BIG data is increasingly playing a crucial role in the business landscape. Companies are using it to gain insights into consumer behaviour and business trends so that they can gain an advantage over their competitors.

But human judgement and decision-making are still vital to ensure fairness and avoid the counterintuitive and unintended consequences of big data and artificial intelligence (AI), says the Institute of Chartered Accountants of England and Wales (ICAEW), which supports over 181,500 chartered accountants and students worldwide.

According to the organisation, many financial services companies are using big data and AI in designing products and services to make their business more efficient and effective.

“The nature of technology means that its use is likely to increase exponentially, as companies rely on data and place value on it. In the financial services industry, big data is not just a marketing opportunity. In many cases, it goes to the heart of the business model,” it says. “However, data is only part of the story.”

ICAEW points out that the collection and use of data is intrinsic to financial institutions.

“Data helps organisations target, persuade, reward and penalise customers. This is evident, as banks oftentimes offer cheaper mortgage rates for current account customers. The current data that banks hold provides them with a much more precise picture of customer behaviour and their probability of default, a key component of how the risk of a mortgage, and therefore its price, is measured,” it says.

The organisation adds that although the use of big data can benefit consumers with more tailored and suitable products to meet their needs, it does not come without risk.

Undeniably, there is a lot of backlash from the public that institutions are selling customer data. It could also be the employees who are the culprits.

In this regard, ICAEW global technical research lead Kirstin Gillion explains that there are many good practices that businesses can implement to improve cyber security and protect data.

“Staff are central to many of these practices. For example, businesses should implement clear policies around acceptable use of personal data that are compliant with local laws and ensure that the right controls and processes are in place to support them,” she says in an email interview with The Edge.

“Regular staff training around security is essential, along with building the right culture around security and setting the tone from the top. But businesses also need to be prepared for data breaches, and should plan and practise their response to breaches.”

Meanwhile, both banks and technology firms are looking to enter the digital banking space.

In December last year, Bank Negara Malaysia issued the exposure draft that outlines the proposed framework for the licensing of digital banks to offer banking products and services to address market gaps in the underserved and unserved segments.

The central bank said up to five licences may be issued to qualified applicants to establish digital banks to conduct either conventional or Islamic banking business in Malaysia.

ICAEW head of financial services faculty Philippa Kelly says, however, that in most countries, she has not seen many tech companies eager to enter the digital banking space.

“While tech companies may have masses of data and resources, they also may be reluctant to enter the highly regulated world of financial services, which adds a new level of constraint to their business model,” she tells The Edge.

“How traditional banks develop their offerings in the coming years versus the willingness of tech companies to enter the space will be very interesting to observe. Some areas, such as specialist lending and more capital-intensive financial services, will probably remain the preserve of traditional financial institutions.”

On the other hand, the solution for banks to remain relevant would be to continuously develop and innovate their business model, says Kelly, adding that they would also need to embrace change to maintain their status and market standing.

Banks need to remain focused on their customers and their role in society as they have an opportunity to prove they can step up and play a pivotal role in meeting society’s needs, Kelly points out.

“This includes tackling climate change, helping to reduce and manage the effects of inequality and wealth concentration, as well as dealing with the needs of an ageing population. Stepping up will require product innovation, the willingness to invest in and finance new technology, and working to facilitate intergenerational lifetime transfers,” she explains.

The government also plays a crucial role in ensuring the digitalisation of the financial services industry is robust to maintain public confidence. Kelly notes that governments should support and challenge regulators, market participants and consumers to move towards a financial system that is fit for the future.

“The government needs to understand society’s needs and how the industry may or may not be meeting them, which helps to inform policy interventions. However, these need to be carefully weighed as they can sometimes distort markets or practices,” she says.

An example is understanding how different parties work together.

According to Kelly, the role of the post office network in maintaining a physical banking presence in many communities is also important. “Digitalisation will make things quicker and simpler for many, but it is not a universal solution to challenges that customers face.”

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