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Trends and Transformation …..Driven by Software………….
Neil BeckleyFSS Industry Leader, GMU
The ROE Challenge
In the “New Normal” of lower-for-longer interest rates, below-trend growth and less leverage, we expect banks’ management to increasingly focus on restructuring business models in order to improve returns - Citi, 4 January 2013
In Europe, shareholders have been asked to provide double the amount of capital for effectively the same level of return - profit having only recovered to 2007 levels
Global Banks The lowest level of revenue growth for the banking
industry globally since 2008, at the height of the global financial crisis – UBS
Emerging Markets Declining ROEs – In 2013, banks across emerging
markets could face one of the most challenging operating environments in recent years, culminating in sector ROE falling to its lowest level since 2003 – UBS
North America Expect the median bank to see revenue decline 1%
yoy as balance sheet growth is offset by NIM declines and mortgage banking shifts from a source of earnings growth to stability – Goldman Sachs
Europe In the UK upcoming banking reforms could cost GBP
4bn-7bn, which will likely reduce the UK banks’ ROEs by c 2.4-4.1 – UBS
What Banking CIOs tell us:
Source: 2011 CIO Study, Q12: “Which visionary plans do you have to increase competitiveness over the next 3 to 5 years?”; Global sample (n=3,018); Banking (n=311)
Most important visionary plan elements (Interviewed CIOs could select as many as they wanted)
Business Intelligence and analytics
Virtualization
Business process management
Self-service portals
Risk management and compliance
Cloud computing
Mobility solutions
Collaboration and Social Networking
83%
74%
68%
60%
60%
58%
57%
55%
81%
76%
70%
48%
70%
72%
53%
48%
Global sample Banking
Tougher Banking Environment• Increasing regulation & control• Mature markets continue to deleverage• Declining profitability• Compounded by trust & reputation Issues
Smarter & More Demanding Customers• Technology explosion• More demanding, less loyal customers• Comparison Shoppers• New entrants will exploit gaps
Tremendous Growth Potential• Banking the unbanked• Leverage the SME opportunity• Drive new revenue growth through
customer centricity• Continue to exploit cost efficiencies
Dynamic Banking
This translates into a few key focus areas…
Create a customer focused enterprise
Improve operational efficiency and agility
Optimize enterprise risk and compliance
The 2013 Point Of View
• Empowered Customers - Think Like a Retailer• Simplicity Low Cost - Act like a Manufacturer• Common Agile Processes - Operate as One Bank• Capital – Embed Risk Management
To thrive in the new environment Banks will need to “Think Like Retailers, Act Like Low Cost Manufacturers”
Right Customer
Right Time
Right Product
Right Price
Right Place
Right Service
Multi-Channel Optimisation
Product / Service Lifecycle
Price Optimisation
Customer Segmentation
Customer Service
Customer Insight
Enabled through Front Office Digitization, Advanced Business Analytics & Information Management
The ability to create competitive advantage using analytics surged dramatically in 12 months; the bottom-line impact is clear
Respondents who say analytics creates a competitive advantage
58%2011
37%2010 57%increase
Organizations achievinga competitive advantage with analytics are
2.2xmore likely to
substantially outperform their industry peers
Ratio of respondents who indicated analytics creates a competitive advantage to those who indicated it did not and the likelihood they also indicated their organizations was “substantially outperforming their competitive peers”. The ratio was 2.0 to1 in 2010.
Source: The New Intelligent Enterprise a joint MIT Sloan Management Review and IBM Institute of Business Value analytics research partnership. Copyright © Massachusetts Institute of Technology 2011.
69%Banking
35%Banking
97%increase
Early adopters have outpaced others in gaining competitive advantage by expanding the use of analytics
Respondents who cited a competitive advantage using analytics year-over-year
80%2010
2011
63%2010
2011
38%
37%2010
2011
39%
Transformed
Experienced
Aspirational
23%increase
66%increase
5%decrease
65%
Source: The New Intelligent Enterprise a joint MIT Sloan Management Review and IBM Institute of Business Value analytics research partnership. Copyright © Massachusetts Institute of Technology 2011.
