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The role of business intelligence in banking strategy

by Simon Goble on April 19, 2016

Topics: Performance Management | Banking Business Intelligence

Banking business intelligence can play a major role in helping management teams within financial institutions to answer a number of key questions as they execute their strategic objectives.

Greenfield start-ups

The key attributes that a start-up should consider when looking at any software, be it core banking or business intelligence, are cloud, subscription and a pay as you grow model. This model is appealing as it allows them to open their doors and operate out of operating expenses, rather than investing a large proportion of start-up capital in technology before they grow the customer base.

Start-ups need applications that are agile and automated because they may find it difficult to specify what their balance sheet will look like in a year or two years’ time, so they need a service that will accommodate multiple changes as they grow, allowing them to modify their chart of accounts, grow their product lines, take on more branches and take on more loan officers whilst not racking up significant costs as these changes occur.

One of the major benefits of using an automated business intelligence application from the outset to produce management information is a reduction of ongoing consultancy costs because the need to employ analysts to do manual work in the financial performance and management reports production process will be eliminated.

Growth into new products, new lines of business and new branches

When it comes to business intelligence, financial institutions demand flexibility, they do not want to pay every time a new product, line of business or branch is added to their core banking system. They expect the changes to flow from the core banking system to their business intelligence applications. This requires a flexible model that enables them to monitor the outstanding balances at a point in time and look at new incremental business. Therefore, any solution needs to be able to clearly identify new production versus organic growth in the balance sheet.

For growth areas business intelligence should highlight where that growth is coming from, at what rates, at what profitability and should answer questions about employees such as; who is performing best and what are they doing well?

If the financial institution is extending products into different channels the institution needs channel analysis to analyse performance by first looking at the consolidated financial position, how the channels that deliver the service to customers can effect this and how the people that work in those channels contribute.

Key to all of this analysis is the ability to analyse growth by customer attributes to answer questions such as; are the types of customers we are reaching changing over time? Are we appealing to all of our target demographic segments?

Growth through mergers and acquisitions

During mergers and acquisitions there is more short, sharp, shock when it comes to requirements. There are unknown challenges faced when merging different businesses in different geographies, with different underlying charts of accounts, systems and procedures. Typically, mergers and acquisitions take time to integrate and the default go to tool is Excel so invariably people end up doing a lot of manual work to consolidate the financial position and of course this doesn’t really give them an understanding of the business or allow them to consolidate the business to create synergies and cost savings because it takes time to really understand all of the products, processes and markets that the business in. Read how Premier Credit are managing their growth through acquisition.

The ability to accommodate different general ledgers from different source systems and present this as a consolidated, whole business, whilst handling different currency conversion requirements, handling inter-company netting and eliminations automatically is crucial. In addition to being able to see the consolidated position, management need to see the performance of the individual institution, country and regional positions. The desire is to do it with minimal infrastructure investment using the existing financial and banking data from each of the entities. In other words, getting straight to the answers and delivering those answers very quickly based on an automated flow of data from the different source systems.

Core banking transformations and upgrades

The rationale behind going through a core banking transformation by changing or upgrading a banking system usually involves the need to create more agility and operational efficiencies. Agility to produce new products and to consolidate financial information, to a single system, to give a better understanding of performance in terms of profitability and risk.

The challenge is that a banking system by its nature is at a very detailed transaction level and whilst cost savings and synergies can be achieved from implementing a single standard across the operating environment, measuring the financial and other performance benefits from such system transformations is challenging. If the transformation is to make the RoA and RoE better, to reduce the operating costs and become more efficient, was that achieved? Does the institution have the performance tools to enable the monitoring of these efficiencies, on a day to day or monthly basis, to truly assess the impact of these transformations?

Having a product that can turn on business intelligence information adds value to any core banking transformation project. Even a relatively straight forward core banking transformation project, that on one level may not look like its delivered much functional impact, still needs effective measurement of the financial impact of making that transformation, in terms of profitability and the effect on the RoA, RoE and the efficiency ratio.

Attracting investors

In the microfinance industry there is a need to understand the dual bottom line of financial and social performance. Social investors, donors and foundations need to see the impact of their money on a microfinance institution and their clients. They will be looking for a sustainable financial business model and the social impact of the institution to see that it is raising the economic well being of its clients and meeting the objectives set out within its social mission statement, be it children impacted, jobs created or female empowerment.

The microfinance institution needs to provide this information without impacting its service provision to clients. However, in most microfinance institutions this information is often gathered manually, consuming the time of multiple people. The ideal situation would be the provision of a selection of financial and social performance indicators to investors through the use of a business intelligence system with data flowing automatically from the source systems.

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