Market Changes Shift Data Management Approaches

MBA (6/17/2008 ) Palaparty, Vijay
As the financial services industry continues to change rapidly, financial institutions must also adapt and amend data management practices, according to a recent webcast from Financial Insights, Framingham, Mass.
“Financial institutions have to change to survive, particularly making changes around the way they are managing data to support the whole organization,” said Jeanne Capachin, vice president of global banking and insurance practices at Financial Insights. “The credit environment today is very different as is the environment for real estate lending.”

Capachin cited an overall lack of information on the status of portfolios, combined with data that is not representative of what will happen in the future. “We have a lot of barriers that make it difficult to change,” she said. “Some of these barriers are legacy and siloed technology. At the same time, financial institutions are highly regulated and there will always be concern about governance, policies and reporting. We would like changes to take place quickly, but a lot is holding back progress.”

Incentive for financial institutions to transform stems from increasing globalization, regulation and customers, Capachin said. “Globalization is a double-edged sword. Some organizations will be the big benefactors and others will fail or be acquired,” she said. “Financial institutions outside of the U.S. are well-positioned to acquire companies, especially because of the weak U.S. dollar. The pace of acquisition will increase and most organizations coming in will be from outside the U.S. This creates a new competitive environment.”

From a regulatory perspective, Capachin said some regulation has positively impacted organizations and their IT architecture, data management, business processes and infrastructure. “The impact goes well beyond compliance and has forced integration efforts that are yielding unintended, positive consequences,” she said. “Organizations have undergone a huge initiative with Basel II. These initiatives are spawning larger initiatives where organizations are building off of successes and using practices and staff that they used to meet compliance requirements. Investing in regulatory compliance can lead to large business investment.”

“When it comes to customers, financial institutions do not seem to always succeed but they do focus on them when times are bad—they focus on keeping current customers rather than getting new customers,” Capachin said. “Financial institutions scramble to grow business. A lot of customer relationship management initiatives are much more focused and targeted today, especially in terms of analytics and data management.”

Capachin also said information management initiatives serve as a critical layer for business analytics applications to be pervasive. “These areas are most prone to failure if the foundation isn’t strong,” she said. “Financial institutions are in the early stages with implementations, technology has matured and banks have a better handle on data management.”

But data is insufficient in business analytics, Capachin said. “It could be lack of management support, data is not getting into the right hands or they don’t trust the data,” she said. “Any of this can hinder the organization.”

From a risk management perspective, organizations are developing consistency and bringing it in as a discipline for growth, Capachin said. “But that can’t be achieved without a strong data management layer,” she said. “Risk management at financial institutions has many different flavors. In credit risk management, current credit models are insufficient. Because the credit environment has changed, we need to accumulate good data now to repopulate models to better manage risk."

Geoff Burkholder, solutions director at HP Business Intelligence, Palo Alto, Calif., said current issues center on enterprise data management. “With the right data, you can accomplish a great deal on the revenue front—it essentially becomes a data issue. Being able to understand customers and market to them appropriately, look at their risk and improve delivery time creates value to customers. Managing data as an asset, compiling risk information, and from an enterprise perspective, using data cross lines of business and geographies, certainly creates even more value.”

“We are seeing warehousing of customer data integration,” Burkholder said. “Reference data are converging and not viewed as silos anymore. Manage it as a corporate asset. Today, there is a drive for predictive data—what information can you get about customers and your portfolio? Leverage it from a predictive perspective.”