters) – From sending special offers on restaurants to burger-loving current account holders to selling anonymized credit card records, banks are racing to monetize the huge troves of data they hold.

FILE PHOTO: A computer keyboard lit by a displayed cyber code is seen in this illustration picture taken on March 1, 2017. REUTERS/Kacper Pempel/Illustration/File Photo

Wall Street trails Silicon Valley in using customer information to boost revenue but with tech giants such as Amazon and Google wading onto their turf with forays into lending and payments, banks including JPMorgan, HSBC and Barclays are moving to narrow the gap.

Mining mountains of trading data to predict stock moves; partnering with retailers on marketing campaigns and using artificial intelligence (AI) tools to try and speed up credit decisions are some of the areas banks are focusing on.

In the digital era, knowing how much people earn, where they spend it and what they buy – information some wouldn’t divulge to their closest confidants – is valuable, particularly when banks’ earnings from lending and trading are under pressure from persistently low interest rates and tougher regulation.

“We are now seeing some amazing uses of data in banking, and the reason is pretty simple: they know their clients better than anyone, they have a name and address, information about what you’re buying and once you have those you can do so much,” said Craig Macdonald, head of data monetization at Accenture.

The surge in data mining is happening against a changed regulatory backdrop. New European Union (EU) rules introduced last year allow technology companies to access banks’ customer data if they have customers’ permission.

The EU has also toughened its privacy laws. Companies now have to get permission before they can collect and use personal information gleaned online from people living in the bloc.

But even with the extra protections, sensitive data is still at risk of being exploited because many people are not aware of how they can shield themselves.

Less than a third of Europeans were aware of all their data rights and only 13 percent said they read privacy statements fully, according to a poll this year of 27,000 EU citizens.

Banks do not disclose how much they earn from analyzing and marketing customer data or other ways in which they monetize the information they hold. But, in comparison to the billions earned from lending and trading, the amounts generated are likely to be small.

“If there was a gold mine people would probably have found it by now,” said Benjamin Ensor, an analyst at Forrester. “But if you can generate some marginal incremental revenue at relatively little cost why wouldn’t you do that?”

CUSTOMER 12345

Tie-ups with retail firms is one way banks are monetizing their data.

Customers of Britain’s Lloyds and Spain’s Santander can get special offers from a range of retailers after the banks joined a digital loyalty scheme run by US-based data advertising firm Cardlytics.

The scheme uses spending data to give customers discounts at shops they already frequent or which are in their neighborhood. So, burger-aficionados get deals at local burger restaurants and fashion fans get ads about discounts at clothing stores.

The banks get a percentage of the fee charged by Cardlytics for running the campaign. Cardlytics gets insights on consumer behavior which help the retailers tailor and fund the offers and discounts.

Cardlytics, Lloyds and Santander declined to comment on what percentage of the fee banks get.

“We leverage transaction data that’s created every time the card is tapped, every time a direct debit is made by a customer, in an anonymized way,” said Campbell Shaw, London-based head of bank partnerships at Cardlytics.

“We only need to know it’s customer 12345, we don’t need to know the name of the customer for any reason.”

Bank clients have to enroll in the rewards program.

A spokesman for Santander said their customer spending data was only shared with Cardlytics if customers choose to receive retail offers. The bank said the information was shared on an anonymized basis meaning the customer’s name is replaced by a unique identifying number.

Lloyds declined to comment on the specifics of the deal. Its privacy policy said the scheme would use customers’ mobile location data only with their permission.

Even with the tougher regulations around big data, privacy experts warn there is still scope for abuse, for example, if highly-indebted people are targeted with unsuitable offers for high interest loans or credit cards.

“If you can use data to get a customer to buy something that they otherwise wouldn’t, it’s good for the bank but not necessarily for the customer and the potential for misuse is significant,” said Paul Bernal, an expert in data privacy at University of East Anglia.

Ashok Vaswani, global head of consumer and payments at Barclays, told attendees at AI conference CogX in London this month that the bank would crunch data in an ethical way.

“We’re going to do it in a transparent and understandable fashion,” he said. “If I can’t explain it [to a customer] I’m not going to offer it.”

Like many banks, Barclays markets anonymized spending data to a range of businesses including mall operators who can see from the information which retail chains attract the most customers and are therefore worth targeting as tenants.

Barclays said it doesn’t share personally identifiable information and it sends privacy notices to customers through a combination of email, text, post and via mobile apps. It also has a page on its website explaining its data privacy policy.

DATA LAKES

Using data to improve risk analysis, make faster credit decisions and anticipate customer needs is particularly appealing for banks looking to cut costs.

HSBC plans to use AI tools to rake through its 10 petabytes of data – roughly equivalent to the storage capacity of 2 million DVDs – from investment banking clients in 66 countries.

Europe’s largest bank has struck a deal with Element AI, a Canadian company, to help it tap this so-called ‘data lake’.

JPMorgan, meanwhile, is developing a raft of AI applications to better predict stock moves and to map and mine 3 billion transactions it handles annually.

The bank hired Manuela Veloso, the head of the machine learning department at Carnegie Mellon University, to be its head of AI research last year.

