Digital Banking – Lessons from channel integration

Digital banking offers unprecedented opportunities both for banks as well as customers. It has provided banks breadth and ease in delivering their products and services to customers. As for customers, it has pushed service options and expectations to a new high. Given the opportunity spectrum, it is no surprise that banks have invested heavily in upgrading their digital preparedness. 2015 promises more investments in digital banking.

A definition of digital banking will be of help here. Obviously many definitions exist. Banking transactions and experience through the internet and electronic devices - desktops, laptops, tablets and mobile phones – structure our digital banking experience. This is a simple and easy definition.

Digital banking is also the prime force that has helped in proliferation of banking services to remote areas and brought huge unbanked segments into the ambit of mainstream banking. Arguably, it has the deepest transformational impact on any industry. Most important, it has provided customers with the information they need at a time, place, format and device of their choice. This has been a true empowerment.

Consulting companies and IT majors, as would be expected, are deeply invested in the digital transformation initiatives at banks. They have proffered channel integration/optimization as the central pillar in enabling this transformation. Banks’ response, however, have been mixed.

Channel integration/optimization, in short, seeks to fine tune different digital channel touch points so that the customer has a unified experience at the bank. Consequently, this synchronization or optimization can help banks elevate customer experience by calibrating the delivery of best in class products and services.

But the problem with this approach is that every organization has to level up and offer top customer experience. That is the minimum and ‘must have’ expectation today. Anything less will jeopardize business and could potentially result in loss of customers. The result is that all major banks have geared up and offer par or exceed expectations in customer experience.

Further, channel integration/optimization is, by no stretch of imagination, a disruptive innovation by itself. It is an evolving standard or touchstone that every organization must meet to remain competitive, albeit an attractive revenue generating opportunity via the integration business. By definition it is glued to the physical architecture and seeks to achieve operating efficiency or synchronization as its end result. To that extent it may be handicapped and only obliquely impact profits.

There is, for instance, no room to incorporate analytical insights and the consequent learning as the motive force in reinvigorating banks business drivers. Hence it is no surprise that this channel optimization has not greatly enthused banks.

A recent study by McKinsey, in this context, is an eye opener. The study identified areas of bank digitization that made financial sense and those that did not. It concluded that while back office digitization / automation – like document digitization (e.g. mortgage financing) , automation of credit decision and sales side analytics - impacted bottom line, investments in multi­channel integration do not appear to have been as effective. Interestingly, huge investments in select areas of digitization and analytics distinguished highly profitable banks.

Analytics Business in 2014 - A review

It is the time of the year when businesses take stock of their performance in the year that went by and also see what the New Year may bring in.  How did the Analytics & Insights business fare in 2014 and what are the learning that can help us forecast performance in 2015?  In review I think 2014, in spite of some hiccups, has been a great year for the business. Definitely the industry experienced greater acceptance of analytics across verticals for helping organizations make sharper and well informed business decisions. In fact its sway over the market is so intense that even the term ‘dashboards’ is now being replaced by ‘Analytical Flows’.

Three key drivers - revenue, innovations / new trends as well as the enterprise preparedness to convert the opportunities - provide insightful assessment of the industry’s performance.

In 2014, specifically in the banking and financial services sector, IT honchos dug into their deep pocket books to invest in new gizmos – from analytical decision platforms to cool analytical BI tools integrated with underlying data to provide fast predictive insights. Many companies focused on this sector - mid-tier and boutique players in particular - have benefited from this largess.

The year 2014 has also seen several innovations in this space.  Several cloud based solutions have hit the market. Cloud based analytics service in itself was kosher with industry majors announcing their own products. Watson Analytics, Salesforce Wave, Oracle Cloud offering are key highlights in the market that I have discussed in more detail in another piece.   ApplePay, CurrentC are other key innovations that come to mind that impact analytics in a big way by broadening the marketplace. As companies seek to offer personalized customer experience, these innovations will increase the thirst for deeper insights. 2014 also saw high profile acquisitions where the IT industry majors acquired analytics companies to broaden their reach and capabilities.

In 2014 many banks had initiated a comprehensive internal review of their analytics capabilities – human assets, extant platforms and have authored all the findings into a roadmap for the future. It is interesting to note that the emphasis of many Fortune 100 banks appears to be on revamping analytical technology platforms. Road maps include using big data technologies, incorporating social data in customer acquisition/ collections and integrating real-time predictive analytics capabilities that can instantly provide personalized offers that will be the new norm in customer management. Further, freshly inked digital strategy roadmaps seek to go far beyond channel optimization and emphasize revenue generation. All this, together with a rebounding economy, portends to a busy 2015 for Analytics in the banking and financial services vertical.

