In my role as chief product and technology officer for FICO, I meet frequently with C-level executives in the financial services sector, looking to squeeze competitive advantage out of their data, writes Bill Waid, chief product and technology officer at FICO.

In our discussions, it is clear that the headwinds facing the industry have never blown harder.

Digital transformation needs to focus not just on automation but on smarter, faster, more profitable decisions throughout the customer life cycle. This involves creating a unified decision management infrastructure that enables people throughout the bank to access and use enterprise intelligence.

In the absence of a crystal ball, modern-day financial services executives need reliable enterprise intelligence on which to base their decisions, made possible by data analysis, actionable insights and accurate predictions of future market trends and customer needs.

Customer defections are at an all-time high in the financial services industry. Fortunately, I have seen time and again where successful digital transformation, and the insightful enterprise intelligence that follows, helps maximise customer satisfaction and retention, while simultaneously addressing vexing market conditions:

* Rapidly changing expectations of how customers expect to interact with their bank, leading to a greater focus on digital transformation and an increased need for rapid change and agile systems.

* Increased competition from agile FinTechs, untethered to legacy platforms, that are targeting banks’ most profitable customers with both full bank and niche offerings.

* Lower expectation of future income, leading to reductions in investment budgets, a greater focus on ROI and ongoing cost reduction to drive efficiency ratios.

* Regulatory pressures increasing as regulators seek to open markets to encourage greater competition and customer choice, while ensuring the financial sustainability and stability of the financial ecosystem.

Efficiency ratio as a measure of digital transformation

Companies that successfully invested in their enterprise intelligence capabilities are reaping the benefits, both in terms of being able to weather the rapidly changing economic and competitive environment and in driving down their efficiency ratio.

Efficiency ratio is an industry-accepted calculation that scores a bank’s profitability, an important measure of its financial stability. A low efficiency ratio indicates that a bank is spending less to generate every buck/ currency of income.

Success factors that help drive efficiency ratios lower

Banks’ digital transformation programmes are addressing the need to modernise, but these initiatives often privilege technical over business goals. How can financial services executives measure their progress once their digital transformation programme is under way, and ensure their efforts are improving their efficiency ratio?

In FICO’s experience with banks around the world, we have found nine success factors for digital transformation projects that address business goals:

* Expanding lending through improved pricing and risk assessment using previously siloed data across divisions.

* Driving down long-term structural IT costs through the use of cloud innovation and more flexible technology solutions.

* Quickly assessing and seizing strategic and tactical opportunities in an increasingly volatile economic climate.

* Reducing losses through next-generation collections and recovery capabilities.

* Improving the customer experience by delivering effective targeted omnichannel communications and AI-informed customer relationship management (CRM)/next best action.

* Rapidly deploying analytic advancements using new data sources.

* Moving important decisions to real time, including the continuous evaluation of customer exposure.

* Maintaining regulatory compliance through a customer-level view of decisions, preferences and responses.

* Adopting enterprise fraud management, minimising the cost and negative customer experience of multichannel fraud patterns like account takeover (ATO).

The way that most leading banks are looking to advance on not one or two but many or all of these success factors is by taking a platform approach to managing decisions.

A platform approach to managing decisions

The decision management platform approach is distinguished by the use (and, importantly, reuse) of a number of integrated ‘decision assets’ and core capabilities, including data ingestion, predictive modelling, business rules management and — for the most advanced platforms — strategy optimisation. The platform approach to decision management is gaining ground, as banks seek ways to increase revenues, reduce costs and compete with fintechs for customers.

Here is where the platform approach pays dividends. Success in efficiency and in achieving digital transformation is the result of thoughtfully conceived strategy and actions in three crucial areas: maximising revenue generation, strict costs controls and adherence to compliance standard.

Large EMEA banks achieving digital transformation and efficiency goals

Can all these efforts result in tangible ROI? They can, and they are. Visionary financial services institutions are using a centralised decision management platform as the foundation for their digital transformation. All are seeing dramatic improvements in the fundamentals of their businesses, leading them to optimal revenue acquisition and costs reduction.

In my recent article on this topic for the Journal of Digital Banking, I discussed the results that several leading banks are achieving. Here are the results for a major bank in EMEA:

* Deployed a new decisioning system with a 30% time savings and 25% cost savings.

* Transformed a projected loss to $6,5-million profit in less than six months.

* Implemented new customer scoring strategies in just one week.

* Put new strategies live 50% faster, reduced testing times and slashed time to make changes from two months to two days, while reducing expected costs by 25%.

* Enabled champion/challenger testing in credit risk, profile, product specification and offer strategy.

Balancing lending growth and prudent risk management is a high priority for financial institutions. Eliminating silos through a platform approach leads to real gains.

Automation and reduction of IT system expenses are important ways for financial institutions to meet cost reduction challenges. Resiliency and competitiveness are hampered when financial institutions cannot change their strategy as fast as the economy changes, this makes strategy deployment speed essential.

It’s easy to see why so many financial institutions worldwide are exploring a platform approach to serve as the foundation for all of their customer-facing enterprise decisioning; it automates processes underpinning smarter, faster, more profitable customer strategies and decisions. This in turn boosts customer satisfaction, retention, and long-term share-of-wallet on a mass-personalized basis.

As author principal Forrester researcher Mike Gualtieri noted in The Forrester Wave: Digital Decisioning Platforms, Q4 2020, such systems combine the expertise of knowledge workers with “the best and latest data-driven decision intelligence technologies, such as machine learning. Digital decisioning platforms enable your organization to do this at scale by fully automating the execution of those digital decisions.”

The platform approach offers impressive gains in efficiency across a wide range of measures. While moving from a point-solution approach to a platform approach can be challenging, it supports the business goals that banks have for digital transformation. Indeed, it is difficult to see how banks can achieve their business goals through digital transformation while sticking to legacy systems and processes. The platform approach is a game-changer for an industry that needs to change its game.