BUSINESS INTELLIGENCE IN BANKING

Business intelligence (BI) is a computer based technique used in

spotting, digging-out, and analyzing business data, such as sales
revenue by products and/or departments, or by associated costs and
incomes.

"Business Intelligence is a set of methodologies, processes,

architectures, and technologies that transform raw data into
meaningful and useful information used to enable more effective
strategic, tactical, and operational insights and decision-making.
Business intelligence also includes technologies such as data
integration, data quality, data warehousing, master data management,
text and content analytics, and many others.

BI technologies provide historical, current, and futuristic views of

business operations. The common functions of business intelligence
technologies are reporting, online analytical processing, analytics, data
mining, business performance management, benchmarking, text
mining, and predictive analytics.

Business intelligence aims to support better business decision-making.

Thus a BI system can be called a decision support system (DSS). BI
uses technologies, processes, and applications to analyze mostly
internal, structured data and business processes while competitive
intelligence gathers, analyzes and disseminates information with a
topical focus on company competitors.

BI applications in an enterprise:

Business Intelligence can be applied to the following business

purposes, in order to drive business value

• Measurement – program that creates a hierarchy of

Performance metrics and Benchmarking that informs top
management about progress towards business goals
• Analytics – program that builds quantitative processes for a
business to arrive at optimal decisions and to perform
Business Knowledge Discovery. Frequently involves: data
mining, statistical analysis, Predictive analytics, Predictive
modeling, Business process modeling
• Reporting/Enterprise Reporting – program that builds
infrastructure for Strategic Reporting to serve the Strategic
management of a business, NOT Operational Reporting.
 Frequently involves: Data visualization, Executive information
system, OLAP

• Collaboration/Collaboration platform – program that gets

different areas (both inside and outside the business) to work
together through Data sharing and Electronic Data
Interchange.

• Knowledge Management – program to make the company

data driven through strategies and practices to identify,
create, represent, distribute, and enable adoption of insights
and experiences that are true business knowledge.
Knowledge Management leads to Learning Management and
Regulatory compliance/Compliance

BI in banking:

BI in banking evolved through Manual Systems to management

Information systems with Computerization. Banks had efficient
transaction recording systems before computerization also. The
manual systems too had effectively provided the necessary reports for
management and regulatory requirements. These reports were
manually consolidated at lower offices and final reports were
presented at head office level. These manual systems worked well till
the scale of operations of the banks were small.

As the banks grew in size and expanded geographically the number of

branch network grew leaps and bounds and so the, the volume of
transactions became quite large and manual operations became time
consuming and error prone. To cater the load of operations from all
bank branches spread across geographies the banks have started
using computers and slowly banks have become fully automated.

The manual management information system (MIS) in the banks had

the following drawbacks:

• The data is laying in different silos

• There was a Time lag in data collating.
• Data quality is poor.
• Unavailability of customer specific data
 • Data granularity required for developing analytics (what if
scenario, drill down)
• Was not available to decision makers.
• Reporting activity competed with business activity for resources
at the branch.
• Data classification rules were not applied uniformly across the
organization, and also varied with time.

Slowly, majority of the banks began using information technology for

MIS. The inflexibility of Cobol programmes and batch processing was
soon overcome by powerful desktop systems with rudimentary
database systems, which allowed banks to analyse data, once it has
been received in manual form from branches, the same was
transcribed into machine readable formats and validated. Quite a few
of regulatory reports were also produced in this way. These earlier
initiatives laid the foundations of BI in banking.

Uses of BI in banking:

Business Intelligence tools can be used by banks for historical analysis,

performance budgeting, business performance analytics, employee
performance measurement, executive dashboards, marketing and
sales automation, product innovation, customer profitability, regulatory
compliance and risk management.

