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Information: The Underused Asset in Banks and Insurance Companies

Originally published December 8, 2011

Three of the many challenges financial institutions can meet using information technologies are sharing customer knowledge, inspiring greater confidence in customers and helping them manage their wealth in a more autonomous manner.

The financial crisis highlighted the extremely complex nature of a sector in which activity has become so intense that traditional tools are being pushed to their limits. In particular, the complexity of information processing seems to be increasing exponentially due to the three Vs: the Volume of available information, the Velocity with which information must be processed, and finally, the Variety of elements to consider in a globalized economy with overabundant, protean and heterogeneous offerings.

The impact on banking and insurance companies’ IT backbones is straightforward. Information has  been the fuel feeding the engine: a precious prerequisite whose consumption we try to optimize, but not the core asset. In keeping with the fuel analogy, our environment is now compelling us to find new energy sources. In concrete terms, this means that the aforementioned 3Vs principle, called Big Data by neologism lovers, requires that information is placed at the heart of information systems instead of being solely peripheral to their execution.

The ancestors of these widely deployed, new generation systems are decision support systems. They extract information generated by the various company or partner information systems, unify them and then put them into business activity contexts that require decision making. There is no need to fundamentally review these systems, even if they must now meet 3Vs’ challenges much more efficiently than ever before. It is about generalizing their principles so that they can be applied to new use cases.
Master data management (MDM) is one of those use cases. It unifies master data (products, customers, employees, sites, organization, suppliers, etc.) across business activities, organizes the underlying processes required to ensure quality and secure the data, and finally, to make it accessible to all who need it in the company. The information asset must then be managed, not only downstream for decision-making purposes, but also upstream through transactional systems. This article describes its benefits with a special focus on the customer repository.

Mastering Data in Banks and Insurance Companies: A Deep Dive into Customer Data Integration

Having a unique 'customer repository' shared across financial institutions’ activities and information systems has become a must, not an option, to meet financial institutions’ new challenges:

  • Self-service applications made available to customers (e-banking or mobile banking, online insurance sales, etc.) usually have a satisfactory service level when it comes to accounts and transaction management. But customers have higher expectations, e.g., relevant recommendations to help them choose the right products or manage their personal budget. A 360° customer view, based on the products the customer has already bought (his consumption profile), is a must. If need be, an intermediary will act between the institution and its customers and deliver the expected personalized service, thereby increasing additional sales of adapted offerings and collecting a loyal customer base out of existing legacy customers “belonging” to traditional banks and insurance institutions. This can be seen in other sectors like the hotel industry and even some banking and insurance services.

  • Risk management applications are used to optimize allocation of equity capital to cover credit risks. But insufficient data quality control can affect the banking group by resulting in the allocation of more capital equity than required to cover a given customer's credit risk, maybe because that customer appears several times in the database or because some missing data led to inaccurate risk assessment.    

  • Regulatory compliance: Regulatory institutions, as well as governments, demand that banks share some of their customer information. Anti-money laundering laws, such as Know Your Customer, compel financial institutions to show their customer knowledge capacity. Similarly, customer identity management and protection, as well as everything that pertains to privacy protection, require more rigorous and transparent management of each customer’s information capital.

Practical Use: A Customer Repository to Comply with Bank Deposit Guarantee Regulations

As an example of compliance rules, we will use Great Britain’s Financial Service Authority (FSA), which manages deposit guarantee funds to ensure confidence in the financial system.

In July 2009, the FSA asked all bank deposit institutions to provide regulatory reports on all banking products held by each customer, as well as their corresponding amounts, to get a clear picture of customers’ financial situations; in case of bank insolvency, customers will be paid compensation funds of up to 100,000 euros within a legal waiting period of seven days. This new regulation implies that institutions should have a single customer view (SCV); in other words, structured data grouped by banking license.

Since many English banks could not provide a trusted and detailed view of their customers’ situations, they had to turn to an MDM solution to meet the regulation mandate – as did an international banking group with 50 million customers, 200 million mailing addresses associated with its customer base and 130 million accounts spread over seven banking licenses.

This international banking group relies on more than 22 legacy business applications to host customer and product data. This complex infrastructure, initially without an MDM solution, did not provide the company with reliable, federated and detailed information on its customers, nor with the products and services associated with each one of them. In addition, there were numerous redundancies within the systems that created serious data quality problems.

Without engaging the process of customer data integration, the international banking group would have had to allocate a much higher compensation amount than necessary, when this capital otherwise could have been used to set up measures to increase market share or enhance customer loyalty.

Thanks to the solutions of Information Builders, the banking group had access to sanctioned and unified data in less than 10 months (the deadline set for the MDM solution’s installation), as well as an accurate view of products and services associated with each one of its customers. The banking group complied to the regulation by providing the FSA with the requested reports. Furthermore, above and beyond necessary regulatory compliance, the repository had other advantages: It helped optimize the compensation fixed amount; achieved, on an operational level, better risk exposure scoring for the bank within the customer credit context; and set up more efficient cross-selling and up-selling operations.

Paving the Road to Big Data in Financial Service Institutions

As illustrated by examples in the area of customer data integration, information is becoming an asset that financial institutions need to nurture. Sanctioned and traceable information must be provided as a service across organizations’ processes and information technology systems.  Business intelligence and regulations such as Basel II and III or Solvency II have pioneered what is now elevating as a corporate and cross-functional best practice: enterprise information management. Now that almost every business event is triggered online and in real time, this brings a huge opportunity – and a challenge as well – for banking and insurance. Will it translate into an information deluge or rather a well managed stream fully aligned with the business objectives? 

  • Jean-Michel FrancoJean-Michel Franco
    As Innovation and Solutions Director for Business & Decision, Jean-Michel Franco designs and markets value propositions on an international level. Franco has dedicated his career to developing and broadening the adoption of innovative technologies in companies. He started out at EDS by creating and developing a new business intelligence (BI) practice. Franco then joined SAP EMEA to develop the business in the areas of BI and ERP solutions and later became Director of Marketing Solutions in France and North Africa. He may be contacted by email at jean-michel.franco@businessdecision.com.

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