But how are the IT majors prepared to meet the opportunity? As already mentioned mid-tier and boutique consultancies continue to have the advantage and are better poised to exploit the opportunities. But they have their share of problems in scaling and retaining top talent.  It would be logical to expect swift growth and acquisitions in this space. 

It is an entirely different story for the IT majors who continue to be plagued by several problems. High profile executive turn over, revenue slide, multiple flopped product/solution launches and a leadership that is completely at woods with analytics are key issues that continue to bedevil the majors. To add to their troubles, a series of strategic initiatives launched to push analytics revenue have been non-starters. While these are known devils, their resolution does not appear to be near. Further, there are also reports of huge layoffs, albeit in offshore centers, that point to acute revenue pressures that do not augur well for 2015 performance. 

While there seem to be no dearth of market opportunities, the major players as well as mid-tiers have their own laundry list of fires to put out. Unless they get their acts right, 2015 revenue will be in jeopardy.  Stay tuned as the industry rides through the turbulence in 2015.

Enhancing Compliance & Oprisk Management through Analytics

Post the financial crisis, banks in the US have faced increased regulatory scrutiny that has resulted in broader and tougher regulations. Bankers are fully aware of the investments and efforts they have to put in to comply with these regulations. Consequently, compliance function in banks is evolving towards a broader risk canvas that is now seeking tighter coordination between the first and second lines of defense. This poses new challenges to banks – from being compliant to getting the optimal returns from their investments.  The million dollar question on everybody’s minds is  - How are banks rising up to this challenge?

Recent studies have highlighted the enormity of the challenge this has created for banks. For example one study by Accenture shows that 92% of banks will be compelled to increase their compliance spend in 2014. In another report by Continuity Control, the new regulations have imposed an additional financial burden for just the last quarter (Q4) of 2014 is $241 million.

Enhanced regulatory scrutiny may be a necessary evil to watch over the much-maligned banking sector, but has spawned its own unintended consequences.  The huge anxiety of banks to be compliant and avoid penalties and the resulting hike in compliance spend has and will continue to impact ROE and profitability of US banks for years to come.

How are banks responding? A whole ecosystem of changes is taking place in this area.  Banks are deploying analytics to help them meet the challenge and enable them to make the right data driven decisions. Three important changes are on their way.

 First, bulk of the new spend has gone towards upgrading technology platforms. Banks are integrating extant analytical and compliance platforms so they can deploy data mining and analytics to get the right insights.  For example, analytical models are being deployed to proactively identify and monitor UDAAP compliance in customer engagements / acquisition.

Second, Banks are bringing new structural alignment between first and second lines of defense.  Compliance is now a broad based enterprise activity that will report to the Board or CEO and will include operational and business risk professionals. This is a significant change because in my view, it facilitates wider & deeper use of analytics to help banks stay compliant and out of regulatory trouble.

Third, data silos – the usual suspects - are posing roadblocks for banks in their new quest to be compliant. Incorporating structured and unstructured data for analytics is also an urgent initiative at banks. Banks are aware of these challenges - these are known devils anyway for some time now; but a renewed urgency backed by fat budget approvals is evident.

Banks need to keep a watchful eye on the expanding compliance management function. Technology upgrade and structural changes, while necessary, are only part of the solution and not a panacea by themselves. Banks need to look at compliance as an enterprise wide culture that every associate lives by 24/7. In an era where changes are swift, where disruptive innovations are continuous and almost a way of life, the best insurance for the banks is an open mind to change and adapt to win the customers’ heart. In a way, it is the same old wine, but in a new fancy carboy.

Cloud based Analytics Service – Future of Analytics?

In the last few weeks we have seen new products launched by IT majors that have the potential to greatly influence the fortunes of the Analytics and Insights business. IBM’s Watson Analytics and Oracle’s Cloud based Analytics are just two new solutions/ platforms that have hit the market. We can rest assured that many more such offerings will be launched in the coming weeks. As the products keep coming, they raise some important questions for the analytics industry. What impact they will have? Is the Analytics & Insights business ready for these changes at all?

Big Blue recently launched its Watson Analytics. It is a natural language-based cognitive service that can provide businesses instant access to powerful predictive insights and cool reports. Launched as a freemium service, it will provide predictive insights for a small fee and hopes to leapfrog user base.
Watson Analytics is all set to take full advantage of IBM’s acquisitions - SPSS will provide the horsepower for predictive analytics while Cognos will supply the visualization. It will enable business users to upload data to their cloud. Once data quality is established, the user can input his/her requests via an interactive screen and in return obtain predictive insights and reports via pleasing visualization.

Oracle also has just announced its Analytics Cloud services with similar capabilities. The product features and details may vary but at a high level they will help business users get their insights easily and quickly.

