The tempo of change for data-driven business is increasing, with the financial services industry under particular pressure. For banks, credit card, insurance, mortgage companies and the like, data governance must be done right.
Consumer trust is waning across the board, and after several high-profile data breaches, trust in the way in which organizations handle and process data is lower still.
Equifax suffered 2017’s largest breach and the fifth largest in history. The subsequent plummet in stock value should have sent a stark warning to other financial service organizations. As of November, the credit bureau reported $87.5 million in expenses following the breach, and the PR fallout plummeted profits by 27 percent.
But it could be said that Equifax was lucky. If the breach had occurred following the implementation of the General Data Protection Regulation (GDPR), it also would have been hit with hefty sanctions. Come May of 2018, fines for GDPR noncompliance will reach an upper limit of €20 million or 4 percent of annual turnover – whichever is greater.
Data governance’s purpose – knowing where your data is and who is accountable for it – is a critical factor in preventing such breaches. It’s also a prerequisite for compliance as organizations need to demonstrate they have taken reasonable precautions in governing.
Equifax’s situation clearly implies that financial services organizations need to review and improve their data governance. As a concept, data governance for regulatory compliance is widely understood. Such regulations were introduced a decade ago in response to the financial crisis.
However, data governance’s role goes far beyond just preventing data breaches and meeting compliance standards.
Data Governance 2.0 for Financial Services
Data governance has struggled to gain a foothold because the value-adds have been unclear and largely untested. After new regulations for DG were introduced for the financial services industry, most organizations didn’t bother implementing company-wide approaches, instead opting to leave it as an IT-managed program.
So IT was responsible for cataloging data elements to support search and discovery, yet they rarely knew which bits of data were related or important to the wider business. This resulted in poor data quality and completeness, and left data and its governance siloed so data-driven business was hard to do.
Now data-driven business is more common – truly data-driven business with data at the core of strategy. The precedent has been set thanks to Airbnb, Amazon and Uber being some of the first businesses to use data to turn their respective markets on their heads.
These businesses don’t just use data to target new customers, they use data to help dictate strategy, find new gaps in the market, and highlight areas for performance improvement.
With that in mind, there’s a lot the financial services industry can learn and apply. FinTech start-ups continue to shake up the sector, and although the financial services industry is a more difficult industry to topple, traditional financial organizations need to innovate to stay competitive.
Alongside compliance, the aforementioned purpose of DG – knowing where data is stored and who is accountable for it – is also a critical factor in fostering agility, squashing times to market, and improving overall business efficiency, especially in the financial services industry.
In fact, the biggest advantage of data governance for financial services is making quality and reliable data readily available to the right people, so the right decisions can be made faster. Good DG also helps these companies better capitalize on revenue opportunities, solve customer issues, and identify fraud while improving the standard for reporting on such data.
These benefits are especially important within financial services because their big decisions have big financial impacts. To make such decisions, they need to trust that the data they use is sound and efficiently traceable.
Such data accountability is paramount. To achieve it, organizations must move away from the old, ineffective Data Governance 1.0 approach to the collaborative, outcome-driven Data Governance 2.0.
This means introducing data governance to the wider business, not just leaving it to IT. It means line-of-business managers and C-level executives take leading roles in data governance. But most importantly, it means a more efficient approach to data-driven business for increased revenue. A BCG study implies that financial services could be leaving up to $30 billion on the table.
Although the temptation to just meet regulatory compliance might be strong, the financial services industry clearly has a lot to gain from taking the extra step. Therefore, new regulations don’t have to be seen as a burden but as a catalyst for greater, proactive and forward-thinking change.
For more best practices in business and IT alignment, and successfully implementing data governance, click here.