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How the Combination Of Data Analytics and ISO 20022 Create a More Inclusive But Profitable Banking Paradigm

Julie Guetta
Head of Payments Strategy, RedCompass Labs

How The Combination Of Data Analytics and ISO 20022 Create a More Inclusive But Profitable Banking Paradigm

For the next four years, the financial services industry will be focusing on migrating from the MT payment message standard to the ISO 20022 format, investing significantly to meet the deadlines set by the various regulators. But what does that mean for the people that don’t have access to traditional financial services, namely the unbanked? Perhaps we will have financial services products adapted to their needs. More than just being a modification of the high-value payment message format, the migration unlocks new opportunities for banks. Using the clean, more granular and harmonized data created by the migration, banks are able to tap into the power of data analytics, slicing and dicing data to identify different ways to reach the unbanked in a profitable manner, thereby following the lead set by other industries. 

The ISO 20022 migration — the change of payment message format from MT to ISO 20022 data model —  is one of the biggest changes ever undertaken by the financial service industry. Many banks see the migration, imposed by SWIFT and the main global clearing houses as a regulatory ask that must be fulfilled. There is no doubt that the new, richer, and more harmonized format comes with some challenges. It requires a significant budget and detailed planning. But there is also a chance for banks to shift up a gear n their use of data analytics and create a better banking ecosystem.  

Compared to other industries, the financial services sector generally lags behind in this field. Of course, there are exceptions like Citi or HSBC. Procter and Gamble used data analytics to microslice their markets to monetize segments in the developing world that were traditionally considered off-limits. So how can banks utilize this migration to play catch-up and reach the 1.7 billion people around the world that remain unbanked? 

Slicing and Dicing: The Great Source of Data Created By the ISO 20022 Migration 

According to the FDIC, a lack of trust in banks is one of the biggest reasons indicated by unbanked households for not having a bank account. The underlying reason is often the lack of an adapted proposition. However, ISO 20022 could change the game completely. It creates a clean and granular set of data required to perform data analytics. Banks could more easily slice and dice this data and fast forward the product design phase, quickly identifying trends and requirements within the transaction history not yet met but could generate a substantial revenue source. Several banks have already embarked on this journey. In 2018, Big data and non-traditional methodologies for risk measurement purpose was already part of BBVA’s strategy. Some newer banks like First Boulevard or Cheese have decided to target specific segments, launching financial products targeting Black and Asian communities.

Getting the data: the interoperability created by the ISO 20022 migration 

You may think that data analytics cannot be applied to reach the unbanked better, as there is no transactional data to analyse since the unbanked mainly use cash. In fact, the migration is an enabler, as many of the unbanked regularly use mobile money as a way to access financial services. By creating a new data model that is adopted by all the players within the industry, the ISO 20022 migration creates more interoperability between traditional and alternative rails and builds a strong foundation on which to exchange data. This is the ideal scenario in which the data analytics model can yield the best results.

Sharing data between different geographical jurisdictions is painful: there are different rules, different meanings, and different formats. However, by implementing a harmonized data model, ISO 20022 removes these challenging points from the banks in sharing and using data that often fall outside the GDPR compliance framework. When people jump the hurdles previously listed, and find new ways to use data, the results are worth noting. The success of Nova Credit or Canopy’s partnership with Experian are good examples in the credit scoring space.  

Recognizing opportunities for success

The combination of the ISO 20022 migration that creates usable data and the analytics that could be applied to this data have the potential to both significantly increase access to financial services for the unbanked and create new revenue streams. By copying the methodology used in other industries, banks have new openings to recognize significant revenues. Grasping this opportunity, however, is only possible for the banks that: (1) have created a common data lake; (2) have already or are planning to implement a modern and open payments infrastructure where the data can be exchanged easily with no conversion; and, finally, (3) have some data analytics expertise. With these conditions aligned, the ISO 20022 migration can mean greater opportunities to create a more inclusive and profitable banking paradigm. 

* Page 10 of the FDIC report  

RedCompass Labs provides advanced data-led AI payments testing technology, data analytics services as well as delivery-focused consulting, managed services, and world-class workshops on a vast array of subjects including Future of Payments and ISO 20022. 

Julie Guetta
Julie Guetta
Head of Payments Strategy, RedCompass Labs

Julie is a payment enthusiast with over 7 years of hand-on experience in financial services, particularly in implementing strategic payments platforms. In her role as Head of Payments at RedCompass Labs, she helps clients understand the trends of the future and to create business opportunities.

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