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Major banks are sitting on troves of big data, and most don’t have a clue of what to do with it, says Abhi Mehta, CEO of Tresata, a big data specialist with a strong focus on finance. Banks are willing to invest, they have Hadoop running somewhere, but they don’t know what to do next.
Large financial institutions have between 50-100 petabytes of data, Tresata said in an announcement. However, less than 10 percent of this data is readily accessible and less than 1 percent is actually used for any analytics.
Tresata suggests starting with the business problems that big data helps solve in a way older methods don’t — perhaps in marketing, fraud prevention or risk management — and then looking for the technologies that will best serve those purposes.
“For us everything sits in Hadoop,” said Mehta. “Even though every single bank has an instance of Hadoop somewhere, most are still in a lab, not operating at scale. Only a handful are doing it well.”
The company has launched the Tresata Analytics Platform, which it says is the only advanced analytics engine that runs entirely in Hadoop.
The company said it has automated the process of creating data assets from its clients’ vast troves of existing and growing data across all customers, geographies, markets and products.
“We are having tremendous success and showing banks the benefit of applying a data approach to solving massive business problems is a game changer — we can do it better, faster and cheaper,” said Mehta. The company’s customers are using it for: payments flow analysis to recommend cross-merchant customer marketing opportunities; trade flow analysis; AML; KYC; automated risk scoring and regulatory reporting.
Many banks are running old systems in the back office so they have essentially the same data, the same apps and the same outdated technology as their competitors, Mehta said.
“There’s no competitive advantage doing that,” he added. “Very few banks are fundamentally changing their architecture. Banks should automate their complex business problems.”
Banks need to be more innovative in their technology, said Mehta, noting that it’s a big deal when Google announces it will spend $1 billion on technology in a quarter, while major banks often spend $5 billion a quarter.
“But banks can’t personalize offerings for 10 to 30 million people while Google and Facebook can personalize communications to hundreds of millions. Banks need to harness the power of data, what they uniquely know about an individual customer. It could be credit card or whatever, but unless they realize their only competitive advantage is their unique knowledge about that customer, it goes nowhere. Once they figure out what they have, they need to automate it.”
Mehta thinks few bankers understand both the business of banking and the technology that powers it. One CEO he met with thought Hadoop was a search tool because it came out of Google.
“Bank leaders have no clue about technology and the tech guys have no clue about the business of banking. As long as the gap continues, no change will come.”
European banks are doing nothing with big data, he added. In Asia, banks aren’t burdened with a lot of legacy but they haven’t figured out what big data and Hadoop can do for them, he said.
Although Facebook and Google are adept at using big data and technologies like Hadoop, he doesn’t expect them to get into banking.
“Don’t underestimate the fear that regulators drill into everybody’s heart. I don’t think they [the technology giants] want to be regulated banks, but they will have impact competitively.”
Mehta expects to see more innovation in payments, which is the single largest revenue pool in banking, generating $200 billion in profits.
“We will see competitors emerging who will eat at the profits in banking in lending, trading, advice and payments. Deposit taking will remain with banks because it has to be regulated, but everything else on the asset side will be up for grabs. Payments and insurance are ripe for disruption. Banking is heading for a future like an electric utility, heavily regulated with an 8 to 9 percent return on equity in a government-controlled model, which is a good thing. Innovation will be outside the banks.”
