Banking on Business Intelligence (BI)

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1 Banking on Business Intelligence (BI) Building a business case for the Kenyan Banking Sector The new banking environment in Kenya is all about differentiating banking products, increased choices, security and accessibility. Majority of banks have introduced internet banking, mobile banking and other e-banking facilities, to enhance delivery channels to their customers. Kenya is one of the early adopters of transaction processing banking systems that automate transactions and process it as quickly as possible. With automation taking center stage and with every bank trying to improve its processes and systems to outdo its competition, implementation of BI technology will be a key differentiator and a decisive factor. Banking is a data-driven business, and banks must be the trusted custodian of a plethora of customer and corporate data. In a marketplace that is very competitive, commoditized, heavily regulated, and facing continued economic challenges, success comes from differentiation enabled by the ability to better analyze and immediately convert data to information. With increased challenges like declining interest margins and compliance to the Finance Act 2008 that requires banks and mortgage firms in Kenya to build a minimum core capital of Sh1 billion by December 2012, banks need a centralized information solution that will help them gain a competitive edge whilst meeting regulatory requirements. Again, from a reporting and data visualization perspective, banks require the ability to present data in different and meaningful ways and in real-time. It is critical that banks should have the ability to generate incisive reports - a quick turnaround time on information is key in a competitive environment. For example, instantly generating information about a target customer base for tailored promotions, taking advantage of a particular market condition, will mean the difference between a successful marketing campaign and a costly marketing failure for a bank. This is where innovative technologies like Business Intelligence will play a crucial role. Implementing BI tools (data warehousing, data mining, scenario development and reporting, analytical tools for predictive and descriptive modeling) will enable banks in Kenya to understand their business better, manage risk and compliance, improve performance, expand their markets, increase their understanding of their customers, analyze channel profitability, devise product strategy, achieve operational excellence, and above all gain visibility into their profitability. Business Intelligence a vital need for the banking industry If we take a look at the Kenyan Banking sector, most Kenyan banks have in the past two years introduced electronic banking products that have not only increased the efficiency of transactions but also significantly reduced the number of people going to the branches. With automation high on the agenda of most banking institutions, the most popular software suites being bought by Kenyan institutions are those that can automate core banking systems, manage risk in various processes and reduce paperwork across the operation.

2 For many local banks, the spending is being driven by the regulatory effect of Basel standards, the set of recommendations created by the Bank for International Settlements to streamline global banking operations, which has pushed more investment in technology solutions. In addition, the last five years has seen a number of realignments in the financial services sector through mergers and acquisitions (M&A), calling for integrated services that merge bank functions across regions and borders. The hectic M&A activity can be attributed to the fact that Kenya has recently introduced new regulations; the Finance Act 2008, which requires banks and mortgage firms to build a minimum core capital of Sh1 billion by December In addition, the global financial crisis has affected the banking industry with respect to reduction in trade volumes & the performance of assets and declining interest margins. In the view of these developments, Kenyan banks need to be proactive in managing and utilizing data if they want to keep up with or stay ahead of competition. That s where business intelligence comes in. Implementing business intelligence software will enable Kenyan banks to analyze the vast amounts of information they already have to make the best business decisions. The software will allow them to tap into their huge databases and deliver easy-to-comprehend insight to improve business performance and maintain regulatory compliance. Having a BI capability will enable them to examine profit and loss, including product sales analysis, campaign management, market segment analysis, and risk analysis. Banks can grow revenue by maximizing customer value over the long term and improving customer acquisition and retention. At the same time, they will be able to reduce costs by managing risk and preventing fraud, and improve operational efficiency. BI at work BI offers a complete business solution and not just another technology platform. In order to have a meaningful impact, banks must integrate BI with their core business processes. This integration can be done at the operational level (e.g., credit scoring and fraud detection uses) or at the strategic level (e.g., determining optimal product offerings and product mix over time). The numerous advantages that BI solutions create for banking institutions are: a) Improving operational efficiency by adding real time intelligence to operational systems, to measure and thus enhance the process cycle times throughout the business; b) Increasing revenue opportunity by effectively understanding customer behavior and buying trends and distinguishing pertinent products and services; c) Driving decision making in real time, i.e., ensuring that information is available with the decision maker when it is required leading to timely action; d) Improving communication by sharing consistent management information across departmental boundaries; e) Ensure the financial health of the organization by managing key tangible and intangible assets; f) Improving capital allocation and managing risk by accurately calculating and aggregating risk measures across the enterprise.

