July 26, 2016
Business Intelligence (BI) has recently emerged as one of the most widely used tools in the finance and banking sector. It is important to understand what Business Intelligence is all about before learning its application in the banking industry.
Business Intelligence and its benefits
Business Intelligence is a computer-based technique and is used to analyze business data such as the cost and income figures, revenues generated by the products or departments, etc. BI methodologies translate the raw information into meaningful data which can further be used to develop strategies and assist in the decision-making process of the organization. This is why Business Intelligence is also sometimes referred to as a decision support system (DSS).
Application of Business Intelligence in the Banking and Financial Sector
Banking Analytics and Business Intelligence have become a priority now more than ever and the reason behind it lies in the fact that data centralization has redefined the principles of banking. The banking environment today is highly competitive and therefore it has become imperative for the banks to make use of data centralization to their greatest advantage. According to the Analytics and BI Survey, 28% of the 297 respondents responsible for analytics and BI software selections say their organizations have standardized on one or a few analytics and BI products deployed throughout the organization.
Areas in the Banking Sector where Business Intelligence can be effectively applied
The fundamentals of applying Business Intelligence in the banking sector are to provide the decision makers the ability to manage the raw information from the internal and external data resources and to put it to the best of its use. Banks are storehouses of huge amounts of data. Each customer is saved in the database as a record and every transaction that is ever made in the customer’s entire lifetime is a saved entry in the database. Likewise, imagine the number of customers in a bank multiplied by the number of products or services they are utilizing with the bank. If business intelligence is applied well to this tremendous amount of data to gain insight into processes, the results will be beyond imagination.
We have identified some of the most crucial areas which can be covered by Business Intelligence in banks including:
- Relationship Marketing: Analyzing the data derived from the customer investment profile, customer interaction analysis, etc. banks can work towards ensuring customer loyalty by providing customer satisfaction.
- Performance Management: BI can be used to analyze transactions, investment arrangements, and activity-based costing to carry out product profitability and product analysis.
- Asset and Liability Management: By carrying out liquidity analysis and short-term funding analysis, banks can achieve position value analysis.
- Compliance: By making use of BI techniques, banks can carry out cash flow analysis and income analysis.
- Risk management: Interest rate risk analysis and asset securitization techniques help the bank in carrying out operational risk loss analysis.
Why Business Intelligence (BI) is crucial in today’s Banking Sector?
- Using the methodologies and techniques of Business Intelligence, banks can have greater control over the information available to them and put it to the best use for their advantage.
- The flow of money which has become seamless across continents can be well managed by the banks by making use of the newer, faster, and smarter techniques of Business Intelligence.
- The integrated transaction systems implemented in banks generate huge volumes of transaction data which can be effectively utilized by using Business Intelligence Analytics, to help the banks in managing processes to make business decisions.
- As the customers get smarter they demand more and more transparency in terms of the operations which take place in banking. The Business Intelligence techniques and tools help the suppliers to find innovative means to win the loyalty of the customers.
- Business Intelligence Analytics helps the banks by establishing a 360-degree view of the customer information which enables the bank to understand the specific preferences of its customers.
- As the government and regulatory bodies keep imposing new and stricter rules and regulations in the banking sector, the right technology needs to be implemented by the banks to enable an automated data flow of the reports required by these regulatory bodies.
By applying the Business Intelligence (BI) techniques and methodologies, the banks can exercise a greater hold on the internal as well as external data flowing in their organization. The data collected can be well stored and transformed into meaningful information which can be utilized in devising business strategies and also in making business decisions.