DATA WAREHOUSING: A TOOL FOR BUILDING RETAIL BANKING BRANDS

Dr. Subhojit Banerjee

Intitute of Business Management,VBS Purvanchal University, Jaunpur ISSN 161 Year: December 2008

Volume 2, Issue 4/4

Abstract: Data warehousing is an emerging technique of data base management which can act as a strategic differentiator for data intensive sectors like retail banking. The paper starts with briefly explaining the concept of data warehousing and points out the areas in retail banking which can be most benefited from data warehousing. The paper also proposes data warehouse architecture to support retail banking activity. Finally critical issues related to management of the data warehouse which will affect the usefulness and functioning of the bank has been discussed. The paper is concluded with a futuristic outlook of data warehousing. Key-Words: Datawarehousing, Data Mining, Banking, Brands, Strategy

LEVERAGING RETAIL BANKING BRANDS USING DATA WAREHOUSING The business environment in the new millennium accentuates change. Retail banking as we know is no exception to this rule. Organizations that will survive and flourish in this millennium are the ones which are able to analyze, plan and react to changing business conditions in a much more rapid fashion. In India retail banking has taken a myriad change, from limited number of service branches situated in district headquarters it has grown to over 30,000 bank offices operating across the length and the breadth of the country1. Similarly the offered services have also undergone a vast change. ATMs, telephone banking, internet banking and personalized services are giving way to fluorescent lit halls, chained entrances and serried ranks of cashiers. With international banks breathing down the neck of Indian Banks, the state of

blissful indifference that the Indian banks had enjoyed might be coming to an end. From being an organization which Sells services to the customer, it has to be an organization which delivers services as per the customers needs. For materializing this paradigm shift, bankers in India need to have a deeper insight in to their customers needs and also continuously monitor the change in their need pattern. To implement this need-based strategy, bankers are in want of more information and knowledge than ever before. But this statement holds true not only for banking sector but any business in general. So what makes retail banking special in terms of information and knowledge? Banking is an extensively data intensive sector. Large amounts of data pertaining to various transactions are generated. This large quantity of data regarding individual customers saving, earning and spending pattern can speak volumes about an individuals taste and

preferences, habits, family and his personality in general. But most part of these data is locked up in files and computer systems and is exceedingly difficult to get it. Ken Orr (1996) defines this phenomenon as data in jail 2. Recently a significant concept that has emerged, which addresses to this problem is data warehousing. Data warehousing has grown out of being just a technique of providing efficient, precise and flexible data management tool to an organizations most valuable and critical asset. The ensuing text deals with the concept of data warehousing in reference to retail banking and areas which are most sensitive for data warehousing. Bill Inmon (1992) is widely credited for popularizing the data warehouse concept and terminology. Also known as the Father of Data warehousing, defines a data warehouse as follows3:A (data) warehouse is a subject oriented, integrated, time-variant and non-volatile collection of data in support of management decisionmaking process

Integrated: Data that is gathered in to the data warehouse from a variety of sources and merged in to a coherent whole. Time Variant: All data in the data warehouse are identified with a particular time period. Non Volatile: Data is stable in a data warehouse. More data is added, but data is never removed. This enables management to gain a consistent picture of the business. Daniel Amor (2000) defines as a copy of the business transaction data specifically structured for query and analysis 4. The operational system cannot hold their data for infinite times, therefore data is moved in to the data warehouse. Vivek Gupta (1997) defines data warehouse as a structured extensible environment designed for the analysis of non-volatile data, logically and physically transformed from multiple source applications to align with the business structure, which is maintained and updated for a long time period, expressed in simple business terms and summarized for quick analysis5. It is clear - from the definitions given B above, that data warehousing largely i deals with storing large and varied data l that has been l collected from different sources, over a period of time and can be retrieved for I future analysis. The obvious question that comes in to ones n mind is how is data warehousing m different fromo conventional data base management system (DBMS)? Subhojit n Banerjee (2002) states the following distinguishing features of data 6 warehouse : 1) Data warehouse is a large collection of data, which has already been executed. 2

By way of additional explanation, Inmon provides these definitions:Subject- oriented: Data that gives information about a particular subject instead of about a companys on going operations.

