Information Enabled Banking

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1 Information Enabled Banking Information Management Survey - South based private sector banks kpmg.com/in

2 Foreword KPMG India s Information Enabled Banking Survey (IEB) was conducted amongst select 10 banks. IEB aims to provide an overview of Information Management landscape across Small and medium private sector banks. Over the last 15 years banks have made sizable investment in Information Technology which brought a paradigm shift in the banking industry and information availability. Sustained focus on IT became a trend by itself raising apprehensions on it s business impact. A focus shift from Information Technology to Information Management has become imperative for Banks to meet their business priorities and market demand. With the advent of technology in banking, huge volume of data is produced and stored digitally. Traditional branch/location specific banking is replaced by technology enabled anywhere/virtual banking. This transformation has also resulted in increased information availability that necessitates banks to implement Intelligent Decision Support System. The IEB survey identifies key areas in banks where Information Management plays a critical role, not just in day to day operations but also at a strategic level. Crucial Information at the right time at the right cost would enable banks to drive up their top line growth. Our survey identifies areas of Improvements in departments such as Planning & Development, MIS, Risk, Corporate Finance and Customer Care where IM can play a vital role in a banks turnaround. KPMG s IEB survey encompasses all aspects of Information Management relevant to banks in detail and provides an expert opinion across Strategy, Data Quality, Data Standardization, Information Systems, Business Analytics, Data Security and People.

3 Table of Contents Information Management 01 Strategic Management 03 Data Quality 05 Data Standardization 07 Information Systems 09 Business Analytics 11 Security 13 People 14

4 Information Management Information Management function helps banks to leverage investments in information systems and build a capability to use information as a key enabler. The ability of organizations to capture, manage, preserve, store and deliver the right information to the right people at the right time is one of the most success factors of Information Management. The journey of Information Management starts when the organization defines and aligns their business objective with Information Management Capabilities. As the IM capability develops within the organization, they start realizing benefits like lower cost on technology spend, better information for decision making, higher data security and lower resourcing spend. Information Management Journey Business Objectives Data Availability Data Quality (Master data-transaction data) Integrated Information Systems (Information Systems-Data warehouse) Finalization of the IM Vision IM Capability optimized Business objectives from IM defined Sufficient data is available in accessible systems Data validation and certification mechanisms in place Extraction, Transform, Load (ETL) defined and technology in place for EDW Refine IM vision to plan Implementation and value realization phases Re-validate business objectives IM capabilities Analytics IM process excellence IM organization Information enabled strategic initiatives

5 Information Enabled Banking 02 Information Management Ecosystem (Illustration) People Strategy Security Quality Information Management Analytics Standardization Systems The IM ecosystem encompasses all areas of the bank interlinking key areas around Strategy, Data Quality, Standardization, Systems, Analytics, Security and People. All these areas intertwine with each other and form an integral part of the overall Information Management Framework. Benefits realization from a Bank s IM investments would materialize along with development of their organisational IM capability.

6 Strategic Management A bank s Information Management vision is determined by its strategic business objectives. Leveraging information capabilities and enablers are key success factors for overall achievement of business. A well defined and documented IM vision statement aligned with strategic business objective shall provide a differential advantage to banks over their competitors. Building Blocks for IM Strategy Some key fundamentals of an IM strategy are Centralization, Self service delivery model, Automation, Rationalization and Harmonization, Standardization and Outsourcing & Performance Management. Each of these blocks will enable a Bank s capability to leverage their IM capability and re align IM investments to their strategic focus. These components shall significantly influence profitability, reduced risks and improved ways of working. At an operational level these components would improve efficiency and reduce business complexity. These operational advantages can only be realized when key decisions on these components are taken with strategic focus. Characteristics of Leading IM strategies Cost efficient IM processes and systems Competitive advantage through analytics and insight Intelligent decision support systems Lean IM organization Better corporate governance and Risk Management

