A new report by independent market analyst Datamonitor, Business Intelligence in Retail Banking, predicts spend by retail banking institutions on business intelligence (BI) IT in North America, Europe, the Middle East and Asia-Pacific, will reach US$9 billion by 2012, up from US$5.6 billion in 2006.
According to the report, the combination of compliance requirements, a competitive business environment, the sub-prime credit crunch and the need for stronger management will drive retail banks' investment in BI software. Given the sector's growth of IT budgets devoted to BI, many vendors from diverse backgrounds, such as reporting, analytics, data management and operations, have rushed to claim their stake by adapting their definition of BI to fit their offering.
“BI functionality is growing in demand as it tracks and monitors operational risk, and provides a more sophisticated and consolidated picture of risk exposure across all divisions”, says Jaroslaw Knapik, financial services technology analyst at Datamonitor and author of the study. “However, whilst many banks have already recognised the contribution that BI technologies can make in these areas, most of them are still far from achieving the maximum effect.”
A number of lenders are currently in the shadow of the sub-prime lending crisis. Financial markets institutions have introduced financial innovation and leveraged cheap capital in order to compete for mortgage credit risk with more conservative banks or mortgage insurers. They drove growth in risky lending and the share of high-loan-to-value and adjustable-loans increased. However, the short-term strategies caused risk to be undervalued in order to increase loan volume.
As a result of tightened money markets and a worsening economic climate, banks are having to take a different approach to consumer lending. In particular, this means having to implement more thorough enforcement of lending procedures.
According to Datamonitor, solution areas such as risk management will represent the highest growth opportunities for BI technology. Spend by retail banks is expected to reach US$1.76 billion by 2012. Risk assessment necessitates integration of data stored in a variety of disparate data warehouses as well as legacy applications across various lines of business. As a result, a data integration, metadata management, and data store infrastructure will be vital to create this comprehensive view.
“The need to support financial analysis, customer intelligence systems and more formalised performance and risk management, have all collectively become an important organisational imperative”, says Knapik. “Furthermore, financial services companies are also facing ever-increasing regulatory pressures, which make it all the more important for banks to have risk management, fraud prevention, and anti-money laundering systems in place.”
Challenging macro-economic conditions and the growing maturity of the retail banking market have created an increasingly competitive environment for financial services institutions. This has resulted in a focus on establishing efficient sales channels, improving the quality of customer service and maintaining high levels of customer retention.
A front-office focus means that distribution channels and customer relationships - cross/up-selling and the ability to search for new potential growth segments - are becoming increasingly critical to a bank's success. This requires an improved and more complete understanding of the consumers of banking services, and the ability to act on that information.
BI technologies will therefore be important to future success. However, the market is still far from total saturation, as only around 50% of retail banking institutions had the customer intelligence functionality in place at the beginning of 2007. Datamonitor expects spending on BI technology within the customer intelligence solution area to top US$1.8 billion by 2012.
Knapik concludes: “Although traditionally utilised by just specialists, there is a growing trend towards pervasive use of BI technologies within solution areas such as risk management or customer intelligence. New approaches recognise the need to apply greater intelligence at both strategic and operational levels and make BI functionality available to a wider audience across channels such as branches or call centers and divisions like bank-assurance, private banking or retail brokerage. Banks will only effectively exploit their data assets, if they align intelligent technology with data management techniques.”
Datamonitor's report Business Intelligence in Retail Banking provides in-depth analysis of the state of affairs in the global retail banking industry with regards to the thriving business intelligence (BI) area. It examines market drivers that contribute to the growth of BI, the main solution areas where BI capabilities are applied and how real-time delivery ability affects the decision making process.
The pros and cons of best-of-breed vs. best-of-suite BI solutions are also examined and the main technology components of BI in retail banking are identified. The report also forecasts detailed BI technology spending, including breakdowns by geography, solution area and source.