These products promise to be game changers because the business user does not require the intermediation of modelers to build predictive models or coders to write the code for the models. Across industry verticals, they will empower business users to make well informed decisions with ease and speed. They hold the promise of greatly widening user base. While the platforms are slick, it remains to be seen how the market responds. Ultimately, the revenue performance will determine if they are successful.

From a Banking and Financial services (BFS) perspective, many banks have long been seeking similar tools. In the past few years many have invested top dollars in similar solutions tailored for their specific requirements. However, a huge majority of banks do not have such a tool / product. For now, IBM and Oracle being early birds, clearly are way ahead of competition and will reap full benefits for their investments and efforts.

These products have not emerged overnight. It is obviously the result of powerful research / understanding of customer requirements backed by significant investments. Business user communities across industries and particularly at banks are asking the logical question – why did it take so long for such a product to hit the market? We don’t have easy answers to these questions.
For IT vendors and outsourcing majors these products have created new challenges and opportunities. How can they help their clients derive maximum value from these innovations?

IT outsourcing vendors who have a stake in the Analytics and Insights business should quickly develop a game plan to address these challenges. In my view these new products have pushed the majors, willingly or unwillingly, to a cross road. Many of these majors have a lot of homework to do – they still have to get their house in order and bring in the correct leadership. Running the Insights business as an extension of IT data warehousing shop will not cut ice. If past experience has taught anything, it is that domain experts with hands-on business expertise may have better odds of success at this business. Those who are prepared and have the right combination of leadership and domain expertise will be the ones to meet and take advantage of the opportunities. The rest, as they say, will miss the bus again.

 https://www.linkedin.com/pulse/article/20141004183721-3090315-cloud-based-analytics-service-future-of-analytics?trk=object-title

Oracle rolls out analytics cloud services

http://www.pcworld.com/article/2689092/oracle-rolls-out-analytics-cloud-services.html

Oracle Analytics Cloud essentially forklifts the entirety of Oracle’s on-premises analytics software to its cloud platform. It includes a subscription BI (business intelligence) service that users “of all technical skill levels” can use, along with embedded analytics, reports, alerts and dashboards for Oracle’s SaaS (software-as-a-service) applications.

Oracle detailed the new offerings, based on Oracle’s flagship Business Intelligence Enterprise Edition suite, Monday at the OpenWorld conference in San Francisco.
Another component, Transactional Business Intelligence Enterprise, serves up a cloud data warehouse coupled with prebuilt analytics applications. It’s compatible with both on-premises and SaaS applications, as well as third-party products, Oracle said.
Oracle will also offer customers the ability to use the Hadoop big-data processing framework on its entry to the IaaS (infrastructure-as-a-service) market. This includes a service called Big Data Discovery for visual exploration of large data sets. This product likely involves Oracle’s existing Endeca data-discovery software, which has a connector to Hadoop, though Oracle officials were not immediately available to confirm this.
Some but not all components of Oracle Analytics Cloud are generally available. Oracle’s website lists Hadoop support and Big Data Discovery as “coming soon.”
Pricing information was not immediately available. However, Oracle will price its IaaS to be competitive with the likes of Microsoft’s Azure and Amazon Web Services, CTO and executive chairman Larry Ellison said during a keynote at OpenWorld on Sunday.
A big challenge with large-scale data warehousing in the cloud is the task and cost of moving huge amounts of information into the system over a network. Oracle’s announcements Monday didn’t indicate whether the company will introduce a novel way to solve this problem, although more may be revealed during a keynote Tuesday by product development chief Thomas Kurian.
Meanwhile, also on the analytics front, Oracle announced the next generation of its Exalytics appliance, which combines high-memory servers with a stack of Oracle analytics software.
Exalytics In-Memory Machine X-4 can support as much as 3TB of RAM, 4.8 TB of PCI Flash and 7.2 TB of traditional hard disk, according to a statement.
In addition, Exalytics is now certified for Oracle’s in-memory database option, which was introduced earlier this year.

IBM Introduces Powerful Analytics for Everyone

‘Analytics market to double to $2.3 billion by FY18’

http://indianexpress.com/article/business/business-others/analytics-market-to-double-to-2-3-billion-by-fy18/