Transformed organizations outpaced all others in integrating analytics into core strategies and operations in the past 12 months
Transformed organizations creating a
competitive advantage are
3.4xmore likely to
substantially outperform their industry peers
Ratio of Transformed organizations creating a competitive advantage compared to Aspirational organizations not creating an advantage that self-assessed as “substantially outperforming their competitive peers.”
Transformed
Experienced
Aspirational
70%
55%
34%
Respondents increasing their integration of analytics into strategy and operations
Source: The New Intelligent Enterprise a joint MIT Sloan Management Review and IBM Institute of Business Value analytics research partnership. Copyright © Massachusetts Institute of Technology 2011.
The BAO Reference Architecture OverviewMaster Data Management
Data Integration
Data Repositories
BI / Performance Monitoring
ContentManagement
Security, Privacy & ComplianceCollaboration
Information Governance
AdvancedAnalytics
Business Process Management
Reference Data Management
Operational OrchestrationComponents
Data Load Components
CRUD Transactional Components
Access
Web / Services
Portal
Device
Composite Application
Sources
Collaborative Application
Productivity Application
Enterprise Search
Business Unit
Application
Service Management
Transport & DeliveryInfrastructure
Extract / Subscribe
Transform
Load / Publish
Enterprise Apps
Unstructured Data Stores
Informational
External
Web
Structured Data Stores
Devices
Master / Reference
Data
Document Management
Services
Federation
Ingestion
Base Services
Records Management
Services
Extraction
Simulation
Optimization
Visualization
PredictiveAnalytics
DataMining
Text Analytics
Reporting
Planning, Forecasting, Budgeting
Scorecards
Guided Analysis
Dashboards
Querying
Monitoring
Operational Data Store
Data Warehouse
Time Persistent Repository
Dimensional Layer
Master Data Store
Content Store
Staging Area
Data Quality
BATCH
REALTIME
TRANSACTIONAL
Volume
300 million transactions processed
every day in North America
Velocity
5 million trade events occur
every second
Variety
1.5 billion total Facebook posts &
Tweets per day
Veracity
80% of all available data will be uncertain by
2015
Big Data: The Next Natural ResourceData “behaves” like a natural resource in that it can be found, extracted, refined, and fuel the cognitive engine
What does a Big Data platform do?
Analyze Information in MotionStreaming data analysisLarge volume data bursts & ad-hoc analysis
Analyze a Variety of Information Novel analytics on a broad set of mixed information that could not be analyzed before Multiple relational & non-relational data types and schemas
Discover & ExperimentAd-hoc analytics, data discovery & experimentation
Analyze Extreme Volumes of InformationCost-efficiently process and analyze petabytes of informationManage & analyze high volumes of structured, relational data
Manage & PlanEnforce data structure, integrity and control to ensure consistency for repeatable queries
Extract insights from a large volume of data, including a wide variety of types, with high velocity
IBM Big Data Platform
What are Social Technologies
Source: McKinsey & Co. The social economy: Unlocking value and productivity through social technologies, Jul 2012,
What is Influencing This Trend?
CONTROL changes hands
• The front office is now customer-owned-devices • The next App Store - who owns it?• Cloud as a business model vs. just technology• Payments multiply: “50 ways to give you money”
CUSTOMERS change segments
• Mobile adds billions of newly banked• The “pre-inheritance” periods where aging parents need help managing
finances• Wealth Management as $trillions transfer• New value aggregators steal customers
TECHNOLOGIES change Interactions• Learning systems interact with humans• Analytics create value for clients • Slick integration between platforms, channels, computers, phones,
devices…or not• Biometrics for authentication
CULTURAL THEMES change value propositions• No “normal” household of customers• Location services, meet-ups, value in the app• Security issues migrate to each new service• Privacy continues to decline• Social media usage is no longer age-related
17
How are Banks Trying to Use Them?
