Big Data as Competitive Weapon

The buzzword of 2012 was “Big Data,” but what is Big Data and where did the idea come from?

Big Data is a term that evolved from the Second World War, when the phrase “Big Science” was used to describe the rapid cycle of changes that occurred in scientific disciplines during and after the war. A good example of this rapid cycle of change was the invention of computing.

John W. Mauchly, a physicist working at the Moore School of Electrical Engineering at the University of Pennsylvania when the war began, believed that an electronic computing device could be created to predict the weather. The idea was floated in August 1942 but, by the time the system was developed, the war was over. Nevertheless, the system that was developed (called ENIAC, the Electronic Numerical Integrator and Computer) led to the creation of the computer as we know it today.

As systems evolved, the term Big Data was first used in the late 1990s to describe the massive volumes of information we are faced with. Today, those massive volumes have become a veritable tsunami as every person on the planet is creating digital records every day. Consider that over 3,000 photographs are uploaded to Facebook every second, or nearly 300 million a day. Similarly, 72 hours of video is uploaded to YouTube every minute, equating to nearly 120 years worth of viewing per day. As Google’s CEO Eric Schmidt recently stated, “there were 5 exabytes of information created by the entire world between the dawn of civilization and 2003. Now that same amount is created every two days.”

An exabyte is a 1 with 18 zeroes after it – or 1,000,000,000,000,000,000 bytes – an incomprehensibly large number. We are drowning in data. And it will only get bigger with the amazing growth of unlimited bandwidth and unlimited storage, combined with device ubiquity and cheap chips.

Why is this important or relevant for a bank? Because those who make sense of Big Data will win. Data is the new source of competitive warfare and data mining will be the new competitive weapon of mass destruction. Many industries understand this leverage, particularly the technology players like Amazon, Apple, Google and Facebook. It’s the reason why banks fear these players – because they know how to sift the data and make sense of it. As one bank CEO recently stated: “Our peers I can handle. We’re in the same boat.  But if Google opens a bank, with all their data – then we’re in big trouble.”

And you should fear Google as Eran Fiegenbaum, the director of security for Google Apps, has already made it clear that Google is “a bank for your data.” And the biggest issue for a bank is that banks do not structure themselves well for leveraging data. Unlike an Amazon, Apple, Facebook or Google, who see the leverage of data as the product, banks separate their data functions from their product functions.

Much of a bank’s data is held in separate data stores dependent upon whether the customer is in the card division, the accounts division, the savings division, the investments division or somewhere else. Each division divides, and each divide weakens the bank’s ability to use their data to deepen relationships. This is the biggest opportunity for a new entrant and the biggest weakness for the incumbent, as the divided data will weaken the bank’s ability to compete.

Think of it another way. Imagine a new bank launches. A bank that is based upon mobile services. A bank that uses your digital footprint to really understand you. A bank that behaves like iTunes and Amazon, but with money. A bank that understands your social activities, financial transactions, lifestyle and more. A bank that is partnered in such a way that they offer you amazing deals and alerts proactively, before you even realized the need to consider these areas. A bank that in real-time can see the total view of you and provides you with out of this world digital servicing as a result.

Some banks are nearly there, but many are handcuffed by their heritage and organization to divide their data and lose this opportunity to compete. And if you cannot operate this way and your competition can, then that is why Big Data wars are going to kill you. After all, data is the competitive weapon and if you have silo divisions in your bank then you weaken your greatest competitive weapon. Something’s got to change.

Mr. Skinner is chairman of the Financial Services Club, CEO of Balatro Ltd. and comments on the financial markets through his blog the Finanser. He can be reached at [email protected].