A Guide to Business Intelligence in Financial Services

How to find out more
Contact your Microsoft account team to discuss the specific Business
Intelligence requirements of your company or department. Find out about BI
workshops that Microsoft or our partners are running, or engage Microsoft
services with your IT/technical departments.
For more information on-line, see: Microsoft Business Intelligence solutions
at www.microsoft.com/business/bi

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A Guide to Business Intelligence
in Financial Services

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How to find out more
Contact your Microsoft account team to discuss the specific Business
Intelligence requirements of your company or department. Find out about BI
workshops that Microsoft or our partners are running, or engage Microsoft
services with your IT/technical departments.
For more information on-line, see: Microsoft Business Intelligence solutions
at www.microsoft.com/business/bi

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Introduction
Financial institutions are under-using their most valuable asset. Unlocking the
behaviour of the customer can pave the way to business success. The more that
is understood about the customer, the better their needs can be anticipated and
satisfied, increasing loyalty and competitive advantage and minimising the
potential for fraud. But, documents detailing past transactions, trends,
accounts and policies may be spread across several departments and systems.
Without an effective data consolidation and analysis tool this priceless
information is rendered all but useless.
Business Intelligence with an enormous potential worth is being squandered
owing to natural changes in institutions employment dynamics. Yet decision
makers’ fears of implementing new data warehousing technologies are holding
back improvements. A number of factors have added to the pressure of this
stalemate:
Increased outsourcing of non-core functions
Streamlining businesses to reduce headcount, meaning it is no longer
practical to employ teams of dedicated analysts to sift through data
Issues with timelines and flexibility of monthly reports for major business
units as analyst headcount is reduced
A demand for better planning and less uniformed risk taking
Growing customer expectation of excellent, accurate and personalised services.
Outcome: Pressure pushes knowledge workers to produce an increasing
amount of intelligence and analysis over shorter time periods, using fewer
resources. Customer and business demands mean the need for quality
information is now unsurpassed. Consequently:
Vital information is left lying dormant in data warehouses, even though the
need for improved decision making is increasing
The world of financial business depends on daily decision-making, yet the
current inferior state of data analysis means many choices could be better
informed
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The Value of Business Intelligence
Knowledge workers are in need of relevant information. Yet they lack an
integrated platform providing efficient tools for data extraction and the
compilation of fast, accurate reports using data from numerous sources.
Business Intelligence does more than simply identify sales and profit growth
opportunities through cross selling. Customer targeting, risk management,
liquidity and credit management, stratification, premium setting, fraud
prevention, claims handling and actuarial analysis can also be improved
through a fuller understanding of existing stored information.
Drivers
By increasing the amount of relevant information available to decision makers,
increased Business Intelligence provides a number of key benefits:
All relevant business information is presented within a very short time frame
Information is automatically assimilated into personalised intelligence
presented as a profitability scorecard detailing business units, products and
customers
Large portfolio risks, premium comparisons and loss information can be
assessed and managed using familiar analysis tools, allowing intelligent
decision making
With access to immediate, quality information, the loop from decision to
action can be closed. Managers can be issued with exception reports to help
them remain proactive throughout
Outcome: Immediate access to accurate real time data allows decision
makers to spot and fix situations as soon as problems occur. Disasters are
avoided and companies are able to react to opportunities or adapt products to
suit customer demand.
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Increasing Value to your Business
By providing an accurate portrayal of your customers, Business Intelligence
provides critical competitive advantage, allowing you to make business
decisions quickly and with confidence. The impact of Business Intelligence is
realised throughout your organisation, in increased revenue, lower operating
costs and improved customer relationships:
Business agility
Accurate Business Intelligence enables your business to respond faster to new
opportunities and changing demands. Combining intelligent prediction
mechanisms with rapid execution gives your organisation the ability to move
from concept to implementation as quickly as possible – the key to survival in
the dynamic new economy.
Increased profitability
Business Intelligence provides an accurate snapshot of the profitability of specific
customer relationships, allowing you to focus your energies on your most lucrative
customers. By integrating systems that span the enterprise – e-commerce, CRM,
and point-of-sale – you can create a complete profile of your customer and offer
insight into their buying patterns, sensitivity points, and preferred methods of
contact and communication. Profitable customers are coveted customers
understanding their value to the organisation, their motivations and preferences,
and finally, how you can increase their spending and interactions with your
company, are all critical to retaining them.
Reduced operating costs
Business Intelligence minimises the time required to collect relevant business
information (including financial, inventory, and procurement data). By bringing
powerful analysis and reporting tools to the desktop, these solutions empower
decision makers to easily conduct their own queries and prepare reports with
minimal support from database administrators and IT specialists.
Increased customer loyalty
With competition for customers only a click away, your business must focus on
optimising its relationships with existing customers. Building trust with these
customers will positively impact their relationships with your company, and in turn,
increase customer loyalty. Understanding who those loyal customers are is the first
