October 12, 2016
By Kevin Barnaville, Commercial Director, Qarar
The impact of lower oil prices and the recently announced government cuts to public sector spending have been widely reported. Less well discussed have been the effects in terms of negative consumer sentiment and the resulting impact to other sectors in the economy, notably the impact on retail bank policy and lending.
The indirect impact to the retail banking sector is far reaching; but can be mitigated through the application of an integrated approach. The current economic situation can be viewed as providing an opportunity to improve on existing practices to enhance a data lead holistic business view, driving cost efficiencies and more effective management control.
Current Impact on Customers and their Behaviours
Examples of Impact on Retail Banks
The typical impacts of changes to customer behaviour can be seen in the illustration below:
Way forward – A Data Driven Solutions Approach
The lenders that are better equipped to manage and even prosper in such times, are those that have adopted an integrated approach to risk management and able to minimise potential losses. That is, all elements in the organisation working together to support the business strategy, for example operations, process, information and technology (OPIT). These organisations also see the importance of speed and velocity of change that enables them to work on the basis of a cycle of continuous improvement, and are thus more resistant to future shocks.
These elements when combined with an analytically data driven approach and delivered through the entirety of customer credit lifecycle, assist lenders address credit risk and take proactive decisions.
In this analytical approach the quality of the input data is key to determining the complete customer picture and any subsequent actions. The Kingdom is fortunate for the external data components to have good quality credit bureau data from SIMAH. These data, which includes real time alerts and Big-Data through the Portfolio360 solution, can be overlaid on a regular cyclical basis with existing in-house customer information and with the support of Qarar, our decision analytics business, help our Client’s to understand a full picture of their customer’s exposures and likely behaviours. Examples of the type of advisory services from Qarar include:
Further applications for the credit bureau data when applied with analytics can support lenders with the following:
The analytical approach is not only important to providing strategic direction, as can be seen above it is equally as important to the effective management of short term risks. For example to ensure suitable liquidity is accounted for in the short-term to manage increased re-structuring, more effectively manage operational teams (given increased manual work in lieu of automated re-structuring decisioning capabilities) and help to re-enforce the feedback loop and maintenance of high quality data with the credit bureau.
To conclude, banks and retail lenders should grasp the opportunity to develop a pro-active approach through the application of data and predictive analytics, not only as a temporary fix to the current economic trading conditions, but to embed the discipline of an analytical decision based culture in their respective organisations to protect against future shocks.