Banks turn to technology for answers

More retail banks are turning to technology to provide answers to their greatest challenges, including increasing competition, regulatory requirements and an ongoing credit crunch.
In particular, many banks are spending more money on business intelligence, a broadly defined area of information technology that gathers and crunches large amounts of data to identify risk exposure and operational inefficiencies, and to forecast future financial performance.
Spending by retail banks on business-intelligence IT around the world will reach $9 billion by 2012, up from $5.6 billion in 2006, according to a recent report by London-based Datamonitor, an independent market analyst and leading provider of business intelligence solutions for several industries.
Software that analyzes and forecasts risk will represent the highest growth opportunity for business-intelligence technology, according to the March 6 report, as banks look to understand and track their risk exposure across all divisions in the wake of the subprime mortgage meltdown.
Spending by retail banks on business-intelligence solutions for risk management is expected to reach $1.76 billion by 2012, according to the report.
“The only way banks really know this stuff today, lacking business-intelligence software, is to wait for the financial numbers to show up every quarter. And that’s a hard way to live life right now if you’re a bank,” said Peter Gray Murphy, CEO of Pawtucket-based WhyData Inc., which provides business-intelligence and process-management services. “Wall Street analysts and shareholders want better accountability out of banks’ ability to know what their inefficiencies and defects and variability is, so that they can gain more profit out of their holdings in those companies.”
Providence-based Citizens Financial Group Inc. has used business-intelligence technology for many years. In recent months the bank has increased the amount of money it spends on it, said William K. Wray, the bank’s vice chairman and chief information officer.
The approach enables decision makers at Citizens to evaluate risk concerning such routine retail bank transactions as cashing a check or approving an overdraft, based on a statistical analysis of thousands of similar transactions rather than each individual circumstance, Wray said.
The bank has allocated more of its IT budget to business intelligence as advances in technology have made the software more sophisticated and brought down the cost, he said.
“You generally can offset those expenses pretty quickly by making smarter decisions,” Wray said. “You have to make this kind of part and parcel of your management regime over time. It’s not something you do and then you go back to business as usual – this data-driven way of managing a business is a way of life.”
Even smaller retail banks are starting to spend more money on customer intelligence – a niche of business intelligence that provides bank managers, customer-service representatives and tellers with a comprehensive financial and personal profile of each customer they serve.
Only about 50 percent of retail banks were using a customer-intelligence solution at the beginning of 2007, but spending on customer intelligence is expected to be more than $1.8 billion by 2012, according to Datamonitor.
In the past six months, The Washington Trust Co. launched a business intelligence initiative with a focus on customer intelligence, said Michael Rauh, executive vice president.
The initiative, a joint effort between the bank’s retail and IT departments, involves a campaign to survey Washington Trust’s existing customers to identify products and services that the bank can market to them.
At the same time, Washington Trust is designing an IT solution that consolidates customer information formerly kept in at least six different databanks and presents it on a single screen for tellers, customer-service representatives and bank managers, Rauh said.
“There’s lots of information in various pockets around the bank, and what we’re trying to do is take all of that data and turn it into actual manageable information, and present it to people at the right time,” he said. •