Examples of these applications are;

Historical Analysis (time-series)

Banks can analyze their historical performance over time to be able to

plan for the future. The key performance indicators include deposits,
credit, profit, income, expenses; number of accounts, branches,
employees etc. Absolute figures and growth rates (both in absolute
and percentage terms) are required for this analysis. In addition to
time dimension, which requires a granularity of years, half year,
quarter, month and week; other critical dimensions are those of control
structure (zones, regions, branches), geography (countries, states,
districts, towns), area (rural, semi-urban, urban, metro), and products
(time, savings, current, loan, overdrafts, cash credit). Income could be
broken down in interest, treasury, and other income; while various
break-ups for expenses are also possible. Other possible dimensions
are customer types or segments. Derived indicators such as
profitability, business per employee, product profitability etc are also
evaluated over time. The existence of a number of business critical
dimensions over which the same transaction data could be analyzed,
makes this a fit case for multi-dimensional databases (hyper cube or
‘the cube’).
Analyzing, interpreting and acting upon on the information is a
subjective exercise. Hence, the BI vendor shifted their focus to
customer relationship management (CRM). CRM continues to be the
centre of the attraction to banks today and risk management comes to
second.

Customer Relationship Management (CRM):

CRM is at the centre stage of BI in banking. However, it is becoming

difficult to assess whether it is driven by technology or business.
Traditional or conservative banking business models of Indian banking
industry relied heavily on personal relationships that the bankers of
yesteryears had with their customers. If we look into the application of
CRM in banking, more closely, CRM is an industry term for the set of
methodologies and tools that help an enterprise manage customer
relationships in an organized way. It includes all business processes in
sales, marketing, and service that touch the customer. With CRM
software tools, a bank can build a database about its customers that
describes relationships with sufficient detail so that management,
salespeople, service people, and even the customers can access
information, match customers needs with product plans and offerings,
remind customers of service requirements, check payment histories,
and so on.

A CRM helps a bank with the following:

• Find customers
• Get to know them
• Communicate with them
• Ensure they get what they want (not what the bank offers)
• Retain them regardless of profitability
• Make them profitable through cross-sell and up-sell
• Covert them into influencers
• Strive continuously to increase their lifetime value for the bank.

The most crucial and daunting task before banks is to create an

enterprise wide repository with ‘clean’ data of the existing customers.
It is well established that the cost of acquiring a new customer is far
greater than in retaining an existing one. Shifting the focus of the
information from accounts tied to a branch, to unique customer
identities requires a massive onetime effort. The task involves creating
a unique customer identification number and removing the duplicates
across products and branches. Technology can help here but only in a
limited way.

The transition from a product-oriented business model to a customer-

oriented one is not an easy task for the banking industry. This is true in
case of all the banks of all the banks, Indian or otherwise.

For example, even today, in a tech savvy new generation private

sector bank there is no 360 degree view of a customer details. They
treat the same way a for a credit card applications to its existing
customers as well the new ones.

A retail loan application does not take into account the existing
relationship of the customer with the bank, his credit history in respect
of earlier loans or deposit account relationship. And the private banks
are the pioneers in setting up a data warehouse, and a world class
CRM solution.

Most CRM solutions in Indian banks are, in reality, sales automation

solutions. New customer acquisition takes priority over retention. That
leads to the hypothesis that it is BI vendors that are driving CRM
models in banks rather than banks themselves. Product silos have
moved from manual ledgers to digital records. An implementation
model of ‘relationship’ in Indian banking industry is hard to see as of
today.

Most of the BI applications cater to the needs of the top management

in banks. But, line managers have a different set of BI requirements,
which differ from those of the top management. The line managers of
banks require operational business intelligence.

Operational Business Intelligence:

Operational BI embeds analytical processes with the operational

business structure to support near real-time decision making and
collaboration. This characteristic fundamentally changes the way how
data is used, where it exists and how it is accessed.

Thus ‘Operational BI merges analytical and operational processes into

a unified whole’. This change is rapidly exposing the limitations of
traditional analytical tools. Operational BI helps businesses make more
informed decisions and take effective action in their daily business
operations. It can be valuable in many areas of the business, including
reducing fraud, decreasing loan processing times, and optimizing
pricing.
Characteristics of Operational Business Intelligence:

Caters to middle management and frontline:

Operational BI delivers information and insights to those managers

that are involved in operational or transactional processes. For
example while serving a customer over the phone if a customer
executive get a flash on his computer screen on the likely
requirements of the customer based on his profile and past transaction
behavior. This is an example of operational business intelligence.

Just-in-time delivery:
To manage time sensitive process the needed information should be
delivered in near real-time i.e. within minutes or hours. Operational BI
will help in reducing user reaction for a business issue. The reduced
user reaction time with the help of operational BI can bring business
benefits to the organization.

