Banking AnalyticsAdvisory, India Analytics

The proliferation of big data, faster computers and innovation in analytics has opened new opportunities for banks to better understand the past, control the present and confidently embrace the future. Banks manage a considerable amount of data on their customers. They use analytics for fraud detection, simple credit risk calculations and marketing. However, a lot remains to be done to turn their data into actionable insights.

In particular, as customer interactions become more electronic and distant, banks need new insights into customer behaviour. By upgrading traditional techniques and using new credit risk scoring models, analytics can help predict behaviour to the extent of identifying an individual’s propensity to buy a particular product, default on a loan, or increase his/her wealth. By building personal preferences information into self-service processes, banks can also restore the sense of personal relationship that human tellers once provided.

Let us compare two hypothetical banks to reinstate the importance of analytics in an increasingly competitive world. Bank A has only basic BI/Reporting in place, while Bank B has established advanced Analytics Center of Excellence and is using analytics-based decision making techniques. Given their limited view of a customer’s unique position and preferences, Bank A will offer flat-rate pricing for all of its customers irrespective of their credit worthiness. Bank B, on the other hand, will leverage risk-based pricing models to offer better rates to their ‘good’ or ‘credit worthy’ customers, and less attractive rates to the rest of the product applicants. As a result, Bank B would attract more credit-worthy customers, while Bank A will only appeal to “riskier” customers who did not get preferential rates from Bank B. This biased selection will result in increased NPAs, resulting in pressure on Bank A’s profitability.

All of the leading banks (larger public sector banks and the majority of private sector ones) are already investing in analytics to optimise their decision making. As such, it is increasingly necessary for other banks to quickly catch up with competition.

Analytics: Enabler for Next Gen Banking

3Banking Analytics

• How can we leverage the power of analytics in our day-to-day decision making?

• My data is not in the best shape. Do I fix the data first and then invest in analytics, or can I derive value from data in its present from?

• I already have innumerable MIS reports. How will analytics get me something more actionable?

• Our In-house Analytics Team has not delivered the expected transformational business impact. How do I go about improving ROI from analytics?

Many banks are asking us:

Segments Analytics maturity status What they need to do?

Watchers

Still to invest

Banks generating basic MI (static) reports • Develop a BI and Analytics roadmap with Phase 1 focused on (a) delivering quick win business impact and (b) prioritizing certain products/customers that are core to the bank’s strategy

• Focus should be on data visualisation-based dashboards and basic analytics programs

Latecomers

Invested in data warehouses and BI

Banks that have initiated sophisticated data warehousing projects (with a single customer view) and have developed data visualisation-based dashboards to generate actionable business insights

• Develop analytics programs in line with business priorities across cross-sell/up-sell/risk management, etc.; will help split each of these programs into basic – advanced – optimized; can then plan application accordingly

Moderates

Single customer view, predictive modelling for decisions

Banks with sophisticated data warehousing, single customer view and highly visual dashboards for business insights, as well as predictive models for cross-sell, churn reduction, etc., to drive strategy and decision making

• Maintain two-fold focus on (a) reducing time to respond to customer actions and (b) optimise decision making to maximise the bank’s profitability

Advanced

Embedded analytics across customer touch points

Banks with analytics-based decision making embedded at most customer touch points.

• Increase customer profitability further via innovative applications of analytics; identify data enrichment opportunities including leveraging unstructured data (social media, call centres, etc.) to enrich single customer view, innovate on products for unbanked population to grow segment profitably, etc.

A glance at the analytics maturity of banks in India:There is a huge disparity in BI and analytics sophistication across banks. To elaborate on this, following is a comparison of banks across four segments and recommendations on suitable BI and analytics strategies:

4 | Banking Analytics

Common myths and pitfalls that hold back banks from pursuing analyticsMyth 1: Data availability and accessibilityBanks believe that not having a single repository of data, such as EDW, is indicative of data not being adequately organized for analytics and decision making. Thus, they miss out on the benefits of Analytics that can be realized even in the absence of enterprise-wide data consolidation.

Action: Do not wait to fix data — leverage existing data within departments in the form of data marts to build analytics solutions while you decide about EDW

Myth 2: Analytics is just an IT tool enablementMany banks have a tool-driven approach to analytics and run their analytics programs as standalone IT tool applications; this deprives them of 100% benefits.

Action: Centralized analytics setup with joint business and IT ownership — set up analytics COE led jointly by senior business and IT executives to provide direction and measure RoI for these programs; depute subject experts from departments to analytics CoE to drive prioritisation basis on-ground requirements and the ability to drive adoption

5Banking Analytics

Establishing effective analytics capability requires the right organisational model, skills, tools, methods and information architectureEY has helped leading banks and financial services players across the globe embed analytics in their decision-making process to create significant business impact, as follows:

S.No. Functional Area Country Selective examples of EY’s Analytics Success Stories

1 Marketing: X-sell Campaign

Europe Customer segmentation based X-sell models; identified 30K new wealth management customers

2 Customer: retention strategy

Europe Behavioural segmentation model to predict attrition propensity; retained EUR 146M+ business volume through a differentiated customer management strategy

3 Digital strategy Australia Insight-based 1-1 marketing strategy delivered more than 500% growth in revenue through increased offer volume and conversion rates across digital/traditional channels

4 Social media strategy The US Built a customer value-based social media campaign strategy and success measurement frameworks

5 Operations: channel strategy

Australia Performance-based routing models to deliver AUD 40m+ in incremental home loan revenue through channel integration

6 Operations: channel strategy

The US Built predictive models to shift 100K+ calls to the web; identified significant web gaps and built new functionality to eliminate digital servicing issues