Analytics market in India is expected to more than double to $2.3 billion by the end of 2017-18, the National Association of Software and Services Companies (Nasscom) said on Friday. Nasscom held the second edition of the Nasscom Big Data and Analytics Summit 2014 to address the growing business opportunities in the analytics and big data space. With the theme “Industrialisation of Analytics”, the focus of the summit was to share thought leadership on how to build analytically-mature organisations with analytics embedded at the business core and across the business value chain.
R Chandrashekhar, president, Nasscom, said, “Big data offers a unique suite of advanced analytics and helps derive meaningful insights from customer data to increase sales, better target customers, improve reach and gain competitive advantage. The Indian market is still in early stages of adoption of analytics … However, with surplus talent, established infrastructure, and a mature ecosystem, India is on its way to become a global hub for analytics. Industry stakeholders will need to work on a 6-point agenda which involves raising awareness, creating talent, variabilising cost of offerings, standardising tools and technologies, setting up cross functional analytics teams and getting C-level buy in, to drive industrialisation of analytics.”
The summit witnessed industry leaders share best practices on processes, tools, technology and applications used in the context of analytics.
Nasscom also launched a report in partnership with Blueocean Market Intelligence, titled “Institutionalisation of Analytics in India: Big Opportunity, Big Outcome” on the sidelines of the summit. The report predicts that analytics market in India is expected to more than double to $2.3 billion by the end of 2017-18. It also analyses the current scenario, trends in the India market, factors driving adoption, challenges faced by both users and suppliers.

2020 – US Banks are betting big on Analytics

A recent study by Accenture talks about the future state of banking in US by 2020. Thankfully, the study reports, US banks have emerged from the travails of a battered economy. Two important findings from the study stand out.

1.       Banks face increased competition in coming years

2.       Emergence of a core group of full service banks that will be the backbone of US Banking system.

While we can debate the findings, the current activity stream at banks does indicate that there may be truth to this and that we may be already seeing the contours of US Banks by 2020.

Interactions with bank executives have definitely made one thing clear. There is immense buzz around this future landscape and almost every major bank has already undertaken or is seeking an internal assessment to review their preparedness for change. Branch banking is one area that is likely to see intense competition; many of the big players are already investing in redesigning the branch of the future;

The other 800 pound gorilla in the room is of course Analytics. Banks are very keen to step up their capabilities - technical as well as talent pool and are building structures similar to Center of Excellence for Analytics. COE for Analytics appears to be the widely accepted route to instill an analytics driven decision culture.  Backed by a war chest and executive / board mandates, massive efforts are on to upgrade their capabilities. Truth be told, many bank have discovered that they are woefully under-prepared.

Many banks are even toying with rebuilding their existing data-warehouse to incorporate a fuller and deeper digital understanding of their customers – euphemistically referred to as the 360^o view.

New regulatory standards like Basel III, Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST), Fraud detection, Anti-Money Laundering (AML), Know Your Customer (KYC) etc. have spawned their own set of internal reviews and investments. However, Analytical capability improvement is at the heart of all these initiatives.

Upgrading analytical tools and platforms is also top on the shopping list. Focus appears to be on investing in emerging technology – e.g automation of predictive analytics modeling, real time offer engines for customer acquisition, transaction (big) data analytics, real time personalization of customer experience etc. Many banks are building Center of Excellence (COE) for analytics.

Internal competitive pressure on executives is intense at banks; many executives are building their own analytics back office groups to have an edge over their peers. This could be counter-productive by building redundancy and generate dueling analytical capabilities and decreased sharing and openness. This is not a healthy development in the long run.

Some Banks are adopting a short term perspective in preparing for the 2020 scenario. For example some banks are recruiting Data Scientists who they think will solve all their quests for insights. However, they do not have a plan to resolve bottlenecks in data flow - all the way from the data-store to the analytical layer. In other words absent the required analytical data infrastructure, their plans are a non-starter and investments wasted. 

This brings us to another dimension to the catch up scenario.  The analytics maturity or preparedness for using analytics varies vastly in banks. Size and deep pockets have not necessarily translated into competitive advantage.  Banks that have sound data infrastructure and a clear 360^o view of their customers – in other words one vision of truth across the enterprise - have a head start and will maintain their tremendous advantage and will end up being the winners. These banks will benefit by deploying latest technologies and analytical platforms and guide business decisions as never before. They will emerge leaders of the pack. As for the rest, they have to do a lot of clean up and then catch up. 

While banks are in a hurry to catch up and not miss the bus, they need external help for a successful transformation. They would need expert advice so that they do not have the re-invent the wheel. They need external help to carve a broader picture and pick the best practices or solution set that will be most appropriate for their bank.

Most US Banks – small and big are on board this transformational journey. These initiatives involve great investments and outcomes are keenly tracked. Many careers are at stake. But those that succeed will form the backbone of US Banks 2020. This obviously will result in intense competition and change the banking landscape in the US forever.

As scores of banks embark on this exciting journey, the IT majors are closely watching the opportunities that this is creating.  Unfortunately, the fact is that it does not automatically translate into revenues for them. Many are still clueless on how to cash in. They have to do their homework and come up with crystal clear vision to help banks in this challenge.