Source: The Financial Brand, Oct 25 2012, http://thefinancialbrand.com/25875/bank-and-credit-union-technology-trends/, quoting Celent report “Emerging Technologies in Retail Banking: The Long Road to Customer Centricity”. Aug 2012
The 2013 Point of View
• Empowered Customers - Think Like a Retailer• Simplicity Low Cost - Act like a Manufacturer• Common Agile Processes - Operate as One Bank• Capital – Embed Risk Management
Process Automation and Optimisation
Process Agility
IT Automation and Optimisation
System Agility
Enterprise Performance Optimisation
Business Agility
• Automate a manual process
• Visibility and ROI
• Quicker, better, cheaper
• Compliance
• Target operating model
• Time to value
• Total cost of ownership
• Prebuilt assets
• Reuse
• IT standards
• Innovation
• Go to market
• Customer centricity
• Product flexibility
• Industry standards
C-LevelLoBIT
Why do Clients Buy BPM?
After: Streamlined and efficient process with BPM
Before: Long, multistep process without BPM
Inefficient processes:Paper-based processes
requiring human intervention Wait time
Efficient processes:Semiautomated activity
Fully automated electronic activity
BPM reduces paper consumption, streamline processes and shorten cycle times
Onboarding & Origination
Optimization
The reference architecture
IT
Modelling
Simulation &Optimizzazion
Workflow
Business rules
Data
User Interface
Documents
SOA Services
ApplicationsintegrationMetrics & Monitoring
Analysis & Reporting
BPMSOA
Org & Functions
ExecutiveManagement
CustomerService
InvoiceReconciliationTeams
AccountAdministration
UsersFinance& Ops
Client
Branch
Origination
CreditBureau CRM
Systems
Loan Application
CreditScoring SupportingDocs
Initial Decision Appraisal Underwriting Loan Doc
Packaging Securitization Payment &Servicing
ClientSign off
Typical Results:
Reduce cost per loan by 50%
Reduce processing time by 80%
Simultaneous and effortless access to all parties
Process over 85% of loans electronically
Resolve 60% of inquiries on first call
Decisioning Validation Processing
Businesslending
Studentlending
Consumerlending
Mortgagelending
Credit cardprocessing
Generic Lending Process Flow
Onboarding & Origination
Optimization
The 2013 Point of View
• Empowered Customers - Think Like a Retailer• Simplicity Low Cost - Act like a Manufacturer• Common Agile Processes - Operate as One Bank• Capital – Embed Risk Management
Capital – Embed Risk Management
• Basel II / Basel III / Liquidity………….. • G-SIBs• D-SIBs?• Business Model Reinvention - Capital Planning / Forecasting • Risk Data • Embed into Business Decisions
IBM Confidential – Internal Use Only
Our Capabilities Client Needs Addressed
1 – Regulatory Compliance -Process and Governance
Transformation driven by Regulatory Changes (i.e. Fed/OCC, FSA, Dodd-Frank, Living Wills, etc.)
FED/OCC Consent Orders in Mortgage/Lending, FFIEC Exam Prep, Internal/External Audit Findings, Legal eDiscovery, Records Mgmt
Operating Model Improvements, Data Security/CyberSecurity
2 – Risk and Security Application Architecture and Implementation
Address new Compliance Mandates (Basel AMA, RCSA, Solvency II, Dodd-Frank, FSA, IFRS)
Reduce cost of compliance, while improving transparency Improve automation, risk/control monitoring effectiveness
3 – Data Architecture New Data and reporting standards for Basel II/III and Solvency II and Architecture needs
Finance and Risk Data Integration and Consolidation Time to Data and Cost of IT Accelerated Reporting (Intraday) requirements
4 – Risk Analytics and Reporting New Regulatory Requirements for Basel III – Liquidity, ALM, Reg/Economic Capital, Stress Testing
Data Quality and availability for timely, accurate reporting Automation and Instrumentation of Risk and Control Data for reporting, analytics and
key risk indicators/metrics
IBM’s Strategy – To be the leading provider of integrated risk and compliance solutions to the Financial Services Industry by enabling clients to effectively manage evolving regulatory compliance mandates while improving performance.
IBM Risk Management, Solution Domain Summary: CRO
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Thank you