In comparison to newer, tech-focused companies, banks are often at a disadvantage when they look to extract value from their data – they lack inhouse experts and their businesses are often siloed with legacy IT systems.

To speed things up, lenders are set to spend $26 billion on big data and business analytics this year, according to analysis by International Data Corporation, up from $23 billion last year and $19.7 billion in 2017.

Hires for senior leaders with digital experience at financial firms have doubled year on year for the last five years, according to London-based headhunters Heidrick & Struggles.

“These skills are now a necessity within senior leadership teams,” says Marcus De Luca, UK financial services practice leader at the recruiter.

“We are often asked if there is someone who works at Amazon, Google, Netflix, or Facebook who could be tempted to join.”

(This story corrects to show banks get a percentage of a fee charged not purchases made in digital marketing scheme)

Editing by Carmel Crimmins

Source link

more recommended stories

  • White House to host meeting with tech executives on Huawei ban: sources

    WASHINGTON (Reuters) – White House economic.

  • Equifax nears deal to pay about $700 million to settle U.S. data breach probes: WSJ

    FILE PHOTO: Credit reporting company Equifax.

  • Trump tells France’s Macron U.S. concerned with proposed digital services tax

    U.S. President Donald Trump reacts during.

  • SoftBank raises $270 million via Seoul unit for early-stage investments

    FILE PHOTO: The logo of SoftBank.

  • UK’s new PM must take 5G decision on Huawei urgently: committee

    LONDON (Reuters) – The new prime.

  • Russia fines Google for failing to filter search results

    FILE PHOTO: The Google logo is.

  • SoftBank’s Son says Japan lacks investment opportunities, is AI ‘developing country’

    FILE PHOTO: Japan’s SoftBank Group Corp.

  • Amazon under EU antitrust fire over use of merchant data

    BRUSSELS (Reuters) – Amazon became the.

  • Ericsson says on track for 2020 targets as second-quarter profit matches forecasts

    STOCKHOLM (Reuters) – Mobile network gear.

  • U.S. Justice Department asks appeals court to pause antitrust ruling against Qualcomm

    FILE PHOTO: A Qualcomm sign is.

  • Senate to grill Facebook over plans for Libra cryptocurrency

    WASHINGTON/NEW YORK (Reuters) – U.S. lawmakers.

  • Amazon rivals ride on Prime Day marketing as protests unfold

    NEW YORK (Reuters) – Amazon.com Inc’s.

  • Huawei to invest $3.1 billion in Italy but calls for fair policy on 5G: country CEO

    MILAN (Reuters) – China’s Huawei Technologies.

  • Amazon workers in Germany to strike over pay, Verdi union says

    FILE PHOTO: An Amazon sign is.

  • Israel holds 5G mobile network tender, aims for 2020 launch

    JERUSALEM (Reuters) – Israel launched a.

  • China’s Ping An to invest in education startup iTutorGroup

    BEIJING (Reuters) – Ping An Insurance.

  • U.S. regulators approve $5 billion Facebook settlement over privacy issues: source

    (Reuters) – The U.S. Federal Trade.

  • Japan sets up working group on impact of Facebook’s Libra ahead of G7

    TOKYO (Reuters) – Japanese authorities have.

  • Volkswagen zooms ahead in extension of alliance with Ford to electric, automated cars

    , NEW YORK (Reuters) – Ford.

  • Macquarie-backed MEIF 6 Fibre outbids USSL for telecoms firm KCOM

    (Reuters) – Macquarie-backed MEIF 6 Fibre.

  • Trump blasts Bitcoin, Facebook’s Libra, demands they face banking regulations

    WASHINGTON (Reuters) – U.S. President Donald.

  • Twitter back up partially after worldwide outage

    FILE PHOTO – The Twitter logo.

  • French Senate approves tax as U.S. opens probe into digital levy

    PARIS (Reuters) – France’s Senate on.

  • U.S. to probe French plan to tax tech companies

    WASHINGTON (Reuters) – U.S. President Donald.

  • Need quick medical advice in Britain? Ask Alexa

    (Reuters) – Britain’s state-run health service.

  • Appetizing prospects: Uber founder takes aim at South Korea’s shared kitchen market

    SEOUL (Reuters) – Chef Youm Jung-phil.

  • U.S. to provide licenses for sales to Huawei if national security protected

    WASHINGTON (Reuters) – The U.S. government.

  • Nine companies set prices for listings on China’s Nasdaq-style tech board

    SHANGHAI (Reuters) – Nine Chinese companies,.

  • Facebook not invited to White House social media summit: company

    WASHINGTON (Reuters) – Facebook Inc said.

  • The high-tech trade dispute rooted in Japan’s wartime history

    TOKYO/SEOUL (Reuters) – Japan has tightened.

  • Exclusive: U.S. clears SoftBank’s $2.25 billion investment in GM-backed Cruise

    (Reuters) – Cruise, a U.S. self-driving.

  • Amazon founder Bezos’ divorce final with $38 billion settlement: report

    FILE PHOTO: 2018 Vanity Fair Oscar.