Interactive decision-making now vital in banking
With so many disruptive forces and regulatory pressures within the sector, will banks become little more than payment utilities? Ian Quine, sales director, Alpha Insight looks at how well banks are facing up to the issues they face
The banking and finance sector is going through almost unprecedented change and to survive intact, its institutions need every tool at their disposal.
While retail customers shift to digital interaction online or via smartphone, block-chain technology, challenger banks and the rise of financial technology companies are fast emerging as major sources of disruption and competition.
Aside from these considerable challenges, the larger banks are also facing the increased burden of legislation and regulation.
At the forefront of many minds are two sets of new regulations in the shape of BCBS 239 – the principles laid down by the Basel Committee on Banking Supervision – and MiFID II, devised by the European Commission and scheduled to come into force in January 2017.
Agility is essential
There are now so many disruptive forces and regulatory pressures within the sector, that unless they are more agile, established banks may become little more than payment utilities.
Yet even though they all face these threats, few banks and financial institutions are effectively addressing this problem by giving themselves the power to intervene and take decisions interactively, either to head off problems or to reduce their impact.
The lack the operational intelligence capabilities that are the basis for making the right call when alerts start turning amber.
Instead, as they compete against companies with lower overheads and slim-line organisational structures, the established players are bogged down in the confusion caused by fragmented IT systems built up over time in response to previous challenges and opportunities.
They are constantly at risk from critical process failures that risk heavy fines from regulators or trashed relationships with clients and customers.
It is hardly surprising when they are faced with the millions of metrics being generated by this tangle of technology. Lacking the operational intelligence expertise, they cannot narrow these metrics down to what is business-critical and needs to be monitored in real time.
The consequences of not understanding what is vital among all the metrics can be appalling when it comes to a key function such as payments processing. If we consider the recent high-profile failures of major UK banks to complete hundreds of thousands of payments, we can see the scale of the problem and what a difference interactive decision-making would have made.
Institutions with labyrinthine legacy systems monitoring millions of transactions are not being alerted when critical processes head towards failure, cutting out their ability to act.
These opaque systems give nobody a true understanding of what is critical. When a significant increase in transactions occurs for example, they never know if the system is coping until it fails.
All banks have monitoring tools, but most are bogged down in the detail. They lack the real-time view of what is really critical which would give them the chance to intervene before processes collapse.
The same is true in achieving compliance with the Basel Committee on Banking Supervision’s regulation BCBS239. As a set of principles with which a bank has to comply, rather than a defined set of metrics or KPIs, this regulation demands risk reports are timely, complete and accurate. Inevitably, many banks struggle to understand how they should measure themselves against these headings and start off with the wrong, and expensive, approach.
The capacity for real-time interactive decision-making to meet these challenges and counter the threats, depends on operational intelligence based on the effective monitoring of critical business flows. This begins with establishing KPIs in relation to what is critical and then embedding them into everyday processes, rather than fitting a solution that adds another layer of complexity.
Once this is achieved, real-time dynamic, business analytics give full visibility of data, providing critical insights into streaming events and business operations.
Operational intelligence is able to run queries against this data to deliver the analytic results that give a business the power to make decisions and to intervene immediately, whether that is through human agency or automation.
Alerted to danger
Decisions can be triggered through the use of traffic-light monitoring which flags up potential problems as amber, ensuring no problem goes into red status.
Since alerts arrive in real-time, effective decisions are taken on up-to-date information.
This is in many ways a collaborative process, bringing together IT, operations and business – in other words, the people designing the infrastructure, those supporting it, and those running the business.
Interactive decision-making means bringing all three together from the outset. In this way each department has its own dashboard, alerting them to problems in the flow.
Then when something is about to go wrong and an amber alert is triggered, nobody questions what needs to be done as they are sharing the same information and same set of alerts.
The right decisions
If a crucial application goes down at a bank, in the past there would have been three people from the respective departments looking worried, but not sure what the significance was for their department – whether it would endanger end-of-month clearing, consolidation or some other process.
But with a dashboard that only alerts at amber where a critical flow is endangered, this leads to faster, concerted action, because everyone understands the significance of what they are looking at. In this case it could mean that the completion of payments to a deadline is in jeopardy.
Because the dashboards and alerts are based on operational intelligence, the decision about how to respond is owned by the relevant party in accordance with the bank’s own protocols. Action is then taken, usually by the operations department, with the business fully informed.
Dashboard alerts enabling interactive decision-making can cover, for example, the number of payment volumes generated by legal entities or clients and their status, or the amount of payments that have been in a default status for a set amount of time within a predetermined time-frame.
Equally they can alert to impending difficulties with transactions, either in queues or measured against expectations by maintaining a rolling history and comparing the actual number to an average of the previous period.
Alerting also covers the connectivity for payment and message interfaces or how long it takes to process a task.
Fixing problems fast
Equipped with this intelligence, a bank can resolve threats to regulatory or compliance reporting very quickly.
For example, when it comes to taking action, manual processes or over-rides can be put in place to permit direct intervention. This may involve, for instance, calling clients to tell them that clearing cannot be completed, or contacting the FCA, so that everything is open and compliant with reporting requirements. In this circumstance, a bank gives itself the opportunity to demonstrate to regulators that it saw the problem emerging, was unable to prevent it, but is doing all in its power to remediate it.
Simple to implement
Essential to the process of alerting and interactive decision-making is an operational intelligence tool that works within conventional process and IT monitoring solutions. It must be built by experts who establish the real flow of business-critical data that needs to be monitored.
They will combine this with their technology skills in an approach that has the logic and intelligence to comprehend the bigger picture and predict a failure, allowing for remedial action.
In simple terms, the bank takes conventional end-to-end flow monitoring of processes and turns it into a tool that supplies real-time insights by applying its own business logic to put key metrics in context.
It can be implemented very quickly as an add-on, without the need to rip out an entire IT estate.
Once a bank has this end-to-end insight into its processes, its operational intelligence will be razor-sharp, allowing for real-time interactive decision-making.