7 Risk: originations Asia Development of application, behavioural scorecards, IRB models for retail and SME portfolios

8 Human resource: compensation

India Developed a position spread matrix using a compensation survey to improve remuneration budget leverage; game-theory based model increments led to significant improvement in process effectiveness

9 Information management and big data

Europe Enhanced the bank’s statutory, regulatory and management reporting capabilities; defined roles and responsibilities for the Chief Data Officer and established target operating model for data management

10 Internal audit Europe Developed an analytics embedded internal audit program to (a) improve risk assessment accuracy,(b)enable periodic monitoring of risk and controls across global operations,(c) ensure better deployment of IA resources at critical risk areas and (d) expedite fraud detection

6 | Banking Analytics

We work with banks to identify opportunities that can deliver profitable growth while protecting and optimising their enterprise. Drawing on our deep banking experience and advanced analytics competency, we have put together the following suite of analytics solutions to help you address your key business imperatives:

Key imperatives for bank executives EY’s analytics solutions

Improve customer-level profitability • Balance build promotions• Improve customer retention• Increase customer acquisition• Win-back• Re-price existing mortgage• Focus on loan top-ups• Reduce inactivity in credit card customers• Ensure good line management

Increase wealth management product penetration among HNI customers

• Ensure sales force is effective• Identify hidden “HNI” customers• Enhance investment and insurance cross-sell• Reduce HNI attrition

Improve NIMs by focusing on low-cost deposit growth

• Improve stickiness of deposit balance• Incentivise deposit build• Roll out right offers at the right time• Identify the most advantageous prospects for marketing

promotions

Reduce NPAs • Enhance underwriting process• Improve collection agency effectiveness• Focus on collections analytics• Accurately forecast loss provisions• Predict, identify and manage high-risk accounts• Adopt fraud analytics to reduce fraud losses

How can EY help you in your analytics journey?

7Banking Analytics

EY’s analytics enablement model is flexible and can help jump-start you on the journey to move up the analytics maturity curve.

• Advisory focus

• Domain knowledge

• Analytics knowledge

• 250+ information management professionals and 100+ data scientists

• Analytics labs in Chennai, Gurgaon and Mumbai

• Exposure to major analytics tools such as SAS, SPSS, R, Spotfire, Tableau, SQL, ACL and Monarch

• Solutions accelerators including 200+ automated scripts for data quality, data mining and model building

• IT enablement

Why

EY

?

Setting up an in-house analytics team to address key business imperatives and institutionalise analytics across decision-making processes

• Develop a business case for analytics setup

• Develop a roadmap for analytics rollout• Analytics solutions roadmap• People roadmap• Tools and technology• Change management• Initial set of analytics engagements can

be delivered through EY’s analytics labs to provide you a jumpstart on your analytics journey

• Leverage EY’s analytics solution accelerators/toolkits to design and apply analytics solutions for your business problems

Analytics projects to address specific business imperatives

Analytics as a service

• Provide analytics as a service for the contracted period of time

• Act as the analytics team for the client

• Work on a wide range of multi-faceted projects

• Engage with the client directly

Ahmedabad2nd floor, Shivalik Ishaan Near C.N. VidhyalayaAmbawadiAhmedabad - 380 015Tel: + 91 79 6608 3800Fax: + 91 79 6608 3900

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1st Floor, Prestige Emerald No. 4, Madras Bank RoadLavelle Road JunctionBengaluru - 560 001Tel: + 91 80 6727 5000 Fax: + 91 80 2222 4112

Chandigarh1st Floor, SCO: 166-167Sector 9-C, Madhya MargChandigarh - 160 009 Tel: + 91 172 671 7800Fax: + 91 172 671 7888

ChennaiTidel Park, 6th & 7th Floor A Block (Module 601,701-702)No.4, Rajiv Gandhi Salai, Taramani Chennai - 600113Tel: + 91 44 6654 8100 Fax: + 91 44 2254 0120

HyderabadOval Office, 18, iLabs CentreHitech City, MadhapurHyderabad - 500081Tel: + 91 40 6736 2000Fax: + 91 40 6736 2200

Kochi9th Floor, ABAD NucleusNH-49, Maradu POKochi - 682304Tel: + 91 484 304 4000 Fax: + 91 484 270 5393

Kolkata22 Camac Street3rd floor, Block ‘C’Kolkata - 700 016Tel: + 91 33 6615 3400Fax: + 91 33 2281 7750

Mumbai14th Floor, The Ruby29 Senapati Bapat MargDadar (W), Mumbai - 400028Tel: + 91 022 6192 0000Fax: + 91 022 6192 1000

5th Floor, Block B-2Nirlon Knowledge ParkOff. Western Express HighwayGoregaon (E)Mumbai - 400 063Tel: + 91 22 6192 0000Fax: + 91 22 6192 3000

NCRGolf View Corporate Tower BNear DLF Golf CourseSector 42Gurgaon - 122002Tel: + 91 124 464 4000Fax: + 91 124 464 4050

6th floor, HT House18-20 Kasturba Gandhi Marg New Delhi - 110 001Tel: + 91 11 4363 3000 Fax: + 91 11 4363 3200

4th & 5th Floor, Plot No 2B, Tower 2, Sector 126, NOIDA 201 304 Gautam Budh Nagar, U.P. IndiaTel: + 91 120 671 7000 Fax: + 91 120 671 7171

PuneC-401, 4th floor Panchshil Tech ParkYerwada (Near Don Bosco School)Pune - 411 006Tel: + 91 20 6603 6000Fax: + 91 20 6601 5900

EY officesErnst & Young LLPEY | Assurance | Tax | Transactions | AdvisoryAbout EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

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