2) All the data that is stored is in reference to a particular time frame. 3) Data is fed in to the data warehouse through multiple sources. In other words a data warehouse holds a wide variety of data pertaining to all the functions of the company. 4) As data is fed in to the data warehouse from various sources, all data are first converted in to a common platform. This enables joining of data for query and analysis. 5) Data can be recalled from the data warehouse using various front-end tools, as the user requires. 6) Data is updated (New data is fed) in the data warehouse periodically. Areas in which Data warehousing techniques will support banking activities: As has been mentioned earlier that banking is an extremely dataintensive sector. Hence data warehousing has immense potential in this sector. Data warehousing when combined with effective retrieval techniques like data mining can reap rich harvests in retail banking in terms of larger deposits, faster clearance of loan proposals, and accurate prediction of cash flows which will eventually lead to better assessment of loan proposals and overall reduce NPA and bad debts. Some of the areas in which data warehousing technique will support banking activities are: Customer Profiling: Customer profiling uses data warehousing information to help bankers understand the characteristics and behaviour of specific

target groups. Through this process, bankers can really understand who is subscribing to particular offers and schemes and how they are reacting to promotional offers and pricing changes. Some additional benefits of customer profiling includes:

Selecting target promotional appeals.

groups

for

Finding and keeping customers with a high lifetime value to the bank. Understanding the characteristics of institutional account holders. Customizing the service package to suit the individual needs of the customers. Reducing operating costs by targeting high response customers.

Identifying High-end Users: Data warehousing enables queries which analyze the Recency, Frequency and Monetary value (RFM analysis) of accounts. Since the data that is stored in a data warehouse is in reference to a time frame, when the last transaction has been made can be determined (Recency).Next how often transactions are made can also be determined (frequency) along with the type e.g. transaction has been made to pay salaries or to invest in stocks and shares can be known. Third what amount does it involve (monetary). The advantage of RFM analysis is that often retail banks take up salary accounts of large organization in the esurience of improving upon their deposits. Apparently these accounts may seem to be large in monetary terms, however many retail banks may find it a bit difficult to efficiently service the large number of salaried employees that the account may inveigle. RFM analysis can 3

be useful in identifying such high-end user who are profitable to the bank not only in monetary terms but also in terms of service time and cost. Fraud Detection: Data warehousing enables forensic analysis. Forensic analysis is a methodology that aims at finding patterns in the data records and then uses these patterns to mark out anomalous records or records with abnormal deviations (Kharbanda & Parthasarthi)7. Fraud involving loans, dubious accounts and other such fraudulent transactions which plague retail banking can be detected and corrective action can be initiated. Improved Underwriting: Since data warehousing collects data from different sources, risk assessment which is an essential feature of underwriting can be improved upon. Moreover through predictive modeling technique, which is a method employed to look for patterns in the data set probable risk areas along with their chances of occurrence can be calculated. Advanced mathematical tools and fuzzy logic are often used to get an accurate estimate of the risk factor and the involved financial aspect which arises due to the risk. Quality Control: Retail banking being a totally service oriented sector, is not suited for conventional quality control measures. Through predictive modeling technique that has been mentioned earlier operations can easily be standardized and quality control techniques like benchmarking can be implemented. Business Forecasting: Business Forecasting is another area in which data warehousing can be greatly useful. Data that has been gathered from different

sources can be integrated to accurately forecast future inflows. Strategic Planning: Data warehouse contains data from different areas of the organization dealing with a wide variety of subject. Such data might be critical in representing as a whole, rather than a conglomeration of differentiated units. Top management, which is entrusted with the job of forming policies and giving general direction of the bank, may find integrated data representing the whole organization better suited for strategic planning. Strategizing and Designing a data warehouse for retail banking: Data ware house is a comprehensive technology and encompasses the whole enterprise and is best represented as an enterprise-wide framework for managing informational data within the organization. For strategizing and designing a data warehouse it is essential to initially formulate data warehouse architecture. Data warehouse architecture (DWA) will represent the overall functioning of the data warehouse which involves structure, collection, analysis, communication and presentation of the data. DWA is made up of a number of interconnected parts. A schematic representation of a possible DWA for retail banking is shown in Figure 1. Operational Database: Operational database collects data pertaining to the day to day transactions that a bank makes. Operational data in banks are generated in terms of routine transactions such as cheque clearance, withdrawls and deposits. Most of the data generated in the hundreds of branches across the country are not available for sharing and even the head

offices had earlier been receiving condensed reports. Now with the computerization of most of the branches this issue can be addressed to as soft copies of the operational data can be made accessible. The main objective of data warehousing is to create a common platform for users (Branch Managers, Loan disbursement officers etc.) to access data created from other sources (e.g. A branch manager can have data about a previous loan proposal for a cottage industry that had been made at Kodaikanal and take decision about a similar proposal at Haldwani) and mix it with external databases such as demographic, econometric, competitive and purchasing trends.

