Top Four An­a­lyt­ics Myths Busted

The chang­ing sce­nar­ios and reg­u­lar tech­no­log­i­cal in­no­va­tions have led to var­i­ous prof­itable changes in In­dia’s bank­ing in­dus­try. Whilst still many myths cur­tail a pres­sure on prof­itabil­ity

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In­dia’s bank­ing in­dus­try is fac­ing in­creased pres­sure on prof­itabil­ity with (i) en­try of new play­ers (Pay­ment Banks, Small Fi­nance Banks) in an al­ready com­pet­i­tive en­vi­ron­ment, (ii) rise in NPAs across cor­po­rate and re­tail sec­tor lend­ing, and (iii) in­creas­ing threat of dis­rup­tion of tra­di­tional bank­ing mod­els by Fin­techs. In such an en­vi­ron­ment, smart use of an­a­lyt­ics of­fers bank’s an op­por­tu­nity to bet­ter un­der­stand the past, con­trol the present and con­fi­dently em­brace the fu­ture. It can also help the banks open up ‘new mod­els of bank­ing’ where the fo­cus will not be just on the fi­nan­cial prod­uct.

It is this prom­ise of an­a­lyt­ics that led to al­most all the banks (larger pub­lic sec­tor banks and the ma­jor­ity of pri­vate sec­tor ones) in­vest­ing in an­a­lyt­ics to op­ti­mize their de­ci­sion mak­ing. They use an­a­lyt­ics for fraud de­tec­tion, sim­ple credit risk cal­cu­la­tions and mar­ket­ing. How­ever, only a few of th­ese banks have man­aged to hit the jack­pot with the an­a­lyt­ics in­vest­ments, and the rest have started dis­cussing where they are go­ing wrong in this jour­ney and what do they need to fix – peo­ple, process or tech­nol­ogy?

The an­swer typ­i­cally would start with re­view­ing the An­a­lyt­ics So­lu­tion De­vel­op­ment roadmap to as­sess if it is (i) in sync with the Banks busi­ness strat­egy, (ii) in-line with the data avail­abil­ity con­straints and (iii) fo­cused on the right ar­eas that hold the po­ten­tial to drive busi­ness growth, re­duce costs and im­prove op­er­a­tional ef­fi­cien­cies.

We have listed some com­mon myths that hold back banks from re­al­iz­ing the full top-line and bot­tom-line im­pact po­ten­tial of an­a­lyt­ics and po­ten­tial ac­tions that the banks can take to ad­dress the same:

MYTH 1- HAV­ING A DATA WARE­HOUSE IS A PRE-REQ­UI­SITE TO START THE AN­A­LYT­ICS JOUR­NEY

Banks be­lieve that not hav­ing a sin­gle repos­i­tory of data, such as EDW (en­ter­prise data ware­house), is in­dica­tive of data not be­ing ad­e­quately or­ga­nized for an­a­lyt­ics and de­ci­sion mak­ing. Thus, they miss out on the ben­e­fits of an­a­lyt­ics that can be re­al­ized even in the ab­sence of en­ter­prise-wide data con­sol­i­da­tion.

Ac­tion: Do not wait to fix data — lever­age ex­ist­ing data within de­part­ments in the form of data marts to build an­a­lyt­ics so­lu­tions while one de­cides about EDW.

MYTH 2 - AN­A­LYT­ICS IS AN IT FUNC­TION

Many banks have a tech­nol­ogy-driven ap­proach to an­a­lyt­ics and run their an­a­lyt­ics pro­grams as stand­alone IT func­tion; this usu­ally ends up lim­it­ing the an­a­lyt­ics out­puts to “in­for­ma­tive” in­stead of trans­for­ma­tional; and make the func­tion an en­hanced Busi­ness In­tel­li­gence Unit in­stead of a Busi­ness Trans­for­ma­tion En­abling Unit.

Ac­tion: Cen­tral­ized an­a­lyt­ics setup with joint busi­ness and IT own­er­ship — set up an­a­lyt­ics CoE (Cen­tre of Ex­cel­lence) led jointly by se­nior busi­ness and IT ex­ec­u­tives to pro­vide di­rec­tion and mea­sure ROI (Re­turn on In­vest­ment) for th­ese pro­grams; de­pute sub­ject ex­perts from de­part­ments to an­a­lyt­ics CoE to drive pri­or­i­ti­za­tion ba­sis on-ground re­quire­ments and the abil­ity to drive adop­tion.

MYTH 3 – FO­CUS ON AN­A­LYT­ICS SO­LU­TION DE­VEL­OP­MENT (TOOLS, TECH­NOL­OGY, AND TECH­NI­CAL SKILLS) TO GET THE ROI

Banks have been lay­ing pri­mary em­pha­sis on pro­duc­tion as­pects of an­a­lyt­ics (tech­nol­ogy, tools, data and ad­vanced an­a­lytic skills) over the last cou­ple of years. How­ever, it is ul­ti­mately peo­ple in the busi­ness who need to act upon those in­sights in or­der to gen­er­ate pos­i­tive busi­ness out­comes. Lead­ers need to make sure that their teams, across busi­ness func­tions, are fully equipped and re­quired to use data an­a­lyt­ics in­sights in or­der to present ideas, make the ev­i­dence-based case for change and to take ac­tion to gen­er­ate value.

Ac­tion: Lay equal em­pha­sis on An­a­lyt­ics So­lu­tion De­vel­op­ment and em­bed­ding an­a­lyt­ics so­lu­tions into busi­ness pro­cesses. IT Im­ple­men­ta­tion SPOC and Busi­ness process SPOC should be en­gaged very early in so­lu­tion de­vel­op­ment process to en­sure seam­less im­ple­men­ta­tion.

MYTH 4- EX­PE­RI­ENCE BASED JUDG­MENT TRUMPS DATA

Most bank lead­ers pri­or­i­tize ex­pe­ri­ence-based judg­ments over data-driven in­sights, or if they use an­a­lyt­ics are com­fort­able as long as data-driven in­sights help them val­i­date the de­ci­sion they have al­ready taken. An­a­lyt­ics ROI in both the above cases is nil. With the ad­vance­ment in tech­nol­ogy, we today have the op­tion of op­ti­miz­ing de­ci­sion-mak­ing at customer level (i.e. n=1) in­stead of tak­ing de­ci­sions at ag­gre­gate port­fo­lio level or at 8-10 customer seg­ment level. This needs a fun­da­men­tal change in how bank­ing lead­ers op­er­ate.

Ac­tion: Des­ig­nate a Chief An­a­lyt­ics Of­fi­cer who is not afraid to ques­tion sta­tus-quo; and pro­vide an­a­lyt­ics func­tions the Ex­ec­u­tive Spon­sor­ship from the CEO’s of­fice to en­able it to be­come a Trans­for­ma­tion Func­tion.

The au­thor is Jas­jeet Singh, Part­ner – Fi­nan­cial Ser­vices An­a­lyt­ics, Ad­vi­sory – EY In­dia

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