Banking

Advanced analytics for profit maximization

About the industry

The Bureau of Labor Statistics (BLS) considers the banking industry to fall under the “Financial and Insurance” sector. The BLS broadly describes this sector, explaining, “The Finance and Insurance sector comprises establishments primarily engaged in financial transactions (transactions involving the creation, liquidation, or change in ownership of financial assets) and/or in facilitating financial transactions. Three principal types of activities are identified:

1. Raising funds by taking deposits and/or issuing securities and, in the process, incurring liabilities. Establishments engaged in this activity use raised funds to acquire financial assets by making loans and/or purchasing securities. Putting themselves at risk, they channel funds from lenders to borrowers and transform or repackage the funds with respect to maturity, scale, and risk. This activity is known as financial intermediation.

2. Pooling of risk by underwriting insurance and annuities. Establishments engaged in this activity collect fees, insurance premiums, or annuity considerations; build up reserves; invest those reserves; and make contractual payments. Fees are based on the expected incidence of the insured risk and the expected return on investment.

3. Providing specialized services facilitating or supporting financial intermediation, insurance, and employee benefit programs.

In addition, monetary authorities charged with monetary control are included in this sector.”

Challenges within the industry

A recent Forbes Leadership article wrote thoroughly about the HR challenges facing the banking industry in the coming years. These challenges mean decision makers and leadership will need to look to advanced analytics, specifically performance and employee analytics, in order to remain competitive. Forbes writes in this lengthy article, “There are a number of challenges facing HR directors in the banking sector in 2015, according to Andrea Eccles, chief executive of City HR Association. She believes that these challenges come under the categories of regulation, remuneration and restoration. With regards to regulation, Eccles argued that both EU directives and Prudential Regulation Authority (PRA) and Financial Council Authority (FCA) consultation papers have had a major impact on people management activities within banks. “These include the reward elements arising from the Capital Requirements Directive (CRD) IV and the introduction of bonus caps of 100% of base pay or 200% with shareholder approval. Furthermore, the PRA/FCA are also proposing new conduct rules with the introduction of the Senior Managers Regime (SPR) which will hold employees – particularly those at the top end – more accountable for their actions. This will result in seismic changes in HR strategy given that the SPR is likely to impact the full employee lifecycle from recruitment and on-boarding to performance management and exit.”

The second major challenge facing HR directors in banking are the proposed changes to the Remuneration Code as put out to consultation by the PRA and FCA between July and October 2014, commented Eccles. “Among many proposals, this is likely to see changes to bonus deferrals, clawback, malus and potentially bonus buy-outs, with tougher financial sanctions aimed at the top management of any future bailed-out banks.” Another remuneration challenge facing HR directors in the global banks is the reform to pensions as announced in the Spring 2014 budget, remarked Eccles. “The introduction of flexible access on the drawdown of funds within defined contribution schemes will see the need for workplace pre-retirement education of employees up to five years before their actual retirement date.”

These HR challenges addressed in the Forbes article are only a few that face organizations in the banking industry today. The changing regulations and shift in management operations opens the industry to the opportunity to reshape their decision making processes, develop more efficient strategies, and increase profits, all of which can be done through the integration of advanced analytics and business intelligence processes.

How do we serve your industry?

Collaborating with companies such as Bank of America, Competitive Analytics empowers banking executives with advanced analytics in order to optimize decisions. At a minimum, banks need core analytical dashboards in order to stay competitive while managing regulatory guidelines. Moreover, banks are increasingly deploying advanced analytics in the areas such as compliance, cost of compliance, risk mitigation, and portfolio optimization. Other benefits of advanced analytics include understanding short and long-term profitability potential, identifying and preventing fraudulent behavior, tracking customer behavior, and creating a sustainable competitive advantage. Because of the level of regulation within the banking industry, growth is difficult to realize, so utilizing data and analytics to advance and maximize success is imperative. In essence, leveraging advanced analytics within a banking institution will assist executives with increasing revenue, controlling costs, and decreasing risks. Example: By developing predictive and interactive models via a series of analytical techniques, banks can segment customers and effectively predict future behavior of new and existing customers, determine the best fit for products and services based on customer behavior or life stage, detect fraudulent or unusual behavior immediately, and much more. Simply, decision makers are empowered to make data-driven decisions about their product or service offerings, their customers, and their organization’s future with confidence when using big data and banking analytics.