“Big Data” … The secret weapon of banks to earn more
“Big Data”, or big data… This concept is so popular that it has become meaningless. Everyone talks about Big Data, and how it’s going to be a revolution across the board, but in reality few really understand it. Are you a start-up and want to boost your stock market valuation? Add the concept of Big Data to your business plan and you will see how it will take flight.
But what has the banking sector seen in Big Data that could interest it?
The financial sector has joined in and many banks see it as a way to grow. Not long ago, at a conference organized by a bank, I finally heard the objective of banks, and that is not very encouraging. The banks’ objective is twofold.
Analyze your life and profit from the result
They want to know what you are buying and where; when you travel and where; what car you own; how much you spend. In reality, all of this information is already available to them through your bank statements, but they just don’t know – at least, not yet – how to use it and get the most from it. With this information, they want to sell you more products, according to your consumption profile. We are no longer talking about products specific to the bank itself, but products sold by third parties, which the bank provides to you at the price of a “reasonable” commission.
In practice, this will work as follows: the bank detects that you buy business books from Amazon every month. As if by magic, you’ll receive a personalized email with a special offer – not from Amazon, of course – on Warren Buffet’s latest book. The supplier of the book pays a commission to the bank and this is how this bad practice can continue.
The bank could set up a bidding system where the highest bid – in this case, whoever offers the highest commission – gets the sale.
If it’s not by e-mail, the bank will try to entice you with offers on its online platform or via their geo-localized application … just as you walk past a bookstore and think of books.
It’s a pure incentive to buy based on what the bank knows about you, and which in the case of compulsive shoppers could end in a permanent shopping session.
To encourage you to buy on credit
Obviously, what the bank wants, other than charging you the commission on the product price, is that you buy it on credit, thanks to them of course.
On small purchases, even if the interest rates are high, buying on credit always appears cheaper in absolute terms. If you buy a 19 dollar book on credit, paying interest on a few dollars seems benign.
In this story, the customer, as always, is not getting a good deal. Our world lives on credit. Western governments have generated unsustainable levels of debt, which will likely be impossible to repay in the future (just see what’s going on in Japan). In countries like the United States, the economy is based on a race for credit reaching extremely worrying levels in the case of student loans, for example, not to mention the 2008 crises and subprime mortgages.
If banks take the United States as a benchmark for their debt levels, they probably think there is a large pool of credit to offer to the public, and a lot of money to be made. And now that it is clear that they are “too big to fall” and “too big to be punished” (“too big to fail / too big to jail”), their motivation is even greater.
In summary, the situation is as follows: Banks see Big Data as an opportunity to become a huge online sales portal. They want to use the data they keep on their hundreds of millions of customers – free data that they’ve been accumulating for years, if not decades – to generate sales and credits. When buying becomes one click away and can be funded with instant credit, compulsive buying and overconsumption becomes nonstop money making machines for banks.
The examples of Google and Facebook, which generate hefty profits from analyzing and selling data on their users, have piqued banks’ appetites. Giants who are attacked from all sides by Fintechs in their traditional sectors of activity.
As George Soros says, we live “the mother of all bubbles”. Banks are blowing on the embers under the ghost name of Big Data. Don’t let words blind you: they have nothing to lose, because in the worst case scenario, they will go and demand injections of public money to save their millionaire pensions. But you, what will happen to you if you do not repay your credit?