7 Information Enabled Banking 04 Strategic Management IEB survey findings The board room agenda for bankers should include a review of their IM strategy and its relevance to overall strategy. This well defined strategy should be cascaded and driven from senior leaders to lower levels of the organization Have a Documented Roadmap for Information Management Although 100% of the respondents to the survey responded to having an Information Management Strategy 78% confirmed that this was aligned with the Corporate strategy of the Bank 56% of the respondents have confirmed outsourcing is a part of their Information Management Strategy 86% of the banks responded that their managers understood the criticality of Information Management IM Strategy Maturity MAP Self Assessment by Bankers 56 percent of the respondents consider their maturity of their IM strategy as medium, indicating a need for improvement. Key Take Away 1. There needs to be a better focus on better strategic alignment between IM and business objectives 2. A banker should adopt to a well defined IM strategy that will enable them to : Realize business objectives faster Make timely corrections in business strategy, processes and operations

8 Data Quality Data quality is one of the fundamentals for a bank in having robust IM capabilities. Ensuring quality of data is a common challenge faced by the banks considering multiple input sources, extensive digitization of existing records and large data. Maintaining quality of data is critical for banks to leverage on IM capabilities. In Banking sector these six areas form the core of all information that is processed. Data Quality is the backbone for all these areas that ensure that accurate outputs are generated. Quality of information would result in quality decisions made through the accuracy of the reports presented. Key Challenges from the system perspective in Data Quality Organization Driven Ad-hoc reporting Head office-imposed systems changes Accounting standard changes Changes in the regulatory environment Changes in business activity Corporate restructuring Reconciliation between systems System/Process driven Sub optimal training /skills of data owners Complex input processing systems Unclear system logics In-effective input validation mechanisms Multiple input languages Undefined Unit of Measurements Duplicate Master data Data Quality touch points in Bank s Ecosystem Characteristics of Leading practices Management Information System Analytics Compliance Reporting System Master data rationalization Centralized Master Data governance Mechanisms DQ compliance audits Master Data Management Input Validation Mechanism Document Management System Data cleansing and Migration projects Linking DQ to performance Management DQ score cards Data Quality

9 Information Enabled Banking 06 Data Quality IEB survey findings Only 33% of the respondents use automation in their monthly report generation process and 44% have minimal manual intervention, so as to reduce Data Quality issues. Banks tend to collect information across multiple locations and multiple formats, thus potentially creating non standardized data. 67% of the respondents claimed to have clean and standardized data across systems. Documented Standards for Data Ownership and timeliness Top 5 Data Integrity Checks and Controls used by Banks Financial Audit 1 Internal Audit 1 Compliance Audit 3 Automated Reconciliation System 3 Cash Clearing 5 IM Data Quality Maturity Map Self Assessment by Bankers Majority of the Banks perceive their Data Quality maturity to be average. Key Take Away Banks should measure Data Quality in form of a scorecard and linking performance management to these scorecards, thus increasing Data accountability in the banks.

10 Standardization Standardized IM processes would mean that banks have well defined and documented standards in place for managing data sources, information processing and delivery. Standardization across business eliminates data duplication, data redundancy and cost associated with resolving these issues. Information Management activities that can be standardized Standardization Report Production Report Delivery Standardization in Information Management Quantifying what you save Master Data Management Data Management Full time equivalent: With automation in place through standardization, an employee s involvement on routine activities is reduced thereby giving employees bandwidth to participate in more productive activities. Cost reduction: A major benefit by standardization is that banks are able to save on operation cost. Standardization of processes by elimination of duplication of efforts and identification of potential synergies help banks reduce cost. Knowledge Management: The benefit of knowledge management could be classified as both qualitative and quantitative. Banks gather a lot of data but deriving meaningful insights from this large data will be made possible by continues refinement and implementing standardized structure to deal with them. Standardization helps in turning data to information and thereby empowering management with clarity for decision making. Turn around time: Standardization results in optimized TAT on operations thus resulting in faster and more efficient ways of working in the banking system. Standardization would result in optimal TAT without compromising on quality.

