Ekow Duker, Managing Director of Ixio Analytics, shares his views on the way in which financial service providers approach and use data. Ekow was the moderator of the insight2impact roundtable discussion, which we hosted as part of the Chief Data & Analytics Officer Africa event in July 2017.

During the insight2impact roundtable discussion on how financial service providers (FSPs) use data to unlock new markets, the participants highlighted the success that South African FSPs had achieved in forming partnerships to leverage data. Do you think this is one of the lessons that FSPs in other countries could adopt?

Everyone shares a motivation to develop partnerships. The traditional banking model is well established but does not have universal reach. Banks are now considering which other services (such as airtime, insurance, concierge, etc.) can be offered to their customers as part of a suite of services. Banks understand they are under threat and customers today expect more from them. They can, therefore, provide more through partnerships and by leveraging external datasets.

Fintechs are not only stealing the banks’ lunch, but in many cases, they also need banks to fulfil their propositions. So, more banks are thinking about partnering with fintechs – many of which don’t have legacy infrastructure and can, therefore, be more agile.

During the roundtable discussion, we asked how FSPs can use alternative data to unlock new markets. You have expressed a different priority. 

Yes, let’s forget about alternative data for a moment. The answer to this question about unlocking new markets is really found in ‘How open are financial service providers to experimentation?’

Experimentation, or ‘test and learn’, is core to real-world analytics and data science programs. It is only by trying things out iteratively on small controlled samples, that a company builds a strong understanding of how to engage with, and serve its customers optimally.

Within the universe of financial service providers, there are those who are open to experimentation and those who are not. To experiment implies that a given approach may ‘not work’. Large, traditional banks typically find it difficult to countenance the idea of experimentation for this reason. Risk aversion is rewarded, with the result that these organisations are often out of step with their customers’ evolving needs and choices.

Smaller, more agile fintechs will typically not have the same hang-ups. Data driven experimentation is part of their DNA and that is why they are increasingly successful at disintermediating their more established counterparts.

Unless there is a strong motive for an organisation to innovate, it isn’t going to. When budgets are tight, many organisations will limit their marketing and cut back on innovation. A full-service bank that works across the spectrum from investment to retail banking probably has less incentive to innovate – they could, for example, turn to investment banking revenue to make up for losses elsewhere in the group. However, an FSP working in a discrete part of the value chain – for example, payments – has a much stronger incentive to innovate as there are no other business lines to fall back on in tough times.

Do you think it is likely that financial service providers will be more open to sharing data in the next few years?

It is generally not permissible for FSPs and mobile network operators (MNOs), for example, to share data freely. Even in environments where the enforceability of regulations is questionable, companies are rightly hesitant to share data without customer consent.

As Grant Marais, the CEO of Vast Networks explained during a presentation at the Chief Data & Analytics Officer Africa 2017 event, in situations where free public wifi is offered in exchange for the customer sharing some data about themselves, people readily consent to this. This presents some interesting opportunities.

Do you believe organisations in the financial sector find it more difficult to source additional data or rather analyse and extract value from the data they are already collecting?

Many organisations struggle to extract value from the data they already have. The data sometimes appears to be too messy and they may not have the right people to analyse it. FSPs will often say to us, “I don’t even know how many cheque accounts we opened last week and now you want me to be creative and think about alternative data sets?”

In terms of the provision of financial services to the underserved, which space or player is the one to watch and why? 

I’ve been intrigued by companies like EFL (Entrepreneurial Finance Lab) that design and administer psychometric tests to enhance, but not replace, traditional credit scoring methods.

The health care industry is another interesting one, as it can drive certain innovations in quantitative techniques such as machine learning.
The challenge is always to cut through the hype and apply these advanced techniques in pragmatic ways that deliver real value to businesses and to society.

What data-related learnings or insights that you have seen in other sectors could be valuable if applied in the financial sector?

I’m a big fan of the scientific rigor found in academia and research institutions. In designing a marketing campaign, for example, an organisation would do well to run it like a medical trial with objective measurements, control groups and clear quantifiable objectives.

Particularly in the case of smaller FSPs, the scarcity of data-related skills or people and inadequate infrastructure may be concerns; where do you suggest money is best spent in terms of driving a data-driven approach? 

FSPs should be spending their money on retaining their existing customers, as retention correlates directly with profitability. It’s amazing how little attention is paid to retention as opposed to acquiring new customers. Organisations often focus on filling the bucket from the top but ignore the leaks at the bottom. A focus on retention would concentrate their minds on how they engage with their customers on a day-to-day and ultimately on a real-time basis. That is where data-led solutions come to the fore.

i2i is concerned with the intersection of data-driven decision-making and financial inclusion. From an FSP perspective, do you think the challenge is that extending services to the underserved is not a key priority for the organisation or that FSPs face difficulties in unlocking actionable insights from data? 

In most African markets, the majority of people remain largely unbanked. We have adopted a Western banking model, which excludes large swathes of the population. Data science can help FSPs approach these markets with more confidence.

MD of Ixio Analytics Ekow Duker was previously the Chief Analytics Officer for the Retail and Business Bank, Barclays Africa, where he was responsible for harmonising and repurposing the bank’s analytics and data science functions. Ekow has C-suite experience in strategy consulting and private equity investing, and a commercial understanding of several industries.