The Bermuda banking industry is at the infancy stage with regards to warehousing data on customer needs and behaviours, a KPMG banking survey has reported.

The survey noted that chief executive officers (CEO) of Bermuda’s banks were aware that the institutions had failed to invest enough in this area, but that it was now a growing area of focus. The CEOs also agreed that the industry, and each bank, could use the data to gain a competitive, strategic advantage.

The report was prepared by KPMG’s head of investments and banking Craig Bridgewater and manager of banking Valerie Robshaw. The bankers surveyed included Bermuda Commercial Bank CEO Peter Horton, Butterfield Bank executive chairman and CEO Brendan McDonagh, Clarien bank co-CEO Zoran Fotak and HSBC Bank Bermuda Limited CEO Richard Moseley.

Banks and other financial institutions are major collectors of information about their customers, about transactions, account activity, loan portfolios and credit card balances.

According to the report, this data becomes monthly, quarterly and annual reports for use by their customers, risk managers and auditors, which involves looking back in time and leveraging historical data. But looking forward has been more of a challenge.

The report said that the consulting group had observed globally a change to business models including cost optimisation, and the re-evaluation of product offerings and sources of revenue streams; a continuing increase in regulation and the requirement for more information and more precision in information reported; and increased capital requirements.

There is also a focus on customer centricity with customers looking to engage in new ways with their banks. This includes the desire for tailored banking services, and new channels to interact with their bank, such as mobile applications. Shareholders are continuing to seek acceptable returns on equity, less reputational risk, and the effective identification and management of significant risks.

A central observation is an increased IT agenda including the increased harnessing of data to understand trends in client behaviours, needs and irregularities, to drive new revenue opportunities. This is commonly referred to as ‘data and analytics.’

The KPMG report pointed out how data, analytics and technology were core strategic enablers for the future. There are rapid transformational developments in data and information technology, leading to challenges and opportunities for Bermuda’s banks. But new approaches to systems, processes and governance are needed. Increasing costs are forcing banks to become leaner, making technology important to process and workflow efficiency. Bankers must better manage and make sense of a lot of information which can be made available about attitudes, needs and behaviours of clients. That makes data mining and data analytics powerful tools for marketing, sales and cross selling.

This necessitates improving current management information systems to aggregate the right data at the right time, at the right level. They need to be able to gather and reconcile data from multiple sources and then make it available and relevant to the right decision makers — including via mobile access for executives who travel or are away from their desks. Other important aspects include maintaining the integrity and security of the data systems.

Further, the financial crisis and creeping regulatory oversight means risk management is crucial — managing reputational risk, operational risk and regulatory risk. Banks increasingly have to prove their competence in this area to regulators, shareholders and clients. It is important to collect, analyse and present the relevant data to preserve stakeholder relationships.

In today’s world, clients expect easy and continuous access to their financial data and their financial service provider, remotely.

Integrating the different interface technologies and grounding them on consistent, high-quality data are essential elements in creating agile communications and decision-making.

The new norm for the volume of required banking data and the increasing reliance on it by financial institutions brings other risks.

The KPMG report states: “The banking sector is more and more vulnerable to the loss or corruption of mission critical data and at greater risk of reputational damage and regulatory sanction if these organisations misuse it. Data and cyber security has moved from being a peripheral and technical specialism to a central strategic concern.

“It is not all danger and defensiveness.

“The new technologies are the way of the future and, if properly developed, promise major improvements in internal efficiency, external reporting and, perhaps most significantly, customer relations and customer propositions.

“Whether it is further development of internet and mobile channels or innovative new technologies for payments, there are major potential benefits as well as risks.

“The role of the Chief Information Officer is now to help define an institution’s core strategy against this rapidly developing background and guide investment decision-making on the basis of a clear view of risk and reward.

“The universal importance of good data and information management across the business operating model places a huge premium on the ability to collect, aggregate and analyse data to create a single view of the truth; one complete and internally consistent data and information resource which can satisfy all needs. Technology, data and information management have been a core part of financial services for many years.

“They have now become more important, still. Boards and executive management need to ensure they are accorded the same priority as any other critical success factor. Whether it is a question of customer facing operations, internal systems and procedures or external reporting, the winners will be those who can bring together data in a coherent way to serve these multiple needs most effectively.”

Turn to page 20 for more on KPMG’s Banking in Bermuda report.