For instance, the ability to detect and react more quickly to the
fraudulent use of a credit card is a good example of how operational BI
can provide business value.

By analysing the history of fraudulent situations, the BI system can be

used to develop business rules that signify potential fraud, and
operational BI can be used to apply those rules during daily business
operations. The closer to real time the fraud can be detected; the less
is the operational risk.

However, not all operational BI systems need to be near real-time.

Reducing action times to close to zero are is beneficial only in specific
types of business requirements such as the fraud example. In fact,
operational BI can be classified into being demand-driven and event-
driven, the latter being more automated. If the action time
requirement is a few hours, business users or applications can use the
BI system at on-demand analysis and evaluate the results manually to
determine whether any action is required. In the demand-driven case,
it is the user who drives the BI system.

But if the action time requirement is two seconds, then on-demand will
not be suitable. In this scenario BI systems must track business
operations continuously
and automatically run analyses to determine whether any action is
required. If it is, the business user must be alerted about the situation
and sent recommendations on potential courses of action. In case of a
fraudulent credit card transaction, the BI system is expected to refuse
authorisation. In event-driven BI, business operations and the BI
system drive the user. It is obvious that the implementation of event
driven operational BI is more complex than demand-driven BI.

Uses recent transactional data

Data used for operational analysis is frequently accessed before

getting loaded into the data warehouse. The latency in a traditional
data warehouse implementation results from the batch mode in which
it is populated. It is more suited for strategic applications such as
historical analysis, risk management, performance management etc.
But a dashboard needs to be as close to transaction data as technically
feasible.

Less aggregation, more granularity

In a sharp contrast to traditional BI in which pre-aggregation, with

optional drill down to detail levels is a norm, operational BI normally
requires more of data granularity to address the needs of the specific
operational function it supports. Traditional BI aims at a holistic view of
corporate performance, while operational BI is process and user
specific. Yet, some operational BI requirements do require aggregated
data, such as the lifetime value of a customer, which is required for a
directed sales call.

Embedded into business processes

Operational BI is intricately connected to transactional business

processes. The extent of this integration depends on the level of
implementation. One could use it to generate operational reports to
analyse processes, or monitor them using dashboards and scorecards.
In these two levels there is not much of integration.

In the other two levels, where operation BI is embedded into business

processes either to facilitate them (demand-driven) or to execute other
processes (event-driven), it is embedded into the process.

Handles disparate sources and unstructured data

Traditional databases and data warehouses do not take into

consideration the increasing use of unstructured data; such as emails,
telephone calls, letters, internal notes etc, stored outside these
systems, which are of critical value in an operational BI
implementation. Another issue that it has to handle arises out of the
disparate transaction systems in use in most of the banks. The variety
of banking services makes it very complex and often impractical for a
single software solution to handle all kinds of transactions. Extracting
data from such disparate systems and making use of unstructured
data is required to be handled by an operational BI system.

Availability is a concern

The high level of integration with transactional business processes

demand the same level of availability from operational BI
implementations that transaction processing systems have to provide.
An outage of an operational BI application could have a direct impact
on the organization’s ability to do business or to service its customers.
Therefore, availability becomes a critical issue for operational BI
applications.

Requires different architecture

Traditional BI vendors had built their products using proprietary

architectures. While these architectures are ideal for strategic BI, they
are not suited for operational BI. Because operational BI entails
coupling BI applications with operation applications and operational
processes, a component-based, service-oriented architecture (SOA) is
necessary to fully support operational BI. Service-oriented architecture
that lets users access real-time knowledge with a set of service feeds
can maximize business agility while reducing complexity. For example,
SOA flexibly and cost-effectively supports the midstream, on-the-fly
data collection and analysis necessary for operational BI. Service
orientation also supports operational BI throughout the business by
pushing BI data out to the mobile workforce and enabling workers
across the enterprise to incorporate this vital data into their workflow.
The straight-through processing requirements in the banking industry
necessitate immediate risk analysis, which in turn requires an online BI
capability.

Source:

http://en.wikipedia.org/wiki/Business_intelligence

http://www.maia-intelligence.com/pdf/IBA%20Research%20Report
%20on%20Operational%20BI.pdf