An overview of the Digital and Big Data led disruptions in financial services.

1. Digital
Confluence
–
Digital
and
Big
Data
driven
Innovation
in
Financial
Services
Digital
and
Big
Data
Driven
Innovation
in
Financial
Services
The
arrival
of
new
business
models
in
Payments,
Credit
Decisioning
and
Wealth
Management
and
Customer
experience
demands
is
creating
new
challenges
for
Banks.
This
paper
discusses
the
imperative
for
the
Banks
in
light
of
these
disruptions.
Paddy
Ramanathan
–
Managing
Partner
at
Digital
Confluence
LLC
–
September
-­‐
2014
http://www.digital-­‐confluence.com
:
paddy.ramanathan@digital-­‐confluence.com
Disruptive
innovations
in
Financial
Services
Banks
and
Credit
Unions
are
facing
competition
on
all
fronts
especially
from
non-­‐bank
challengers
and
cutting-­‐edge
Banks
that
are
putting
Digital
and
Big
Data
technologies
to
work.
Non-­‐Bank
challengers
in
small
business
lending
(and
to
some
extent
consumer
lending),
wealth
management,
and
payments,
are
attacking
traditionally
safe
revenue
sources
of
Banks
and
delighting
the
customers
by
making
experiences
as
easy
as
Digital
natives
like
Amazon,
Google
and
Facebook.
Cutting-­‐edge
banks
are
boosting
their
revenues,
cutting
costs
and
improving
their
customer
experiences
by
using
Digital
and
Big
Data
analytics.
The
current
era
of
Digital
and
Big
Data
is
changing
the
game
in
financial
services
driven
largely
by
customer
expectations.
We
see
four
broad
areas
of
focus:
Area
of
Focus Description
Examples
Small
business
Credit
Decisioning
using
Big
Data
Leveraging
Data
to
determine
credit-­‐
worthiness
and
income
potential
over
traditional
backward
looking
credit
history
schemes
and
creating
near-­‐real
time
Digital
loan
origination
applications
OnDeck.com,
Kabbage.com
and
several
others
BBVA
Compass
Bank
in
partnership
and
several
other
banks
Software
based
Wealth
management
and
advise
-­‐
RoboAdvisor
The
traditionally
high-­‐touch
advice
business
is
getting
disrupted
with
Digital
“Roboadvisors”
that
are
better,
high
quality,
more
economical
and
with
lower
account
minimums.
Wealthfront.com,
Personalcapital.com,
betterment.com
and
several
others
Vanguard
and
other
wealth
managers
Mobile
Payments
and
Value-­‐added
services
Smartphone
based
payments
for
goods
and
services
and
value-­‐added
services
like
loyalty,
special
offers,
specialized
payments
like
health
care
payments.
Paypal,
Square,
Sage
and
several
others
US
Bank
(Peri),
Wells
Fargo
and
several
others
Customer
and
Market
intelligence
and
Digital
Marketing
Traditional
inside-­‐out
sales
and
marketing
techniques
are
being
replaced
by
outside-­‐in
techniques
where
the
decision
journey
and
experience
of
the
customer
is
personalized
with
the
channel
experience
of
choice.
Big
Data
analytics
and
Digital
are
not
only
used
Data
providers
like
Acxiom,
IXI,
Experian,
MasterCard
Advisors.
Social
Media
companies
like
Facebook,
Google
and
Big
Data
platform
providers
like
Teradata.