11 Information Enabled Banking 08 Standardization IEB survey findings All surveyed Banks have standardized reporting formats at the local branch, region, zone and at the corporate level Banks face challenges in standardizing the report generation methodology despite having a standardized reporting form and clearly defined output. Scope for standardization in IM Harmonization of reports and data management processes Rationalization of reports and process This would include analysis of current reporting requirements. Post this analysis, banks need to identify sources of the data that feeds into these reports. Harmonized reporting landscape offer good standardization opportunities and better data management process. These initiatives could be very effective levers for driving IM efficiency with in Banks. After gathering of the reporting requirements, banks would need to rationalize redundant reports from their IM landscape. Elimination of duplication of reporting processes and redundant fields in reports could also provide a banks better insights from the reports generated. An exercise of Benchmarking against the best practices in the industry would help a bank understand its current standing and initiate a gap analysis to achieve its objectives. Templates and Automation With the strategic, tactical and operational objectives for reporting set, banks can institutionalize templates and dashboards to automate and optimize report production process. Banks can leverage automation of processes to obtain real time information feed on their key performance indicators. Banks use different technologies and databases to capture and store information. One of the key problems they face is that there may be multiple versions of truth available. IM Standardization Maturity Map Self Assessment by Bankers Only 11 percent of the respondents perceive that they have advanced Standardization maturity, indicating there is scope for improvements. Key Take Away Standardization is needed at Extract, Transform and Load (ETL) process which would result in process efficiency, reduced manual intervention and reduced costs.

12 Information Systems Information systems generate, store and deliver data to the users. There are multiple systems that banks use to capture and store data. Thus there are chances for data duplication, data redundancy and disparate data across multiple systems. Thus it becomes imperative to have these Information systems talk to each other and ensure that there is smooth flow of information across systems. Integrated information system shall deliver Optimization of processing time Minimal Errors Optimizing Automation opportunities Value realization from IS investments Continuous upgrade and innovation on IS applications User Adoption Advanced IS apps key enabler of growth With advancement in technology, every bank is seeking to leverage on the capability of information systems to generate, store and deliver data to internal as well as external users. Information collected by a bank may be varied as there could be multiple entry points for data. Data entered at a retail branch, an ATM machine, a rural branch or at an overseas location need to be seamlessly woven to streamline data gathering process for the bank.

13 Information Enabled Banking 10 Information Systems IEB survey findings Self service delivery platform must be implemented to ensure security, improve user experience and reduce operational cost. The survey respondents majorly use s and Hardcopy reports as a way to distribute management reports. Management Report Distribution Tools Banks are currently changing their technological landscape to incorporate Data flow automations which has been mandated by the RBI. % Reports sent to RBI that are automated IM Information System Maturity Map Self Assessment by Bankers Despite being one of the pioneering sector to invest in Information Systems, Banks reveal that there needs to be constant review of their systems to keep up with the technological changes. Key Take Away Information Systems are to be seamlessly integrated to leverage value of investments made in Information Technology by banks.

14 Business Analytics Business Analytics for bankers would mean the capability to mine from their huge historical data, combine unstructured data elements from external sources and use predictive modeling to provide business insight. Business Analytics help banks identify areas of competitive advantage and risks. Leading banks use analytics to track behavior of customers by identifying spending patterns to leverage on cross selling opportunities. PRODUCT Design Usefulness Convenience Quality PLACE Retail Wholesale Internet BA VALUE TARGETS PRICE Strategic Skimming Penetration Psychological Cost Plus Loss Leader PROMOTION Special Offers Advertising Direct Marketing Free Gifts Evolution of analytics in banking space would be driven by following enablers Banks ability to predict market dynamics and their potential impact on growth. Optimizing existing customer base through up selling cross selling PHYSICAL ENVIRONMENT Smart Interface Facilities PROCESS How are services consumed PEOPLE Employees Management Culture Customer Service Wallet share maximization Risk management Advanced approach necessitate analytics capability Customized product offerings by peer groups and international banking players The historical records can serve as both lag and lead indicators to banks. Watching the historical trend, banks can predict market dynamics trends and patterns. This would not merely be for their customer base but also more broader macro economic trends could be estimated. The ability to predict and take proactive measures in line with the predicted trend will have a positive impact on the banks growth. With more regulators across the world especially in the financial services sector, placing a greater emphasis on risk management, banks need to review their ability to manage risk. Business analytics caters to satisfy this aspect of a bank s need as well. The Basel II norms requisite defined capital adequacy and provisioning norms for each category of assets. To ensure and enable these controls and provisions are in place, it necessitates an advanced approach to analytics capability.

