Banks can boost revenues through better use of payment data, report says

Out-Law News | 30 Sep 2014 | 2:25 pm | 2 min. read

Banks can increase their revenues if they make better use of raw payment data, according to a new report.

The European Financial Management and Marketing Association (EFMA) said that the market for banks selling raw payment data to other businesses "has not taken off" but that it holds potential for banks to increase their revenues.

EFMA and the consultancy business Kurt Salmon said in their new report that banks could also use payment data to "improve internal processes", provide personal finance management (PFM) services to customers and to deliver "merchant-oriented offerings".

"Banks are having to adapt their offerings and identify new sources of revenue to compensate for shortfalls in their established business models,” Patrick Desmarès, chief executive of EFMA, said. "While many banks recognise the commercial potential of their payment data, they still need to figure out how they can take advantage of it effectively."

"PFM tools are proving a popular way to use payment data to add value to customers, meanwhile options such as selling raw data to other businesses continue to be approached with extreme caution. The fact is that many initiatives are underway, but we are still yet to see how banks can really maximise the potential of their data," Desmarès said.

Pierre de Brabois, senior manager at Kurt Salmon, said banks face a choice between deciding whether to work out how best to use payment data on their own or contract with the "increasing numbers of data analytics specialists" in the market.

In July, the UK's Information Commissioner published new guidance on how data protection laws apply in the 'big data' context. In it the watchdog warned businesses that buy personal information from third parties that they need to check with the sellers whether they have a right to use the data in that context or whether they need to obtain consent from individuals to use the data for the purposes they intend.

'Big data' is a term used to describe the processing of the vast amount of data generated by computer systems. Big data offers a range of opportunities for businesses to personalise their services to consumers, from insurers using telematics data generated about driving habits to individualise the premiums they set, to targeting advertising based on consumers' previous retail habits.

In some cases businesses will use new analytics capabilities to make use of existing personal data sets that they have collected. However, in other cases companies will use data collected from third parties to glean information on individuals' behaviours and attitudes or to personalise services they offer.

The ICO's guidance would apply to the sale of payment data from banks to third party businesses if the data was capable of being linked to individuals.

According to the European Commission's recently published big data strategy, the global market for big data technology and services will grow by about seven times that of the overall worldwide market for information and communications technology (ICT). This market is expected to grow to $16.9 billion in value in 2015 and the expectation is that larger businesses will need to increase staff directly linked to big data activities by 240% over the next five years.  

In a recent blog, financial services and technology expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, said: "Given that organisations worldwide are beginning to rely on big data analytics to predict and model consumer behaviour, answers are needed as to whether it is within customer expectations that when products are purchased or services are procured, related products and services may be marketed at that customer. More clarity therefore is needed on this central question."