Business Intelligence and Financial Services

A frequent question for enterprise executives is: why do I need BI?  Occasionally, I have to put elaborate presentations together showing what BI is and how it fits each company. However, when it comes to financial services, and more specifically the banking industry, there are only two lines that are really needed:

1. Regulatory Reporting    
2. Risk Management    

Anyone familiar with either of these and the concepts of BI might just stop reading right now.  However, since that would make for a short blog, let me continue to explain why I think it’s so simple.

Let’s start with the basics of BI which, to me, are Reporting (Operational and Ad-hoc), Analytics, Dashboards, Discovery, and then Learn and Repeat.  Each is a separate step and should be treated as an iterative approach.

Regulatory reporting requirements from the FDIC, NCUA, SEC, SOX, HIPPA, etc. all require various types of reporting. Specifically with the FDIC, NCUA and SEC, there are monthly, quarterly and yearly reporting requirements ranging in all areas from Deposits, Securities, Safe Deposit, CD’s, Secured Loans, Unsecured loans, etc.  All these reports could be automated and easily generated through the Operational Reporting piece of BI, not to mention all the other reporting a financial organization needs to be able to handle. Ad-Hoc reporting is great for spontaneous or last-minute reports. Maybe someone asks about the status of delinquent loans 20 minutes before a meeting. Maybe you’re working on 13-month rolling audits, and the auditors ask a question and they need answered by end of business. You can easily use Report Builder or Power View in SQL 2012 in order to produce what they need.

Risk Management encompasses Analytics, Dashboards, and Discovery. It’s important to learn from that discovery, and monitor what you’ve learned. The best way to do this is to go back to the basics and leverage operational reporting.

Let’s take a look at this scenario:  You have a problem where you noticed delinquencies on your auto loans have increased by 50% over the past six months.  First, you open Power View in SQL 2012 that is attached to a Loan Performance Analysis Services Cube.  You start to analyze your loans and you find that 90% of the increase in delinquencies is caused by borrowers that had FICO scores of 650 and below, had the loan for one year and a payment to income (PTI) of greater than 20%.  Now, you have analyzed and discovered the issue.   You decide to make a change in your lending practices to charge higher interest rates for borrowers in this category, which in turn reduces your risk of loss on the loan.

So are we done now?  Of course not.

We need to see if this change in lending practices actually made a difference.  There are a couple of ways we can do this.  First, we could create a report that starts monitoring loans generated after the decision date. Since we learned the borrowers only started becoming delinquent after a year, it should take 12 months to see the results.  Next, we could create a dashboard that monitors both loans before and after the decision and put that dashboard into the CFO and head of loan’s daily view.   We could even create a KPI for goal of delinquency and monitor against that. All of these could easily be created within SharePoint 2010 using Reporting Services and/or PerformancePoint. 

One last quick note: the FDIC requirement for stress testing could also be easily created using an Analysis Services cube and enabling write back for what if scenarios.

Rather than ask how business intelligence can help your organization, take some time to think about the increased power you could have in backing your decisions with the help of BI. The more insight into each decision, the better your company will be positioned for the future. Business intelligence and financial services go hand-in-hand.