How to comply with new regulations such as fast pay-out? - A banker's dilemma
The new guidelines on fast pay-out issued by the financial regulators of FSA, are changing the perspective of banks and other deposit-accepting financial institutions on achieving consolidated and comprehensive views on their customers and their activities irrespective of their touch points. These guidelines and the consultative framework, which FSA is building, will significantly speed up processing of claims of the depositors. The consultation prescribes a mandatory period of seven days to process the claims and settle them. An important element of the proposals is the introduction of a clause requiring the banks to be able to furnish a Single Customer View (SCV) to ensure that they are in a position to provide the aggregate balance held by each eligible depositor (FSA UK).
In its attempt to solve the depositors' difficulties to gain their money back from the banks as well as to assure that bank will not have a run on them, FSA is asking a few fundamental questions to banks. These questions can be summarised as:
a. How do banks store and retrieve all their customer information?
b. Are systems and applications that the banks have built over a period capable of extracting vast amounts of data attributes to create meaningful information?
c. Can the banking and other financial organisations realistically establish a relationship between depositors A and B when they are the same or are interconnected with transactions?
d. How do banks manage their customer information particularly in the context of mergers and acquisitions?
e. Can the two systems - acquired and acquirer bank be integrated in a way that enables single view of their customers and their activities?
Traditionally, banks have organized themselves in silos created on the basis of products/services or geographical processes. Further innovation in products has made it difficult to share customer information between different SBUs seamlessly. In addition to this, disparate systems exist between different divisions of the banks, making it all the more difficult to extract the information in real-time basis to understand depositors' exposure to the banks. Though in the last few years banks have spent significant effort and money to implement robust CRM systems and other applications such as KYC to meet internal and external compliance matters, a comprehensive view providing a greater depth of knowledge about their customers is far from reality. The key stumbling blocks to achieving single views on customer data between different products and service lines include the lack of an information bridge between business architecture and technology architecture and the difficulties in building common symbology across source systems.
Historically, organisations have approached the solutions from the perspective of building large data-warehouses. This approach of building large-scale databases to load customer information, analyse them through data marts and data processing applications were built as additional layers to create meaningful reports and views about customers and their activities. However, issues such as duplications, re-creation of customer data in addition to effort, the requirement to maintain structured and unstructured data along with real-time update of changes, have limited the benefits of these built data-warehouses.
To be in a position to meet the FSA's deadline, banks now need to relook at their entire IT landscape. Sooner or later, IT management of these banks have to take a deeper look on the multiple databases they have built over a period of time to maintain and manage their customers across the globe. They need to be in a position to seamlessly distribute and redistribute information as, when, and where needed. To comply with FSA, banks need to initiate a few first but important steps.
Step 1: Build an enterprise wide roadmap for master data quality: It is a known fact in the industry that in large organizations, there are multiple formats and versions of master data. Having a defined view on how customer-related information will be captured and maintained is the first foundation stone. De-duplication of customer information and building a standardised format through which, customer information acquisition can happen is important and critical for the intended strategy of building a SCV.
Step 2: Build an Information Architecture: Within banking organisations, different business and technology architectures exist. The missing link has been the lack of a clear vision on building a unified information architecture. Defining the process for building a common symbology to serve as a single-source for cross-reference is critical. This will not only help in seamless update of all downstream systems but will also play a significant role in how information is received from upstream systems without any manual, intervention-based data cleansing effort. Limiting manual intervention can significantly reduce errors that typically occur during the creation of customer information.
Step 3: Define the view on solution choice: data warehouses and SOA both provide ways to achieve the single view on customers. Depending on the number of source-systems, data volume, and integration complexities, an organisation needs to have a clear perspective on the solution, which not only caters to the current needs but also addresses the needs of the business and customer growth in the foreseeable future. If the choice is to build a large data warehouse, it is important to understand how a single update of the other databases that store customer information can also happen.
In a nutshell, there is no silver bullet to addressing these requirements. In order to optimise the tools and technologies to ensure that organisations have a single view on customers, they need to consider cost-effectiveness, flexibility, and analytical requirements. Building a single view on customers will help organisations benefit beyond regulatory compliance requirements. Finally, it is the deep understanding of the customer, which differentiates and propels competitive advantage for organisations.