Show me the Data! A new source of value in payments

From gateways to issuers, today’s payments providers have a treasure trove of data at their fingertips. By using it to generate insights into consumer purchasing behaviour, and coupling these insights with an understanding of emerging macro trends, payments firms can provide better service to customers—from fraud detection to spending insights.

But, according to McKinsey, they can also go a step further by capturing emerging opportunities to extract value through the monetisation of the data itself, either internally or through third parties. These opportunities extend beyond the boundaries of the traditional payments business and require providers to take advantage of distinctive data sets and apply advanced analytics techniques.

Payments providers that get this right can tap into a range of benefits, from reaching previously unserved customer segments to opening up new revenue streams through product cross-selling.

Capturing these benefits will involve taking strategic steps such as building partnerships and alliances to strengthen existing data or exploring how to future-proof the business as new trends such as peer-to-peer and mobile payments take hold.

Payments providers are in a uniquely powerful position to pursue emerging opportunities because they have insights into merchants as well as consumers, and can bridge the gap between them by providing incentives to influence consumers’ choice of merchants. But they also face challenges, such as how to operate successfully within data-privacy constraints and how to deal with disputes on data ownership.

Finding solutions will require a thoughtful and gradual approach, starting with the data that is easiest to obtain and that shows promise for value.

This article considers what data monetisation offers might look like, examines some of the solutions already available in the market, identifies the challenges that payments providers must overcome, and suggests steps they can take now to make this a fruitful part of their future business.

What are the sources of data?

Any large business or bank has two types of customer data: line-of-business (LOB) data owned by a particular part of the business, and common data, which falls into two groups: enterprise-level data and supplemental data.

Enterprise-level data consists of the same elements as LOB data—customer preferences, needs assessments, and so on—but spans the organization, and in most evolved enterprises is drawn from a single source, such as a data lake.

Supplemental data ranges from raw data derived from external sources such as social media, weather data, and digital IDs to synthesized, value-added analytics that are captured through predictive modelling, sentiment analysis, and so on.

Payments providers can capture the greatest value and insight by adding supplemental data to their existing internal data. A number of new players are creating value by combining internal and external data in this way, or helping data owners to do so.

Up to now these digital companies and start-ups have mostly sought to cooperate with existing payments providers and banks by providing third-party services, rather than posing a direct threat to their business. However, payments providers would be well advised to explore the possibility of bringing these capabilities and services in house given the value they could deliver, especially at a time when squeezed margins and commoditisation are putting pressure on returns from traditional payments services.

Moves toward open banking through PSD2 in Europe and similar initiatives can also be seen as a call to action, given that they make access to payments data easier for third-party players that do not own primary client relationships (see “Data sharing and open banking”).

On a more positive note, an analysis of the relative strengths of payments providers, banks, telecom companies, retailers, and digital firms in terms of their access to customer and merchant data shows that payments providers are well placed to capture emerging data monetisation opportunities.

Payments providers may hold less information on consumers than digital players do, but they have more data on merchants. Compared with banks, they have less data on merchants but more on consumers. And payments providers have better overall access to data than either telecoms or retailers.

Probably the greatest potential of data monetisation comes from merging cardholder data with data from the merchant side to gain an end-to-end view on transactions that can unlock additional value. The opportunities include coupling consumers with preferred merchants, channels, and potentially products; geo-referring transactions to identify a customer’s location; and understanding the dynamics of local markets at a sub-postal code level.

The payments providers best placed to capture these opportunities are those with a large market share in both issuing and acquiring in specific markets, or those acting on one of the “legs” that are able to develop effective partnerships with players strong on the other “leg”: for instance, a large merchant acquirer partnering with a primary issuing bank.

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