Reuters: banks pan for gold in data lakes

Wall Street trails Silicon Valley in using customer information to boost revenue but with tech giants such as Amazon and Google wading onto their turf with forays into lending and payments, banks including J.P. Morgan, HSBC and Barclays are moving to narrow the gap.

Mining mountains of trading data to predict stock moves; partnering with retailers on marketing campaigns and using artificial intelligence (AI) tools to try and speed up credit decisions are some of the areas banks are focusing on.

The surge in data mining is happening against a changed regulatory backdrop. New European Union (EU) rules introduced last year allow technology companies to access banks’ customer data if they have customers’ permission. The EU has also toughened its privacy laws. Companies now have to get permission before they can collect and use personal information gleaned online from people living in the bloc.

Banks do not disclose how much they earn from analyzing and marketing customer data or other ways in which they monetize the information they hold. But, in comparison to the billions earned from lending and trading, the amounts generated are likely to be small.

Data lakes

Using data to improve risk analysis, make faster credit decisions and anticipate customer needs is particularly appealing for banks looking to cut costs. HSBC plans to use AI tools to rake through its 10 petabytes of data – roughly equivalent to the storage capacity of 2 million DVDs – from investment banking clients in 66 countries. Europe’s largest bank has struck a deal with Element AI, a Canadian company, to help it tap this so-called ‘data lake’.

JPMorgan, meanwhile, is developing a raft of AI applications to better predict stock moves and to map and mine 3 billion transactions it handles annually. The bank hired Manuela Veloso, the head of the machine learning department at Carnegie Mellon University, to be its head of AI research last year.

In comparison to newer, tech-focused companies, banks are often at a disadvantage when they look to extract value from their data – they lack inhouse experts and their businesses are often siloed with legacy IT systems. To speed things up, lenders are set to spend $26 billion on big data and business analytics this year, according to analysis by International Data Corporation, up from $23 billion last year and $19.7 billion in 2017.

Hires for senior leaders with digital experience at financial firms have doubled year on year for the last five years, according to London-based headhunters Heidrick & Struggles: “These skills are now a necessity within senior leadership teams,” says Marcus De Luca, UK financial services practice leader at the recruiter. “We are often asked if there is someone who works at Amazon, Google, Netflix, or Facebook who could be tempted to join.”

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