[Press] Payment data, the banks’ trump card to counter the Tech giants

Opinion column by Benoit GRUET, CEO & Co-Founder of CDLK, in the Journal du Net (French News website)…

Caught between the rise of the neo-banks and the growing ambitions of the GAFAs in the financial sector, the traditional banks must fight to defend their market shares, especially in the field of payments. In this fierce battle, despite the advantageous technology of the new entrants, the traditional players can count on significant assets to resist the repeated assaults of this competition; provided, of course, that they make the most of the veritable war chest that is “payment data”.

The new deal in the payment market

While Apple is now the undisputed leader in mobile payments in France thanks to its Apple Pay Wallet, the firm continues to develop in the payment sector. The latest launch was the Apple Card in the United States, which recently confirmed the American giant’s ambitions in this area, and at the same time proved that the arrival of the GAFAs and BATXs in the payment sector is not anecdotal.

Challenged on the field of new technologies and user experience by the Tech giants, traditional banks must also respond to a wave of neo-banks ready to target with precision certain customer segments, particularly sensitive to the digitization of services: generation Z, self-employed workers, small businesses…

In order not to be overwhelmed by this increased competition, traditional banks must innovate by capitalizing on their own assets: the raw payment data of their customers. Of course, the arrival of Open Banking may lead one to believe that all bets are off, but this is not the case. This data, accessible via third-party applications (PSD2), remains problematic in terms of usability. To be convinced of this, one only has to look at the categorization errors regularly made by account aggregators and other PFM services.

In fact, most of the value of card payment information today comes from the exploitation of raw data, which is only available “at the source”, within the banks. This hidden treasure trove, which is not accessible via APIs, contains an unparalleled amount of information to be exploited.

Numerous use cases for banks

Will payment data, the “black gold of the 21st century”, be sufficient to face the threats posed by tech giants and neo-banks? The future will tell. But one thing is for sure: raw data is not enough on its own, and it must therefore be further enriched and transformed to unleash its full potential.

To do this, new solutions are being developed by banks to create value from card payment data. Here are three concrete examples of innovative solutions that can be implemented by banks.

#1 Enhancing customer knowledge

Thanks to payment data, the bank benefits from a more complete and accurate picture of its customers, their life cycle, their habits and their interests. It is therefore able to perform an intelligent marketing segmentation of its customers based on their purchases. Once this segmentation has been carried out on the basis of behavioral criteria, much more precise than simple socio-demographic criteria, the bank can then automatically propose contextualized offers and services, and therefore be more effective.

#2 Improving the user experience

In addition to personalizing the offer, payment data can also enrich the user experience. When consulting their account statement, users appreciate seeing their card expenses finely categorized, as well as being able to identify and geolocate the merchants that received their transactions.

Thanks to all the data at its disposal, the bank is now in a position to go beyond the simple personalization of the account statement to reinforce its value proposition, but also to increase the autonomy of its customer (now able to investigate himself the origin and the validity of each of his transactions without having to systematically ask his advisor); this will allow the bank to drastically reduce its customer service costs.

#3 Loyalty program optimization

Finally, payment data is also an opportunity to personalize loyalty programs, especially cashback programs based on bank cards. This type of program allows members to automatically get back a percentage of the amount paid when making purchases in store or online by bank card in partner stores. It is also an opportunity for banks to enrich their value proposition to merchants by offering them to push targeted offers to their millions of customers.

With the rise of new entrants, it is in the interest of the traditional banks to redouble their efforts in the field of Big Data by exploiting their unique pool of data, especially high value-added data, such as payment data. However, they need to cultivate it in the right place…