step, but developing an individual, one-to-one marketing message for the customer
demonstrates a level of personalisation that provides competitive advantage.
Business Intelligence tools that combine customer insight with rapid marketing
deployment build trust, inspire loyalty, and prove to the customer that they are truly
valued by the organisation.
Outcome: Deeper business understanding is achieved, allowing fast,
informed, high quality decision making.
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Business Intelligence in Retail Banking
Banks demand access to information and data across their global operations.
Access to Microsoft® and its partners’ Business Intelligence technology allows
delivery of planning, forecasting and other analytical data. Critical data
processing and information sharing is automated while making best use of
infrastructure and legacy systems, allowing opportunities to be identified in
following key areas:
Performance analytics
In order to identify the most and least profitable business areas, managers
have access to easily understandable scorecards. Reports can be shared
across all levels of business, providing workers with common measures, reports
and alarms.
Customer targeting: Historically, a direct marketing campaign response rate
of 1–2 per cent has been considered as a success, despite the high cost of
implementation. Detailed analysis of the transactional data generated by
existing customers sharing a common product allows targeting of marketing
material towards non-adopters sharing similar characteristics who may be
more likely to respond
Risk analytics
Managers assessing risk for large loan portfolios can access key indicators for
factors including delinquency rate and impaired loans. In order to remain
proactive, personalised alarms and exception reports may be generated.
Risk management: Traders and risk managers in the back and middle office
are provided with support from extensive risk statistics and analytical
functionality. Virtual graphic visualisation of scenarios and statistics from
areas such as deal capture and risk aids understanding of data as do
snapshots and what if capabilities
Customer analysis: Clients within the top profitability sectors can be readily
identified, as can the effect of product changes and rates on their
behaviour. Clusters can be located and information passed to the marketing
department to help generate new business. Customer retention can be
targeted
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Operation analytics
Access to key indicators allows expenses to be kept within corporate
benchmarks and budgets.
Credit management: Credit analysts themselves can establish credit
provision rules, setting ceilings and eligibility benchmarks for applicants.
But thresholds for granting credit can uniquely and automatically change
over time as information is added concerning the performance of the credit
portfolio, even taking data from outsourced credit card operations
Liquidity management: A bank can survive without profitability, but not
without liquidity. Here, data from money market operations and the retail
market is placed in a single virtual repository for analysis purposes, allowing
the forecast of future trends or trends based on past behaviour. If the
system indicates that a large investment account is to reach maturity
shortly, this can be planned for without having to borrow funds. The forecast
and effect for non-scheduled transactions can also be predicted
Asset/liability modelling: Banks with an understanding of their balance
sheet should ride out economic instability. Return on investment can be
improved if access to what if scenario generation is available. Modelling
allows a glimpse into the future and the subsequent revision of business
plans to cope. The system is easy to programme and use, allowing even
smaller institutions with few resources to benefit from it
Audit analytics
Auditors can gain access to analysis models, historical data, benchmarks and
a risk index. Identifying opportunities allows auditing costs and workload to be
reduced, while provision of branch scorecards allows auditing managers to
allocate resources to high-risk branches.
Reconciliation: Financial and non-financial data can be pulled together into
a single repository to ensure consistent standards across the entire
corporate system
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Business Intelligence in the
Insurance Sector
Raising claims processing performance is the key to profitability in the provision
of insurance. Until recent times, efforts to improve this concentrated on cost
reduction, attempting to lower processing costs of handling or the cost of losses
themselves. In an attempt to achieve these savings staff numbers were
downsized, and training, support and re-inspection costs slashed. But reserves
have been reduced as a result, and losses have again risen as overstretched
staff and resources have put pressure on the efficiency of the claims process.
Using Business Intelligence technology from Microsoft, these problems can be
counteracted in the following ways:
Sales and retention analysis: New business production can be monitored by
class and distribution channels, while support is provided for retention analysis
and improvement
Premium setting: In order to remain in business, the sum of premiums
charged must normally be sufficient to cover all claims made, while remaining
competitive. Current practices result in calculations based on broad
generalisations and limited customer information. The introduction of complex
analysis allows significant improvement to decision making
Competitive analysis: Overall performance comparisons and detailed rates
comparisons allow users to generate comparisons with rival insurers
Product profitability: Specialised customer categories are increasingly being
targeted by narrowly defined product sets. As providers move towards a product
level focus, differentiation is starting to develop an increasing role in customer
retention and market growth. The ability to compile a comprehensive and
standardised dimensional model is essential in ensuring this is a success
Customer profitability analysis: According to statistics compiled by Meridien
Research, only 12–15 per cent of the top 100 US insurers have customer
profitability analysis in place, versus 75 per cent of the top 300 US banks. Yet
those unable to identify their best customers stand to lose out as competitors
refine their strategies to target profitable ventures. Gaining the business they
really want, the smart insurer will leave unprofitable clients to purchase from
the rest, further undermining competitors’ position
Experience analytics: Risk analysis and pricing support allows the end-user
to compare premium and loss information over time
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