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July 12, 2016

Exits, Soccer (Football) And The Data Imperative

Many of us watched in disbelief as a majority of citizens in the United Kingdom voted to leave the European Union. Any of us with stock market portfolios felt the sting of our global connectedness as our holdings took a hit in the days after the results of the Brexit vote were announced. Some of us, having been told by a British friend or colleague how much more in tune UK citizens are with the world and its diversity, saw this move to isolationism by the UK as a bit of comeuppance. Still, probably none of us would have believed that England's soccer team would lose to Iceland.

That said, we all would be well advised to practice some humility since our own economic situation (not to mention the American soccer team) is far from stable. Seven years after the great and most recent economic meltdown here at home, the US gross domestic product (GDP) is forecast to grow at 2.3%; and interest rates and inflation remain low as stagnant wage growth continues to dampen the demand for consumer goods and services. The outlook is far from certain as the US Federal reserve remains nervous, especially in the wake of the unknowns created by Boris the Blonde across the pond.

Add to this stew of uncertainty and slow growth, the decrease in investment in the FinTech sector. Last year was the hottest year on record for this sector with nearly $8 billion on venture capital flowing into it from across North America compared with $4.7 billion in 2014 according to KPMG. Venture Capitalists were not the only ones buying into FinTech as a number of the biggest banks placed bets themselves. In 2016, though, investors in FinTech have become more discerning and more failures among start-ups in the space have been noted.

However, the digital landscape continues to grow amidst all this havoc. Consumers continue to embrace new digital devices (e.g., wearables, connected cars, and more) and the services that are delivered via those devices (e.g., banking, payments, health advice, etc.). The demands of these consumers have not decreased either. As various companies expand their digital businesses, consumers are fast becoming expert at weeding out poor UX wherever it grows. Consumers have grown accustomed to companies anticipating "their needs and offering what they're looking for - sometimes before they even know what that is" according to Forrester.

Retailers with an online presence have led the way in using predictive tools and algorithms to deliver this level of personalization while many financial services companies are far from ready to do the same. An array of start-ups and unicorns are taking advantage of this lag to stake their claim in the financial services landscape by giving consumers what they desire. The downturn in FinTech financing this year will not reduce the competitive pressure generated by these innovative players as the scarcity of investment dollars will weed out the weak and empower those with stronger business models. To protect and expand their turf, traditional financial service providers will need digital strategies that incorporate personalization.

Some execs that are charged with seeing their organizations thrive in the expanding digital landscape are testing the water with new ways to pay, delivering offers based on geo-location, mobile wallets, tokenization, and other options appearing in the marketplace. However, the real difference comes when these execs take what they know about the power of data and apply it to the customer's everyday interaction with their organizations. As Jim Marous recently noted at a luncheon in New Orleans, this is most likely to happen when companies set aside the hype of big data and focus on the power of the immense amount of data they have about their own customers.

Financial service organizations collect more information on their customers than any other vertical except maybe healthcare. However, too often legacy systems within their operations limit their ability to analyze and use that data to provide their customers the personalized experience they expect. The “legacy issue” has been around for a very long time. The question is whether this challenge is more a state of mind than an insurmountable problem companies cannot overcome. In the next blog, that is the very topic we will consider.

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