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Financial services companies are banking on real-time data streaming in the cloud

Duncan Ash Profile picture for user Duncan Ash September 27, 2022
Summary:
Duncan Ash of Confluent explores how data in motion enables financial services providers to make intelligent and automated decisions that benefit the customer experience while also tackling security risks.

3D rendering Online mobile money transfer, Secure online payment and financial services concept © StockStyle - Shutterstock
(© StockStyle - Shutterstock)

When it comes to navigating the ups and downs of the financial world there’s always an element of risk. But if there’s one thing you can bank on, it’s that firms operating in the financial services sector are all looking to the cloud to transform their operations.

But in an industry that is defined by its legacy systems and siloed data, how exactly do you go about shifting such operations to the cloud?

“Slowly,” says Mark Holt, Chief Product and Engineering Officer at 10x, the technology company that helps move banks from monolithic systems to next-generation core banking solutions. He adds:

In the past, banks have tended to undertake a massive ‘rip and replace’: attempting to replace tens of core banking platforms with a single product,” he says. “But the world is littered with failed core banking replacement projects.

Which is why established banks and other financial services companies are looking at different ways to liberate the information they have tied up in legacy systems to create new applications and services. And it’s easy to see why. 

The gear shift from batch process to real-time data streaming

Until relatively recently, the day-to-day rhythm of financial services was dictated by vast amounts of batch data processing carried out overnight. As a result, there were always delays in transactions appearing on bank statements and a mismatch of money appearing – or disappearing – from accounts. As a consumer, the notion that you could even know the exact status of your finances at any given time was simply not possible. 

Fast forward to today and the advent of real-time data means that these transactions are now visible in an instant, popping up on banking apps within seconds of a purchase being made.

What’s clear is that real-time data streaming – or data in motion – enables financial services providers to make intelligent and automated decisions that not only serve up superior customer experiences but also tackle some of the more pernicious elements of online business.

According to UK finance data, in 2020, internet banking fraud was up 117% and mobile banking fraud was up 48%.

Tracking and analyzing data in real-time means that banks can monitor an individual’s spending habits and flag if there’s anything out of the ordinary. In some banking apps, the speed of real-time data processing means that customers can be alerted to any suspicious activity and freeze their cards simply by tapping a button, rather than having to wait for their bank to act.

It’s a simple equation. The faster this data can be gathered, analyzed, and implemented, the faster customers can be protected – with fraudsters stopped in seconds rather than hours.

Aside from the obvious benefits in combating specific instances of fraud, this data-driven online monitoring allows banks to actively safeguard accounts without causing inconvenience. 

For instance, those online purchases that take you from an e-commerce website – to your banking app for instant verification – and back again to your online shopping basket add a powerful added layer of security that barely disrupts the purchasing process. While the addition of geospatial data means that banks won’t automatically freeze or decline transactions made overseas when they may have been preceded by card use at an airport, for example.

From fraud to credit scores

The power of personalized data can also extend to customers seeking loans or credit extensions. Rather than manual, paper-based systems, lenders are able to make instant decisions not just on credit history, but also on data gleaned from social networks. Similarly, mortgage applications can also be scored and filtered by AI in the same way that jobseeker CVs are now often digitally screened as part of the online recruitment process. 

What links these – and the other functions that financial services companies can offer – is the availability of large amounts of data in real-time. That’s why financial services organizations are looking at new ways to consolidate and process the sheer volume of data available to them so they can action it in seconds, not hours or days.

For Mark Holt, the message is clear. He says:

For banks with an eye on the next five or ten years, they have to have cloud-based solutions. Nobody in ten years is going to be saying ‘we have to have our own datacenter.’

But as he has already made clear, taking a ‘big bang’ approach to data migration is asking for trouble. Holt adds: 

That’s why we would suggest choosing a small part of the business that you can migrate onto the new platform, build some experience, get some miles under your belt, generate some credibility with the Board and make sure it works super well.

And once everybody's happy and it's super reliable, you might want to look at some other parts of the business such as migrating some of the mortgage book, or the data siloed in an organization that you acquired a few years ago. 

This step-by-step approach is proven to work well, especially if there is a clearly defined scope of work and benefit.

That way, you can show an actual outcome that's done something meaningful for the organization whether that be expanding into a new market segment or migrating off an old and expensive legacy system.

Crucially, it allows the whole business to understand the cloud-based architecture of the future and start to lay those foundations for future growth.

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