To prosper in today’s changing world, banks must move beyond organizational limitations, infrastructure complexities, and other constraints—and toward an operation centered on the client through the use of sophisticated technology, according to research by the IBM Institute for Business Value.

“Banks are facing an environment of increasing risk and regulation,” the report states. “Hence, improving risk management techniques by eliminating operational silos, increasing transparency, and implementing consistent risk management practices will almost always be a mandate for banks. Recognizing the value of analytics in optimizing risk, bankers in our survey rated risk management as the No.1 area where analytics could deliver long-term benefits.

“However, to effectively use analytics, as well as the wealth of information available, banks require additional tools and processes. We believe the future belongs to banks that can balance risk, return, and financial innovation. Risk-savvy banks will invest in analytics to leverage the vast amounts of information already available to improve insight, lower risk, and optimize profits,” the report concludes.

As banks strive to better understand their clients’ needs and further improve client interaction, they should focus on pricing models, segmentation, and channels, the IBM researchers noted. Elaborating, they said:

• Pricing to win—Banks worldwide are looking at pricing model innovation, as many move beyond one-size-fits-all models toward granular pricing and self-service pricing bundles. However, the research indicates banks face some roadblocks, including the need for information on client risk, cost of service, and price elasticity of the market. The good news is that these are barriers banks can overcome.

• A fresh look at the client—The research indicates that banks, especially in emerging markets, are poised to move toward needs-based and behavior-based segmentation in the next three years. To do so, banks will have to understand client needs based on client interaction in their channels. The survey indicates banks need to improve their systems and processes and invest in analytical tools as a precursor to gaining client insight.

• In search of channel satisfaction—Unfortunately, for many banks, current client satisfaction in the channels is, at best, mediocre. To increase satisfaction, banks need to better understand how people bank, how often they bank, and what products and services they seek when banking. Banks then need to use this information to align product and service prices with client needs in the client’s choice of channels. Simultaneously, banks need to improve client satisfaction in all channels.

“In the new economic environment,” said IBM, “successful banks will invest in insight to become more risk savvy and specialize their operations and services around client needs. While banks in mature markets should focus on eliminating complexity and reducing costs, banks in emerging markets need to diversify their income sources and maintain cost leadership.”

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