All together now
Written by Liz Morrell
On 31 December 2010 the Deposit Guarantee Schemes Directive (DGSD) came into force, requiring that deposit guarantee schemes, such as the Financial Services Compensation Scheme (FSCS), pay out compensation within 20 business days of the default of the deposit taker.
As part of the change, deposit takers are required by the Financial Services Authority (FSA) to create a single customer view (SCV) of customers so that they are able to give a single, consistent view of an eligible claimants aggregate protected deposits with a deposit taker, enabling faster payout by the FSCS – within seven days of default.
The changes aim to encourage better consumer confidence in the market. The regulator also demands that banks keep a SCV in order that any customer with holdings over £50,000 across all bank operations, including all subsidiaries, are informed and aware of these holdings all being with the same bank.
The FSA therefore requires that a complete table of all the depositors is ready for inspection to regulate the number of customers each depositor has and how much money is deposited with them at any time. The FSCS is working with trade bodies, the FSA and deposit takers and suppliers to ensure firms can provide the SCV information in a format that is transferable to and compatible with the FSCS systems.
However, this is more complicated than it may sound. With multiple customers holding a range of accounts across different banks and building societies, calculating assets of individuals in such a short space of time is extremely difficult and could
leave major banks in breach of the regulations, according to John Bryant, marketing director at Unisys. "Building a SCV will involve a lot of data cleansing, tagging, linking and storage capabilities to create a standardised aggregate view of all deposits across businesses, products and relationships, for all financial firms," he says.
The requirements have been stepped: by the end of December deposit takers were required to confirm their readiness to the FSA, and by the end of January needed to provide a sample 10,000 records in the correct format to the FSA to allow the FSA to validate their readiness to comply.
The full file requirement will come in March and it is at this time Bryant believes some financial companies may stumble. "A lot of banks and building societies are saying they are in shape to produce this file but that's different from being able to produce a single view of the customer," he says.
He also warns that some deposit takers may be getting confused. "You have to know which accounts belong to which banking license. It's somewhat different from having a single view for marketing and selling purposes and there are some misinterpretations of what needs to be done."
Unisys is working with a large UK bank on introducing a SCV. "We are helping them to put this platform in place helping them to extract the data to a common database, clean it up and produce the file ready for the FSA," says Bryant.
Meanwhile, Barclays says it is early days for a SCV. "To date, Barclays has met the required deadline. This will provide a foundation for future work and wider benefits which have not yet been realised," says a spokesman for Barclays.
However, the larger banks face huge challenges in creating a true SCV because they have long established legacy banking systems, which are product rather than customer driven – sometimes bank customer advisors are literally cutting and pasting between systems for a full view of customer activities.
"A lot of the financial institutions we work with tend to be application and silo centric as opposed to customer and data centric," agrees John Poulter, senior vice president of sales EMEA for Informatica.
This can mean having an overall view of the customer is a time consuming process. Poulter cites the Merrill Lynch. "They had 16,000 financial advisors who spent around 70 per cent of their time collating information about customers from different silos which left only 30 per cent of their time to manage customers."
Informatica worked with Merrill Lynch's systems integrator to assess the
key areas impacting their business. "The fundamental issue was in being able to become customer centric as opposed to account centric," says Poulter. "We provided a link between all their disparate data services to link through and maintain them as a single record. It was a combination of our software technology, assessing their working methods and a reworking of how their datasets were combined. We have effectively taken their disparate records and combined them into one so now you just search on a customer and it shows you their entire range of accounts." This improved productivity per advisor by about 30 per cent, he claims. "It's a very powerful way of enabling organisations to sweat the assets they have in their customer data while also providing better quality data. It also helps to improve acquisition rates and churn."
But it can be costly. "It's considerable," says Ed Wrazen, vice president of marketing at Harte-Hanks Trillium Software. "Typically there will be a plethora of systems in place and it's not a simple project but an ongoing process. The task cannot be underestimated and you can't do it just once." And it also requires a change in mindset: "The change from a single product view to a single customer view is as much a philosophical change as it is a technology change. That's why some of the early CRM programmes didn't work," adds Janice Horan, director of pre-sales at Fico.
But newer banks are at an advantage as they have been able to build their business around the concept of SCV, therefore realising other benefits too. "The design of our banking platform is based around SCV – hence we have complied with this requirement," says Mike Hudson, chief risk officer at Metro Bank. "The key benefit is it allows you to understand the customers overall relationship with the bank and this is a key requirement when delivering a high quality customer service proposition. It has both customer service benefits – such as improved level of service from your bank as it increases the knowledge about all the products and services you use at that bank as well as risk management benefits."
How ready the banks really are is not very clear, but vendors say they are not hearing panic in the market. "I'm not getting calls from banks saying 'we need to do this'. They have always been striving to create a SCV," says Francis Carden, founder of OpenSpan. He believes that the seven-day timeframe is long enough, but that the advantage of a true SCV is even greater immediacy. "The benefits of SCV are massive – it's not just about the SCV, it's about being able to get at the data right now. The ones that take longer than seven minutes need to be looking at technologies to
give them the information right now," he says.
Most of the deposit takers will say they have complied but Charles Randall, solutions marketing manager at SAS, is doubtful. "There is a real split. There are some smaller organisations that are grasping this and others who won't be able to comply at all because the scale of the challenge is much bigger and they can't deal with it,” he says.
But Bryant believes many are only doing the basics. "I think some financial institutions are producing the minimum requirement for the FSA but not looking at it for wider use in the organisation." Yet the wider uses are huge. Some have already tinkered with it to get closer to their customers. "Being able to communicate with a full view of a customer's portfolio is most significant when it comes to providing customers with service levels aligned to that particular customer's value," says Poulter.
"Apart from any legislative requirement the general point is there are both reputational and cost reasons why you need to have a good SCV - reputational because customers will get cross if you can't manage names and addresses properly and
cost because sending to old or wrong addresses costs money," adds Andy Hayler, CEO of data quality analyst firm The Information Difference.
Some banks are already using the information well, claims Duncan Ash, marketing manager, financial services at SAS. "Some of our more forward thinking customers are integrating risk and marketing together so for instance they are spending less money marketing people that are likely to default."
His colleague at SAS, Randall, cites Banco Santander in Portugal, whose loan department uses information gleaned from its checking department to indicate where changes in spending patterns may identify, for example, that a customer has had a new child - and will then market them a loan for a new car. Another of its UK financial customers is using SCV to identify who their most profitable customers are and therefore who is and isn't worth marketing to. "There are lots of examples of people going beyond just SCV to generate revenue," says Randall.
How widespread SCV becomes will, it seems, largely depend on the FSA. "It depends on the strength of the regulatory pressure and how quickly banks realise the added value they can get from this," says Randall. He also believes it will depend on how banks view it. "The regulatory pressure will make it more commonplace faster than it would have otherwise because it's not sexy and it takes a strong act of faith. The benefit doesn't come from SCV itself but it's how you change products
because of SCV."
But the FSA insists it will be strict. "Non-compliance would be treated on a case by case basis and enforcement would be an option in appropriate circumstances," says a spokeswoman. She says the SCV should not be viewed in isolation. "It is actually part of wider changes to the compensation scheme."