In December 2010, The Financial Services Authority (FSA) introduced new rules for the Financial Services Compensation Scheme (FSCS) and deposit takers (i.e. banks, building societies and credit unions), to ensure eligible depositors (i.e. individuals and small businesses) will be compensated more quickly if a deposit taker fails.
From 31 December 2010, the Deposit Guarantee Schemes Directive (DGSD) required deposit guarantee schemes (i.e. the FSCS in the UK) to pay out compensation within 20 business days of the default of a deposit taker.
A key element of meeting these reforms was the requirement on deposit takers to develop a single customer view (SCV). The provision of a SCV provides the FSCS with the information required to make a fast payout, with a payout target of seven days from default and in any event within the DGSD timeframes.
Further news that the Financial Services Authority (FSA) is demanding that UK banks spend £1bn upgrading their IT systems so that depositors can quickly recover their savings should a lender collapse has been greeted as another blow to the industry.
Effective data integration, which allows banks to profile individual customers, and assess the quality of information it has on each saver, investor or borrower, has a critical part to play in implementing the changes proposed by the FSA. Fulfilling the demands will require banks to provide a complete list of every customer’s deposits within 48 hours of the institution failing, to ensure savers receive their money within seven days from the Financial Services Compensation Scheme (FSCS). Achieving this depth of knowledge about individual customers will cost in the region of £892m, according to current estimates, but could prove to be money well spent.
In order to ensure that SCV requirements were adopted fully and correctly a verification programme was included within the SCV rules.
Since 1 February 2011, the FSCS has been verifying ‘signing-off’ deposit takers’ ability to meet SCV requirements by reviewing the Implementation and SCV Reports submitted by all deposit takers and sample data files submitted electronically by deposit takers holding more than 5,000 accounts (or those below 5,000 who chose to submit electronically).
The problem, and what SCV is designed to resolve, is that many financial institutions take deposits from clients under multiple guises: a customer may have multiple deposits, of different types, with the same institution and institutions typically treat these as completely separate, with different departments and divisions each holding separate details about the customer’s name, contact details and so forth. The idea behind a single customer view is that you should be able to see a cohesive, accurate record of the customer’s details across all of these silos.
Most companies also gather a wealth of information about their customers through sources including transactions, delivery records, loyalty schemes, customer service interactions, enquiries, and registrations to websites and newsletters. Yet, many firms simply do not understand how best to utilise this intelligence, storing knowledge across different databases and, even, in different departments and buildings. Little do they realise that such poor data management may not only be damaging brand reputation, but also driving customers away – and thus hitting the bottom line too.
Organisations/Banks will be forced to have a view of exactly how much money is deposited with them. I would bet a pound to a penny that most of them don’t know that right now: primarily because of data quality issues and the lack of a single customer view. And that, of course, will impinge on capital adequacy requirements. However, perhaps the most obvious advantage comes when you combine the single customer view with details of what products he or she has bought: add some relevant business intelligence capabilities and you are now in a better position to do up-selling and cross-selling to that customer. And this applies to any industry, not just banks and building societies.
Unfortunately, it does not look as if most companies are thinking along these lines. According to a recent survey published by JWG only 14% of organisations subject to SCV had recognised the strategic potential of having a single customer view and were planning to use this for marketing purposes. Of course, this will mean that these companies gain a significant advantage over the bulk of organisations that only plan to use SCV for tactical purposes or the 29% that simply viewed this as a tick-box requirement and cost.