Retail Radar 16-Apr-2024

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Top of Mind - The Transformative Power of AI and Data Monetization in Retail and Consumer Goods

As we journey through 2024, the retail and consumer goods landscape is undergoing a seismic shift, driven by the advent of artificial intelligence (AI), especially generative AI (gen AI). This technological revolution is about keeping pace with trends and redefining business revenue models for a sustained competitive edge.

The strategic deployment of AI and data transcends traditional practices, offering a unique solution to competitive differentiation and customer retention challenges. Data monetization becomes a critical strategy, transforming untapped data into actionable, profitable assets, thereby creating new revenue streams that significantly affect the bottom line.

Retail and consumer goods companies sit atop a treasure trove of data on consumer behaviors, preferences, and purchasing patterns. The digital evolution has magnified the volume and detail of data available. Gen AI is the key to converting this data into personalized strategies that optimize supply chains and amplify customer engagement.

Gen AI's potential extends to customer-facing functions. AI-driven systems can recommend products and personalize marketing in real-time, converting casual browsers into loyal customers and boosting conversion rates and basket sizes.

However, realizing the full potential of data monetization is not solely a technological endeavor; it necessitates a cultural transformation within organizations. A data-centric mindset must prevail, where data is actively leveraged for decision-making. Leadership is pivotal in championing AI integration and fostering an environment where data literacy and data-driven decision-making are foundational.

Seamless and holistic integration of AI and data strategies is imperative. Silos must be dismantled to ensure AI-derived insights are disseminated across all departments, enhancing every customer touchpoint and delivering a unified customer experience.

Data monetization through AI offers a dual benefit: it unlocks new revenue streams and provides enhanced customer experiences that solidify brand loyalty and trust. As we move into 2024, it is evident that businesses that embrace gen AI and reorient their business models to its capabilities will not only survive but thrive, setting new benchmarks in consumer engagement and operational efficiency.

In conclusion, retail and consumer goods companies must adopt AI, prioritize data monetization, and innovate relentlessly. The future is data-driven, and the time for action is now. By harnessing AI, we can shape the future, not just predict it.

Ethical considerations around AI and data usage are paramount, and responsible data stewardship, transparency, and compliance with privacy regulations are essential to maintain consumer trust. Leaders must establish robust guidelines and governance frameworks to ensure ethical and customer-centric use of data and AI.

Furthermore, successfully implementing data monetization strategies will require upskilling the workforce. Employees must be empowered with data literacy and AI skills to harness these technologies effectively. Investment in training and fostering a data-driven culture is crucial for capitalizing on AI-powered data monetization.

In the retail sector, Amazon and Walmart are leveraging Gen AI to transform inventory management and customer service. Amazon's anticipatory shipping model is a testament to the power of data monetization. It reduces delivery times and costs, thereby enhancing customer satisfaction and loyalty.

In consumer goods, Sephora's 'Virtual Artist' app exemplifies personalized shopping experiences through AI. It uses facial recognition to allow virtual makeup trials, driving engagement and sales.

These examples underscore the benefits of integrating gen AI into business models, unlocking data's full potential, creating new revenue streams, and delivering exceptional customer experiences that drive long-term loyalty and growth.

Tech Spotlight - What’s Next in Retail Finance: Open Banking Revealed

In a world where digital innovation leaps forward by the minute, the financial sector isn't just catching up; it’s aiming to lead. Open Banking stands at the forefront of this revolution, promising a seismic shift in how we interact with our finances. But what is this buzz all about, and why do regulators tap their brakes? Let's dive in.

Open Banking is a system at its core where traditional banks open their data vaults via APIs (Application Programming Interfaces), allowing third-party providers (TPPs) to build financial services and applications around them. This isn't just about sharing your transaction history with an app that can help you budget better; it’s about redefining the very fabric of financial services, making them more tailored, intuitive, and accessible than ever before. The practice took hold in the U.K. and the rest of Europe and is starting to make more inroads in the US.

However, with great power comes great responsibility—or, in this case, great scrutiny. Regulators, like the Consumer Financial Protection Bureau (CFPB), are in a tough spot. They're balancing the innovation potential that Open Banking brings against the risks of data privacy breaches and misuse of consumer data.

