IBM Global Business Services In collaboration with Saïd Business School at the University of Oxford Business Analytics and Optimization Executive Report IBM Institute for Business Value Analytics: The real-world use of big data in financial services How innovative banking and financial markets organizations extract value from uncertain data IBM® Institute for Business Value IBM Global Business Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior executives around critical public and private sector issues. This executive report is based on an in-depth study by the Institute’s research team. It is part of an ongoing commitment by IBM Global Business Services to provide analysis and viewpoints that help companies realize business value. You may contact the authors or send an email to [email protected] for more information. Additional studies from the IBM Institute for Business Value can be found at ibm.com/iibv Saïd Business School at the University of Oxford The Saïd Business School is one of the leading business schools in the UK. The School is establishing a new model for business education by being deeply embedded in the University of Oxford, a world-class university and tackling some of the challenges the world is encountering. You may contact the authors or visit: www.sbs.ox.ac.uk for more information. IBM Global Business Services 1 By David Turner, Michael Schroeck and Rebecca Shockley “Big data”– which admittedly means many things to many people – is no longer confined to the realm of technology. Today it is a business imperative and is providing solutions to long-standing business challenges for banking and financial markets companies around the world. Financial services firms are leveraging big data to transform their processes, their organizations and soon, the entire industry. Our newest global research study, “Analytics: the real world Big data is especially promising and differentiating for financial use of big data,” finds that executives are recognizing the services companies. With no physical products to manufacture, opportunities associated with big data. But despite what seems data – the source of information – is one of arguably their most like unrelenting media attention, it can1 be hard to find important assets. The business of banking and financial in-depth information on what financial services firms are really management is rife with transactions, conducting hundreds of doing. In this industry-specific paper, , we will examine how millions daily, each adding another row to the industry’s banking and financial markets industry firms view big data immense and growing ocean of data. So the question for many – and to what extent they are currently using it to benefit their of these firms remains how to harvest and leverage this businesses. The IBM Institute for Business Value partnered information to gain a competitive advantage? with the Saïd Business School at the University of Oxford to conduct the 2012 Big Data @ Work Survey, the basis for our We found that 71 percent of these banking and financial research study, surveying 1144 business and IT professionals in markets firms report that the use of information (including big 95 countries, including 124 respondents from the banking and data) and analytics is creating a competitive advantage for their financial markets industries, or 11 percent of the global organizations, compared with 63 percent of cross-industry respondent pool. respondents. Compared to 36 percent of banking and financial markets companies that reported an advantage in IBM’s 2010 New Intelligent Enterprise Global Executive Study and Research Collaboration, this is a 97 percent increase in just two years (see Figure 1). 2 2 Analytics: The real-world use of big data in financial services The banking and financial industries are not immune to the Realizing a competitive advantage growth of social media as their reputations and brands are 2012 discussed by customers within their large personal networks. 71% The creation of useful data now stretches well beyond the bank’s control. 63% 2011 Further, the study found that banking and financial services 69% organizations are taking a business-driven and pragmatic 58% approach to big data. The most effective big data strategies identify business requirements first, and then leverage the 2010 97% existing infrastructure, data sources and analytics to support 36% increase the business opportunity. These organizations are extracting 37% new insights from existing and newly available internal sources Banking and Financial Markets respondents (n = 124) of information, defining a big data technology strategy and Global respondents (n = 1144) then incrementally extending the sources of data and Source: Analytics: The real-world use of big data, a collaborative research study by infrastructures over time. the IBM Institute for Business Value and the Saïd Business School at the University of Oxford. © IBM 2012 Organizations are being practical about Figure 1: Financial services companies are outpacing their cross- big data industry peers in their ability to create a competitive advantage from analytics and information. Our Big Data @ Work survey confirms that most organizations are currently in the early stages of big data planning and development efforts. Banking and financial markets companies At the same time, these firms are dealing with a very diverse are on par with the global pool of cross-industry counterparts. and demanding customer base that insists on communicating While 26 percent of banking and financial markets companies and transacting business in new and varied ways, any time of are focused on understanding the concepts (compared with 24 the day or night. While the banking industry’s structured percent of global organizations), the majority are either: customer data is growing in size and scope, it is the world of defining a roadmap related to big data (47 percent) or already unstructured data that is emerging as an even larger and more conducting big data pilots and implementations (27 percent, important source of customer insight. Investment bankers, see Figure 2). financial advisors, relationship managers, loan officers and countless other front-office employees must have ready access to detailed product and customer information in order to make better and more informed decisions, while also supporting regulatory and compliance reporting requirements. IBM Global Business Services 3 This is consistent with what we see in the marketplace, where Big data activities banks are under tremendous pressure to transform from product-centric to customer-centric organizations. Today, the Global 24% 47% 28% customer must be the central organizing principle around which data insights, operations, technology and systems revolve. By improving their ability to anticipate changing Banking and Financial Markets markets conditions and customer preferences, banks and financial markets organizations can deliver new customer- centric products and services to quickly seize markets 26% 47% 27% opportunities while improving customer service and loyalty. Have not begun big data activities Planning big data activities Pilot and implementation of big data activities Source: Analytics: The real-world use of big data, a collaborative research study by Big data objectives the IBM Institute for Business Value and the Saïd Business School at the University of Oxford. © IBM 2012 Global 49% 18% 15% 14% Figure 2: Almost three-quarters of financial services companies have either started developing a big data strategy or implementing big data as pilots or into process, on par with their cross-industry 4% peers. Banking and Financial Markets 55% 23% 15% In our global study, we identified the following five key findings that reflect how financial services organizations are 4% 2% approaching big data. For a more in-depth discussion of each Customer-centric outcomes of these findings, please refer to the full study, “Analytics: The Operational optimization real-world use of big data.”3 In this industry analysis, we will Risk/financial management New business model examine the maturity of banking and financial markets Employee collaboration organizations with respective to these key findings, and our top-level recommendations directed at the needs of banking Source: Analytics: The real-world use of big data, a collaborative research study by the IBM Institute for Business Value and the Saïd Business School at the University and financial markets companies: of Oxford. © IBM 2012 1. Customer analytics are driving big data initiatives Figure 3: More than half of big data efforts underway by financial When asked to rank their top three objectives for big data, service companies are focused on achieving customer-centric outcomes. 55 percent of the banking and financial markets industry respondents with active big data efforts identified customer- centric objectives as their organization’s top priority (compared to 49 percent of global respondents, see Figure 3). 4 Analytics: The real-world use of big data in financial services For example, one of the largest banks in the Singapore- 2. Big data is dependent upon a scalable and Malaysia markets has been widely successful with its customer- extensible information foundation focused big data initiatives. The Oversea-Chinese Banking The promise of achieving significant, measurable business Corporation (OCBC) analyzed historic customer data to value from big data can only be realized