The concept of enterprise data management (EDM) has been around at least since 2005 and has matured into a deep and broad financial services-specific branch of data management. So, what is Master Data Management (MDM) if not the generic counterpart to EDM in other sectors? MDM standardizes, validates and governs data relating to items/materials, locations and entities (i.e. people and organizations). Several years ago we posited that EDM and MDM could eventually intersect into one combined format for an MEDM (or EMDM)data management approach. That is not exactly what has transpired.
EDM vs MDM – what’s the difference?
The key EDM vs MDM difference is that EDM solutions natively master financial securities. Having a security master (or securities master) was the starting point for most EDM vendors. Mastering customer data was often the starting point for MDM vendors.
These days, both EDM and MDM solutions are expected to master multiple data domains. The trend has been for vendors to specialize for the key data domains of an industry sector. EDM is effectively the MDM specialization for the financial services sector. mMDM (materials master data management) is among the key master data management capabilities for the manufacturing sector, comprising supply chain-dependent businesses. The mMDM data often feeds enterprise resource planning (ERP) processes. While securities mastering is an essential capability for EDM, bill of material (BOM) capabilities are critical in mMDM. In the retail sector, a heavy emphasis is placed on product information management (PIM) as a core MDM component. This is particularly true for e-commerce businesses.
In financial services, product mastering or fund mastering are the equivalent to PIM. However, this data domain has only recently become appreciated as a competency integral to EDM. The adoption has been driven by fund managers wanting to keep their websites fed with the latest fund information and by banks looking to undertake product stamping as part of their MiFID II regulatory obligations. Product onboarding and fund launches have also been recent drivers, with firms and institutions looking for a way to make such a multi-departmental endeavor more efficient, controlled and faster.
What is master data management to a financial services firm?
The effectiveness of a MDM system at also providing high-quality, accurate securities data as a value-add for its users rests on the completeness and flexibility of the system provider’s data model. But what is master data management with a securities mastering capability? It’s EDM. If a data management platform doesn’t have this capability, then it’s a pure play MDM offering, which is in part why many financial firms still refer to customer data projects as MDM projects, even if it’s done using the same platform that also masters securities.
To master securities a data model must include the full range of data types for financial instruments. If not, even the most extensible data tool will struggle to provide smooth services to traders, portfolio managers, risk and research analysts, regulatory compliance teams and others who are reliant on standardized reference data, prices and corporate actions information. Furthermore, financial engineering and innovation will continue to create new instrument types with new data attributes that need to be understood by the data model in the right context.
Master data management capabilities
In addition to business factors such as a global presence and partnerships a system’s positioning and master data management capabilities determine how great of an asset that system will be for complementing an EDM system which likely handles more data functions, such as integration of data with other operational applications. Looking at master data management capabilities on the sell side, a combination of customer and entity data capabilities are necessary to satisfy requirements across investment, commercial, private and retail banking. On the buy side, the combination of customer, account and product (CAP) data management capabilities is essential.
Among MDM providers evaluated in a January 2021 report by Gartner® (there is no equivalent report for EDM providers) some have turned to partnerships with cloud services providers such as Microsoft Azure, Google Cloud and AWS, or acquisitions of artificial intelligence innovators, as ways to enhance the value of their systems. However, cloud-based solutions are now table stakes for MDM providers, because most industries including financial services have adopted the cloud approach. Linking with application and middleware connectors also adds value, as do efforts to partner with other service providers in different disciplines, such as analytics or systems integration firms. However, specialist systems dedicated to an industry sector will always be stronger, especially if pre-built connections are also available to take in vendor feeds.
Master data management objectives
MDM solutions built on a cloud strategy reduces the barrier to entry for new MDM users because the provider can offer more licensing model options and realize value for the user faster. Master data management objectives at most firms include greater governance and reduced costs while achieving improved data quality. Cloud certainly helps reduce costs. Cloud resources also make it easier for a provider to achieve a global footprint and to serve larger organizations that need to service multiple geographical locations with a single system. Governance and data quality objectives are satisfied through the strength of the underlying design of the system rather than the way in which it is deployed.
On the other hand, the report found certain weaknesses in some MDM offerings that detract from their effectiveness and success among users. These include weak customer experience design , a lack of partnerships between the provider and complementary technologies and resources, data management strategies that are restrictive of users’ options and a lack of price transparency to users. However, these factors can afflict all types of enterprise software and are not unique to either the EDM or MDM space.
Causes for a poor MDM customer experience can include a lack of sufficient end-user training, insufficient technical support, confusing delineations or naming of products, difficult implementation or lack of implementation support, and a lack of responsiveness to service, support and training requests. Shoring up technical support, as Gartner observes that some providers who had this issue are now doing, can go a long way to strengthening their offering. Again, the more dedicated an offering is for a specific industry sector, the more likely that the needs of users will be understood and met.
At the same time, these areas to watch out for, if handled well, can be attractive features in a MDM solution. Being able to muster a wide range of support resources, having the wherewithal to reach dispersed global markets, showing flexibility in a solution offering, and delivering a good experience for a solution’s end user, are all elements MDM solutions need to measure up within the financial services space.