The Consumer Financial Protection Bureau's (CFPB) efforts to implement Section 1033 of the Consumer Financial Protection Act of 2010 are evolving. This legislation mandates that financial entities provide consumers access to their financial data upon request. The CFPB is crafting regulations to ensure this data's safe and standardized sharing, aiming to promote transparency and consumer control over personal financial information. See “The Disruptors” below for more details.

The Money Flow Simplified:

In traditional banking, your money lives in a somewhat closed ecosystem. Payments, whether through checks, credit, or debit transactions, follow a more or less linear path from payer to payee, mediated by banks or credit card networks. Open Banking introduces a more direct route. Imagine transferring money straight from your bank account to a retailer or service provider via a third-party app—efficient, right? But the potential savings on transaction fees (known as the Merchant Discount Rate for businesses that transact) have the commercial world perked up.

Companies like Plaid are at the heart of Open Banking. They make money by acting as brokers between financial apps and banks. Plaid positions itself as a digital finance platform with numerous customers connecting to millions of customers, enhancing the speed, safety, and ease of financial experiences.

They provide tools to onboard new customers, combat fraud, move money, and make smarter risk decisions. Their websites say they support 12,000 financial institutions and serve more than 100 million consumers, supporting a variety of financial apps and services globally. https://plaid.com/why-plaid/

Every time you use an app to check your balance, make a payment, or verify your financial status, Plaid facilitates this by connecting the app to your bank. They charge these apps a fee for their services, which scales beautifully as more users and apps come on board.

Real-World Use Cases:

1. T-Mobile: Integrating Open Banking streamlines billing and improves customer payment processes, reducing costs and enhancing user experience. It allows T-Mobile consumers to enjoy reduced monthly fees while the carrier reduces the fees they pay for credit card transactions.

2. Venmo: Using Open Banking for faster, more secure user verification and bank transfers, enhancing the ease of sending and receiving money.

3. YNAB: is a FinTech app, founded in 2004, that utilizes Open Banking through Plaid (or potentially other providers) to connect with users' bank accounts. It’s an online consumer-oriented money-managed platform. YNAB's Open Banking feature customers are users who connect their bank accounts through YNAB.

Looking Ahead: Predictions for Open Banking:

As we gaze into the crystal ball, the future of Open Banking holds promise. While some analysts forecast wealth management products, I project everyday bank products will create the flywheel effect.

By 2030, expect it to be a major player for underbanked consumers and merchants wary of changing credit card fees.

The practice is common in countries like China, where Alipay and Tencent are directly linked to financial institutions. Issuers like Visa, Amex, and Mastercard will speak up. They stand to lose millions every day while the banks are finding revenue opportunities as brokers in the form of being Acquirers and Open Bankers.

The tl;dr:

Open Banking is not just a financial trend; it’s the next step in the evolution of money management for all parties. As it stands, the journey will be one of cautious advancement. Each step enables more transparent controls for consumers and opportunities for Merchants (e.g., T-Mobile Banking) and banks to add additional services. But for those ready to embrace this change, the possibilities are as limitless as they are exciting.

Stay tuned, stay informed, and perhaps most importantly, stay open to change.

The Disruptors - Digital Rights Declaration: CFPB Sets the Financial Data Free

In a bold strike for financial liberation, the Consumer Financial Protection Bureau (CFPB) is reshaping the landscape of personal financial data rights. This isn't merely policy; it's a clarion call for transparency and autonomy in the digital age, challenging the old guard with a robust set of consumer rights that mirror a digital Bill of Rights:

1. Access: Empowering consumers to demand full transparency of their financial data—on their terms.

2. Deletion: Enabling a reset on unwanted data, giving consumers the control to erase their digital footprints.

3. Correction: Tackling erroneous financial information head-on, ensuring accuracy across the board.

4. Portability: Guaranteeing freedom of movement for your data, making switching services smoother than ever.

5. Opt-Out: Drawing a firm line against unsolicited data sharing, putting privacy first.

6. Minimization: Demanding that data collection be kept to the necessary minimum, promoting data dieting.

7. Security: Mandating top-tier protection for all financial data, accepting no compromises.

This manifesto marks a pivotal shift, reading like HIPAA for personal financial data. The CFPB advocates awareness and active engagement from consumers to safeguard their data rights vigorously. It’s a powerful reminder that consumer rights are paramount in today’s financial ecosystems.

#DigitalTransformation, #LawrenceLerner, #RetailTech, #Innovation,

#TechTrends, #BusinessTransformation

Onward.

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