15 Information Enabled Banking 12 Business Analytics IEB survey findings Business Analytics for bankers would mean the capability to mine from their huge historical data, combine unstructured data elements from external sources and use predictive modeling to provide business insight. Business Analytics help banks identify areas of competitive advantage and risks. Leading banks use analytics to track behavior of customers by identifying spending patterns to leverage on cross selling opportunities. Data availability and Data Quality are the pre-requisite for any Business Analytics capability. Most banks are in early stages of implementation and reported challenges of Data Availability and Data Quality. We noted that 44% of the respondents of the survey revealed that they require at least some amount manual intervention before they can use the data for analysis Only 44% of the surveyed banks use a Business Analytics Tool. While 22% of the responding banks have an Institutionalized procedure for Business Analytics The most widely used tool in Analytics is SAS closely followed by SAP BI IM Business Analytics Maturity Map Self Assessment by Bankers 88 percent of the banks identify Business Analytics as one of the major area for improvements. Key Take Away Bankers must invest in analytics with three main objectives: Improved Risk Management Improve Asset quality Wallet share Maximization.

16 Security Security in Information management deals with protecting assets such as customer database, product profile, market promotion plans and intellectual property. Banks place higher importance on information security considering the regulatory environment its operating in. Banks pose increased vulnerability of potential cyber attacks due to increased exposure on information technology, Mobile banking and use of ATMs. Average Recovery time Objectives 78% of the banks maintain a detailed list of all information assets in the bank. These banks maintain checks and controls over their all their Information Assets IM Security Maturity Map Self Assessment by Bankers Although Security is critical to banks, only 11 percent of the respondents perceive that their security systems is in an advanced stage. Key Take Away Bankers should practice Control Self Assessment (CSA) to protect Information assets. Security policy to be revisited regularly to plug any loopholes created due the changing technological landscape.

17 Information Enabled Banking 014 People Information owners, BA team, MIS teams form an IM Organization. Centralization of IM activities and automations are the two key enablers to an IM organization. Banks generally underestimate their Full Time Equivalent (FTE) spent on Information Management as they do not recognize IM component in most roles. MIS Team Size in FTE In the current age banking organizations have shifted from their decentralized methods of managing information to a more centralized framework. 78% of the banks provide training to their employees to familiarize them with their IM systems All the respondents have MIS teams centralized IM Security Maturity Map Self Assessment by Bankers 56 percent of the respondents convey their IM people maturity map to be average, signifying tremendous scope for improvement. Key Take Away Banks should map As-Is existing IM organization structure, including partial roles and use this as a baseline to target improved IM efficiency and reduction in overall cost efficiency.

18 How KPMG adds value in your IM journey KPMG s IM framework aims to help transform your banking organisation by: Streamlined IM processes Increase visibility of Customer Behavior Timely corrections in business strategy, processes and operations Competitive Market Intelligence Builds the right data model and platform to respond to changing business needs Transparent Performance Management Systems Information integrity and continued alignment to business needs Proactive Risk Management and Data Security Mechanisms Futuristic Product and Service Developments Leverage value of investments made in Information Technology Leverage from External and Internal sources for a comprehensive Perception Analysis Secure foundation for reliable information aggregation and delivery Streamlined Project and Change Management for IM Strategy Periodic Technology and Infrastructure Assessment End to End Dashboards which captures Key KPIs delivering right information to the Right people at the Right Time Seamless Data Migration.

19 Information Enabled Banking 16 Conclusion Information Management is now recognized as a key function by Banks. There is a clear distinction between IM and IT across the banking sector. There is bound to be increased attention on impactful IT investments to land information management objectives across banks. These objectives are Cost efficient IM organization Business partnering decision support systems Insightful information systems Value realization from IT investments through centralization and outsourcing. Acknowledment We would like to acknowledge the efforts put in by Rohit Nair, Narayan Mahadevan, Ameer Iqbal, Nanda K Jayakumar and Remedios Dsilva for the development of this thought-leadership.

20 KPMG in India Contacts Pradeep Udhas Partner and Head Markets T: E: Ambarish Dasgupta Partner and Head Management Consulting E: T: Kalpana B Partner Management Consulting T: E: kb@kpmg.com Shashwat Sharma Partner Management Consulting T: E: shashwats@kpmg.com kpmg.com/in The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Any trademarks or service marks identfied in this publication are the property of their respective owner(s) 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Printed in India.