Putting finances in order

16 Apr 2008

As a tighter economic climate beckons what are the smart technology investments to be made by the financial services sector?
By Napier Williams

The relative boom period of the past few years has drawn to a close, resulting in financial institutions reassessing their services and competitive models. While the causes are both local and global in origin, the resulting tremors will be felt for quite some time as financial organisations seek to maintain and improve their competitive positions through the intelligent application of technology combined with improved and new business processes.

Many organisations are betting on business intelligence (BI), that is a combination of software systems with a required cultural change to yield the expected results. SAS has long been a front-runner in BI and is the largest independent supplier in the market. Allan Russell, senior vice-president of strategy at SAS, says many people look on BI as “reporting on steroids”. He defines BI as a decision-making tool that links to performance management enabling an organisation to make and/or save money by improving its performance. Reports do not help make better decisions but improved business processes combined with analytics enable a more proactive approach to be adopted and allow better decisions to be taken quicker. Advanced websites are using BI techniques to respond dynamically to customers’ profiles such as ordering patterns to improve the probability of enhancing the customers’ experience.

Russell says that up until a few years ago BI was a kind of unknown stepchild partly due to the disorganised IT infrastructure. BI is not an IT product – rather it needs to be fostered by a group made up of both business and IT management. Every task, activity and process that can influence the performance of an organisation needs to be mapped. In the case of one large banking organisation there were more than 1,600 different data sources making a meta-based framework essential. Rules specifying authority for changes must be clearly defined. The standards surrounding the rules for how different file types will be handled must be specified. One of the more difficult hurdles is culture and the need to move away from the silo mentality and ownership that pervades many organisations.

Software en mode
Answering why BI has suddenly become de rigueur, Russell says it is partly down to technology fashion where everything that can be automated has been automated; now organisations are looking to more advanced uses for computers. Other drivers are both regulation and deregulation. Deregulation is often followed by the need to bring in standards and regulations to protect various interest groups such as consumers and shareholders or investors. Since the information has to be collected to comply it should also be used to improve the decision-making processes. The most obvious driver is competitive pressure, as has been clearly illustrated by the financial sector where the very lifeblood of many banking institutions is almost totally dependent on BI.

Paul Power, financial services director at SAS, cites three main examples where BI has had a significant impact in the financial services area. Fraud detection in the area of debit and credit cards has become very important. Suspicious patterns of usage can be caught in real-time by the intelligent use of analytics. The second example is in the area of fraudulent insurance claims. Again, analytics can be used to highlight commonly recurring variables such as people’s names occurring too often across a number of different claims. The third example is around CRM and ensuring that all cross-selling opportunities are known, highlighting retention risks and credit risk propensity. As we move into a less certain economic situation the identification of potential loan defaulters becomes much more critical for any lending institution and the retention of existing good customers becomes much more critical.

BI and its associated technologies need a solid IT infrastructure foundation. Sun Microsystems is mainly involved in supplying hardware infrastructure and web services running on Solaris. Brian Stack, business development manager with Horizon, explains that the main current emphasis in financial institutions is on bedding down existing systems, consolidation and ensuring that the most is being obtained from the virtualisation of servers and storage. Many new projects are on hold, he adds.

Web 2.0 is being used to provide services rather than information across the web, enhancing CRM and paving the way for the results of BI projects to be effectively deployed. For example, customers can call up the image of a cheque that shows all the markings and stamps. Horizon deals with many of the hosting companies and provides staging facilities where they build and test off-site complete installations that are then installed on a turnkey basis into a data centre. The hosting element has grown over the years and may account for 20pc to 30pc of the installation business. The reason for outsourcing is mainly driven by cost but as trust develops then more activities will be outsourced. Horizon plays at the application layer competing mainly with players such as HP.

Automation for the people
The main current interest of compliance and achieving it are closely intertwined. The traceability of information is very important and lifecycle management is critical, including the removal of items in line with legislative requirements. Case management is also an important area. Commenting on StorageTek, a large player in the storage market that was acquired by Sun Microsystems in 2005, Stack does not see a huge swing from tape to disk as yet. He says the main drive is on business process automation with an emphasis on improving efficiencies.

Client Solutions, part of the Horizon Technology Group, has delivered BI to numerous leading financial services companies. The company’s expertise covers a broad range of IT expertise including application development, BI, business service management, SAP, ERP and IT governance. Within the financial services area typical applications include claims effectiveness, portfolio reporting, commission reporting, regulatory reporting and enterprise key performance indicators reporting.

Chris Flack, business development manager at Client Solutions, says: “The success of our customers is primarily driven by the fact that their initial spend was on a team with some great analytical skills rather than just plugging in a software solution that ends up as a glorified enterprise reporting solution. The core of our success is having the experience of delivering over 40 BI solutions and knowing how real value can be delivered to the business through them.”

Quintillion was established in 2006 and is the leading example in the financial services area that demonstrates the importance of IT and business systems to successful competitive advantage.

Most organisations have evolved over a period of time having grown and adapted their systems to enable them to compete effectively. Quintillion developed a very advanced hedge fund management system at a cost in excess of €500,000 deploying Fujitsu Siemens servers and then went into the market to compete. Unlike its competitors it can provide an excellent level of service from the smallest to the largest customer due to a high level of automation and software tuning. Quintillion can process rarely used complex financial instruments with the same ease as normal transaction types. The reporting structure is designed to provide information in the format required by its clients. The organisation behind Quintillion consists mostly of experienced staff members that have already attained high levels of proficiency in hedge fund trading.

Mentec, now part of the Calyx group of companies, actively promotes its Agresso accounting suite which includes a fund accounting module that is used extensively to track investment funds’ performance. The module enables funds to be tracked both on a total global basis as well as by the origin of the original individual investments. Karl O’Leary, Mentec sales director, says that unlike some of the heavier players in this sector Mentec’s offering provides more agility and can adapt more easily to business process changes. The module can also be fully integrated with other products and can easily take and provide feeds into other types of investment management products. O’Leary says it is important for products to be able to seamlessly connect between back and front office systems especially with the tightening of regulation and legislation. He also stresses the importance of traceability which is now a key requirement.

EBS boxes clever
The recent worldwide consumer spending boom encouraged huge competition for customers’ money in the financial services industry and insight into customer behaviour, wallet and profitability became critical. Having worked with Client Solutions from 2002 to design and build an Enterprise Business Intelligence Solution EBS had an excellent base for this.

Gerry Gaffney, EBS finance manager, says: “Having the insight in terms of profitability of the product and business line level that we didn’t have before is a key deliverable of the data warehouse. For example, information from the data warehouse is constantly being fed into the pricing model in EBS to ensure the company stays competitive in terms of price and interest rates on a product-by-product level.
“Also, the ability to focus on particular profitability segments allows it to identify customers with different levels of profitability and to manage each set accordingly.”

By Napier Williams