3 Implementing a BI solution will help the Kenyan banking sector in: Consolidating information Though the banking business is all about money and finance, but it is essentially information driven business. Tracking and managing money and assets are central to the business as banks need to generate periodic statements and financial reports for various regulatory and compliance requirements. Consequently, there is a huge amount of data that lies in disparate application systems that make it difficult to obtain consistent, correct, consolidated or synchronized view of the complete data. Using BI to consolidate this information can save considerable time for banks. Consolidated information supports financial analysis that inturn focuses on product profitability, portfolio performance and scorecards or dashboards for a line of business or profit center. Thus, banks can get an insight into which are the most profitable products, which portfolios are performing well, which market segments are more profitable, what issues need to addressed immediately and likewise. Mitigating operational risk For any banking organization, mitigating risk is an inherent part of doing business and banks in Kenya are no different. Given the continuing explosion in transaction volumes and the growing demand for automation in the banking sector coupled with speed to market have escalated the cost of risk significantly. Having a BI solution in place will enable banks to measure and manage operational risk in a scientific way - not just to conform to industry best practices and new regulations, but also for making sound business decisions. Application of BI technology to the huge amount of data collected across the entire organization will allow banks to: a) Create a logical framework for capturing risk factors and relationships; b) Assess risk exposures and its impact across silos; c) Share intelligence through score carding, notification, and custom reports; and d) Provide a full visibility into the sources and logic behind report results. Targeted marketing opportunities To enhance their reach and stay ahead of competition, banks in Kenya have to find more effective ways to cross-sell and up-sell to new and existing customers in order to improve campaign response rates, generate more revenue and, ultimately, ensure customer loyalty. An ideal strategy of doing this will be to create a single customer view that allows the bank to enhance analysis and planning, and improve the development and deployment of multi-channel cross-sell and retention propositions. Currently many banks are struggling with customer data scattered throughout the enterprise, making it impossible to get a clear view of customer preferences and behavior. Having a BI solution in place will enable banks to gather customer intelligence from various touch points and analyze it to identify profitable customers and segments; understand customer churn; and then apply it for making personalized offers to strengthen customer loyalty and profitability.

4 Adhering to regulatory compliance With the recently introduced regulations and a need for compliance, banks in Kenya have to deploy fool proof practices to reduce the incidence of potential frauds, minimize money laundering activities, and have an increased visibility into underlying credit risk. Implementing a BI solution will enable banks to identify activities related to fraud and predict potential fraud before it occurs. It will also enable the bank to identify the underlying credit risk and take appropriate actions to mitigate it. With Basel III looming on the horizon, banks will be able to satisfy the requirements of its constituents, calculate and aggregate market, credit and operational risk measures, and minimize efforts and investments in risk management. In the event of any anti-money laundering activity, BI will alert banks to automatically identify, classify and surface suspicious activities to meet stringent government regulations, protect shareholder confidence and maintain a strong reputation. Improving operational efficiencies To stay ahead of competition and increase operational efficiency, banks in Kenya need to modernize their internal processes and systems. Implementing a BI architecture will allow banks to analyze employee and branch information across multiple sources to increase productivity and set performance goals. In addition, it will help banks to identify areas where they can streamline processes and cut costs. With the effective use of score cards, a BI solution will help in communicating corporate and individual performance goals across the various levels of the banking enterprise with built-in personalization. Banks can thus enhance performance and shareholder value with timely reporting and monitoring systems that help them develop the most optimal and realistic budgets and strategic plans. Improving customer experience Going forward, improving customer experience will be a deciding factor for any Kenyan bank to ensure customer loyalty and will play a crucial role in increasing its customer base and other expansion and growth plans. Ideally, all the sales staff at the bank should have a single tool for servicing customers that provides a consolidated view and includes all accounts pertaining to a single customer - including retail, credit card, and investment - and a complete contact history. Most banks in Kenya would like to maximize the efficiency of large, widely dispersed operations to deliver a consistent, cross-channel experience for their customers albeit at reduced costs. Implementing a BI solution will allow everyone from a front-line employee, to everyone from the datacenter/call center, to the teller window to contribute to the high-quality experiences that will attract, sell to, and retain profitable customers. BI will also help in creating a strategic approach to channel renewal, optimizing processes, re-use of data, implementation of new scenarios, and resolution of issues before they blow up. To Sum up With the constant changes and increasing challenges in the banking industry, banks need to stay one step ahead of the competition. BI is no longer an option, it is a must have for banks. It is of apparent

5 importance to know your customers, to leverage information to offer differentiating solutions out to customers at the same time, being able to offer all required regulatory information to the regulators. About icreate Software Pvt. Ltd. Founded in 2006, icreate is a Business Intelligence for Banking specialist with niche banking products, solutions and services for effective and profitable utilization of data in Core Banking Systems (CBS). icreate is headquartered in Bangalore, with offices in Mumbai, South Africa, Cyprus and Kuwait, and prominent banks in Africa, Middle East, APAC and Europe as clients. icreate s flagship solution is an analytical performance tool, allows banks to monitor their business via customizable dashboards and analysis sets. With a powerful employee performance management module included, it features an industry-standard BI implementation that enables banks to have a fully functional BI solution up and running in as little as 100 days with value-added components that help address specific functional problems like Anti-Money Laundering, Collections Efficiency, Central Bank Regulatory Reporting and Customer Intelligence.