Asset managers were executing plays in the stadium in 1996 while bankers were suiting up in the locker room, or so a report by Ernst & Young LLP metaphorically suggests.
E&Y's 1997 special report, "Managing the Value Network," finds that banks out-spent asset managers in every area of discretionary technology spending except customer sales and relationship service, where they trailed by 31 to 41 percent. This suggests that banks are still building their platforms, while their competitors are building their cash flow.
The E&Y data strongly suggests that while banks are making the right investmentsomainly in expensive data warehouses, which centralize information, and in other marketing-related areas like call centersothey are being outmaneuvered by the competition. Asset managers are using data warehouses more as marketing tools, while banksoperhaps reflecting a greater regulatory burdenouse them more for risk management.
Sixty-six percent of banks used data warehouses for risk management, compared with 40 percent for asset managers; conversely, 64 percent of banks used the resource for performance measurement, compared with 100 percent of asset managers. Acquiring accounts is considered much more expensive than keeping them.
"Banks are going to have to do better if they want to maintain market share," says Charles D. Peterson, national director for E&Y's financial services consulting practice. "If they don't, they'll fall behind in the competition for the customer base. But, they're making strong efforts in that direction right now."
On the plus side, the study says that bank respondents are beginning both to apply their data warehouses to their call center efforts and unbundle and re-bundle their financial services in more targeted ways. They are also leveraging ATM and branch networks to offer more functions, including mutual fund sales and insurance.
The E&Y study urges banks to take a product management approach to financial services sales and analyze sales results by more than just profitability. Among the questions that should be asked: Do customers think they're getting better service; what response is the bank getting to the offering; is the product sold to the right market segment.
Good data warehousing can help in all these areas, foster understanding of customer behavior and exploiting market segmentation, according to the report.
Taking its recommendations on adopting a centralized information technology model further, the E&Y study urges banks to adopt the "one- touch" model for highly automated, 24-by-7 operations. This argues for steep investments in sophisticated platforms and re-engineering operations and systems, but ones that will achieve greater efficiencies. In "one-touch" operations, transactions are entered into the system once, at the point of sale. Either the employee or the customer can enter it; but once entered, the information is posted to all core systems, effectively eliminating the distinction between front- and back-office functions.
The result for operations, says E&Y sources, is lowered risk of service breaks, data errors, and lost paper, while creating an electronic audit trail and reducing or eliding traditional cost structures.