BankingAnalyticsAdvisory, 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?

• data is not in t e best s a e o fi t e data first and t en in est in anal ti s or an deri e 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 W hat they need to do?

W atchers

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

L atecomers

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 t e ban s rofitabilit

Advanced

Embedded analytics across customer touch points

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

• n rease ustomer rofitabilit furt er 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 gro segment rofitabl et

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 organi ed for anal ti s and de ision ma ing us t e miss out on t e benefits of nal ti s t at an be reali ed even in the absence of enterprise-wide data consolidation.

tion o not ait to fi data le erage e isting data it in de artments in t e form of data marts to build anal ti s solutions while you decide about EDW

Myth 2 : Analytics is just an I T tool enablementMany banks have a tool-driven approach to analytics and run their analytics programs as standalone IT tool a li ations t is de ri es t em of benefits

Action entrali ed anal ti s setu it oint business and o ners i set u anal ti s E led ointl b 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 as el ed leading ban s and finan ial ser i es la ers a ross t e globe embed anal ti s in t eir de isionma ing ro ess to reate signifi ant business im a t as follo s

S. No. F unctional Area Country Selective ex amp les of E Y ’ s Analytics Success Stories

1 Marketing: X -sell Campaign

Europe ustomer segmentation based sell models identified ne ealt 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 uilt redi ti e models to s ift alls to t e eb identified signifi ant eb ga s and built ne fun tionalit 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 in rements led to signifi ant im ro ement in ro ess effe ti eness

9 Information management and big data

Europe Enhanced the bank’ s statutory, regulatory and management reporting a abilities defined roles and res onsibilities for t e ief ata ffi er

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

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e or it ban s to identif o ortunities t at an deli er rofitable gro t ile rote ting 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 imp eratives f or bank ex ecutives E Y ’ 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

I ncrease wealth management p roduct p enetration among HNI customers

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

I mp rove NI Ms by f ocusing on low- cost dep osit 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

• E osure to ma or anal ti s tools su as otfire ableau L 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 imp eratives and institutionalise analytics across decision-making p rocesses

• 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 p rojects 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

Ahmedabad

Near. C.N VidhyalayaAmbawadiAhmedabad-380015Tel: +91 79 6608 3800Fax: +91 79 6608 3900

Bengaluru

“U B City” Canberra BlockNo.24, Vittal Mallya RoadBengaluru-560 001Tel: +91 80 4027 5000+91 80 6727 5000

1st Floor, Prestige EmeraldNo.4, Madras Bank RoadLavelle Road JunctionBengaluru-560 001 IndiaTel: +91 80 6727 5000Fax: +91 80 2222 4112

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

ChennaiTidel Park6th & 7th FloorA Block (Module 601,701-702)No.4, Rajiv Gandhi SalaiTaramaniChennai-600113Tel: +91 44 6654 8100Fax: +91 44 2254 0120

Delhi NCRGolf View CorporateTower – BSector 42, Sector RoadGurgaon–122 002Tel: +91 124 464 4000Fax: +91 124 464 4050

3rd & 6th Floor, Worldmark-1IGI Airport Hospitality DistrictAerocity New Delhi-110037, IndiaTel: +91 11 6671 8000 Fax +91 11 6671 9999

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

Hyderabad

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

Kochi9th Floor “ABAD Nucleus”NH-49, Maradu POKochi - 682 304Tel: +91 484 304 4000Fax: +91 484 270 5393

Kolkata22, Camac Street3rd Floor, Block C”Kolkata-700 016Tel: +91 33 6615 3400Fax: +91 33 6615 3750

Mumbai14th Floor, The Ruby29 Senapati Bapat MargDadar (west)Mumbai-400 028, IndiaTel: +91 22 6192 0000Fax: +91 22 6192 1000

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

Pune

Panchshil Tech ParkYerwada (Near Don Bosco School)Pune-411 006Tel: +91 20 6603 6000Fax: +91 20 6601 5900

Gautam Bhattacharya Partner and Leader Analytics, EY IndiaEmail: Gautam.Bhattacharya@in.ey.comPhone: +91 806 727 5144

Jasjeet SinghPartner Financial Services Analytics, Advisory Services, EY India Email: Jasjeet.Singh@in.ey.com Phone: +91 124 6714078

Rohan SachdevGlobal Insurance Emerging Markets Leader Partner and Leader Financial Services, Advisory Services, EY IndiaEmail: Rohan.Sachdev@in.ey.comPhone: +91 22 6192 0470

Neha Swetambari Senior Manager Financial Services AnalyticsAdvisory Services, EY IndiaEmail: Neha.Swetambari@in.ey.comPhone: +91 22 61922487

Mahesh MakhijaPartner Advisory Services, EY IndiaEmail: Mahesh.Makhija@in.ey.comPhone: +91 80 4027 5000

For more information about how our team can help you and your business, please contact:

Ernst & 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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