2. Digital
and
Big
Data
led
innovation
in
Financial
Services
D i g i t a l C o n f l u e n c e L L C , P a r t n e r s i n D i g i t a l a n d D a t a T r a n s f o r m a t i o n
for
finer
targeting
and
optimizing
campaigns
but
also
used
to
provide
a
seamless
experience
in
customer’s
purchase
journey
by
understanding
their
motivation,
activities,
and
barriers.
JP
Morgan
Intelligent
Solutions
–
exclusive
group
inspired
by
the
data
economy
and
the
opportunity
to
create
information
based
products
that
reinvent
business,
change
lives,
and
create
new
commercial
value
for
the
firm.
Barclays
Information
Business
and
Wells
Fargo
Data
have
similar
focus
In
this
paper
we
review
the
first
two
categories
of
how
non-­‐bank
innovators
and
leading
edge
banks
are
leveraging
Mobile,
Big
Data,
Social
Media
and
Cloud
to
disrupt
traditional
financials
service
and
review
the
economic
value
potential
of
the
disruption.
Big
Data
based
Credit
Decisioning
for
Small
Businesses
makes
Credit
more
available
Non-­‐bank
lenders
such
as
OnDeck,
Kabbage
have
created
a
platform
that
can
determine
the
credit-­‐worthiness
and
future
income
potential
by
looking
at
wide
variety
of
data
points
about
the
prospective
small
business
borrower
and
process
a
loan
in
real-­‐time
online.
Lenders
cross-­‐analyze
business
performance
data
(such
as
cash
flow,
customer
growth,
depth
of
transaction
volume,
shipping
data),
social
media
sentiment
about
the
business
and
other
open-­‐data
and
are
able
to
create
forward
looking
view
of
creditworthiness
that
is
more
effective
to
traditional
(FICO
scores)
backward
looking
credit
history.
This
type
of
lending
is
transforming
the
small
business
lending
space.
Borrowers
not
only
prefer
this
form
of
lending
due
to
the
sheer
convenience
when
compared
to
the
traditional
process
of
submitting
tax
records,
business
plans
etc
with
Banks
but
this
mechanism
brings
into
the
credit
pool
a
lot
of
borrowers
who
otherwise
would
not
be
eligible
for
credit.
The
same
data
based
techniques
also
yield
insights
to
when
and
which
small
business
need
credit
that
can
be
used
for
effective
targeting
and
acquisition.
Key
Enablers:
• Big
Data
or
the
ability
to
learn,
infer
and
analyze
multiple
forms
of
data
and
predict
outcomes
with
greater
accuracy
then
before
and
• Digital
technologies
that
extend
the
reach
and
the
make
the
process
of
getting
a
loan
the
same
as
a
buying
a
book
on
Amazon.
Market
Size
and
Growth
Total
loans
are
about
$3B
and
are
growing
at
CAGR
of
100%
to
150%.
Shifting
models
in
Wealth
Management
–
The
advent
of
the
Software
based
Advisors
caters
to
the
new
generation
of
wealth
customers
With
the
ongoing
demographic
shift
of
wealth
from
Baby-­‐boomers
to
Millennial,
(Millennials
are
estimated
to
have
$7T
by
2018
compared
to
$2T
in
2013)
traditional

3. Digital
and
Big
Data
led
innovation
in
Financial
Services
D i g i t a l C o n f l u e n c e L L C , P a r t n e r s i n D i g i t a l a n d D a t a T r a n s f o r m a t i o n
wealth
management
models
are
changing.
As
information
proliferates,
technology
and
decision
sciences
expand,
new
models
for
obtaining
advice
and
managing
wealth
are
emerging.
The
change
is
much
broader
than
just
new
toolsets
but
represent
a
fundamental
shift
in
the
business
model.
We
see
data
and
analytics
coupled
with
enhanced
visualization
substituting
the
traditional
high-­‐touch
advisor/client
interactions.
A
software-­‐based
model
can
learn
the
goals
and
preferences
of
a
customer
and
design
a
portfolio
with
limited
or
no
involvement
of
human
being.
Innovative
software
firms
have
developed
multiple
variations
of
these
Roboadvisors
with
varying
focus.
Betterment
provides
multiple
goals
setting
support,
whereas
one
of
the
largest
firms
Wealthfront
has
built
tax
harvesting
algorithms
to
optimize
portfolios.
Jemstep
can
provide
advice
across
the
entire
portfolio
held
or
managed
across
multiple
firms.
Most
of
the
innovation
is
occurring
in
venture
capital
financed
software
firms
and
the
traditional
wealth
management
firms
are
responding
to
the
competition
with
their
own
services.
For
example,
Vanguard’s
new
Vanguard
Personal
Advisor
Services
(VPAS)
offers
both
a
virtual
advisor
(like
Wealthfront
and
Betterment)
along
with
a
certified
human
advisor
at
a
comparable
price.
Key
Enablers:
• Digital
technologies,
and
API
Management
technologies
that
automate
the
entire
lifecycle
of
wealth
management
• Data
aggregation
and
analysis
technologies
such
as
Big
Data
and
Advanced
visualization
Market
Size
and
Growth
About
$2-­‐3B
assets
in
management
and
growing
at
around
100%
CAGR.
Conclusion
Digital
and
Big
Data
are
changing
the
face
of
financials
services
with
leading-­‐edge
banks
and
non-­‐banks
leading
the
disruptions.
Banks
should
carefully
examine
their
Digital
and
Data
roadmaps
and
identify
their
sweet-­‐spot.
For
some
banks
it
would
be
growth
with
better
Customer
engagement
and
for
others
it
could
be
increasing
operational
excellence
and
reducing
risk
and
for
some
it
could
be
new
revenue
through
product
innovation.