Information Access Layer: This layer contains the tools which users require to analyze the data. Some commonly used tools that are in use are Excel, lotus 1-23, Access, statistical analysis system etc. This layer will also contain the hardware and the software, which will help in representation of the data in reports. Spreadsheets, Graphs and charts are commonly and widely used. The information access layer can be expanded enormously, especially as end users have access to PCs and these can be networked through LAN.

APPLICATION MESSAGING LAYER

EXTERNAL DATABASE

DATA DIRECTORY LAYER PROCESS MANAGEMENT

INFORMATION ACCESS

DATA DIRECTORY REPOSITORY

Fig 1: Data warehousing Architecture (Source: Data warehousing technologyCopyright 1996 by The Ken Orr Institute; revised edition, 2000 Data Access Layer: This is the portion which contains software which creates the interface between the operational database and the information access layer. The language which will build the database is decided upon. One thing that

has to be kept in mind while choosing upon the language is the users information need. Hence ideally a language which is best suited will support a wide variety of queries. The common data language that has emerged is SQL. Recent developments in data access layer has enabled of a series of data access "filters" such as EDA/SQL that make it possible for SQL to access nearly all DBMSs and data file systems, relational or nonrelational. Data Directory (Metadata) Layer: MetaData is the data about the data within the enterprise. In order to provide universal access to end users, some kind of a directory has to be built. The key issue here is that a functional data warehouse collects data from different sources (internal as well as external). Often these data are in different formats and is very hard to bring them on to common platform. Some banks like Nordea bank of Sweden use more than one platform 8, but this makes universal access to end user difficult and needs more specialization and training on part of the end user. Process Management Layer: Process management layer is responsible for updating and maintenance of the data warehouse. For retail banks this is a very important component as this involves maintenance of metadata. With every change in the external environment new variety of data is generated. This has to be classified and added to the directory with the help of standardized protocols or procedures. Application Messaging Layer: Application messaging is also called middleware as this involves the networking and the various protocols which govern them. Application

messaging in general is related to the transportation of information around the organization. Application messaging can also be used to collect transactions or messages and deliver them to certain location at certain time. Data Warehouse (Physical) Layer: This is the main database where the data is stored. This is stored such that data is easy to access and is highly flexible. Commonly data warehouses are built on a client/server platform however data storing in mainframes is also not uncommon. Data staging Layer: Data staging involves replication (making copies), selecting, editing, summarizing and loading the data warehouse with data from operational/or external databases. Data staging also encapsulates data quality analysis programs and filters that identify patterns and data structures within existing operational data. Managing data warehouse for brand differentiation: For a data warehouse to provide meaningful information to users, the key issue is the management of your data warehouse. Data warehouse can be built in a number of ways depending upon the need of the end user e.g. a large central data warehouse which has users and sources linked at the same time, while there can be distributed warehouses, each one containing specialized data but interlinked, or there can be partitioned data warehouse which has data partitioned on the basis of time. In any of the warehouse type the optimal data warehousing strategy is to select a set of users who will most benefit from a data warehouse and estimate the value addition it will overall make to the organization (long term as well as short

term). An analysis of their issues, questions, data needs and training needs has to be ascertained. Based on these facts the type of data warehouse strategy has to be built. Some of the critical issues in data warehouse management which can create a brand differentiation in terms of improvised services to the customer are: Standing out in the crowd: Retail banking is full of banks, which are providing similar services. Very little differentiation amongst the various banks exists. However, now customers are looking for more and more personalized services. Banks such as IDBI and HDFC made inroads in to the banking market with the introduction of ATMs which fuelled the customers latent need for having a queue less deposit and withdrawl operation. Such

changes which will eventually be critical for survival in the long run can only be achieved if deeper insights in to customers needs are made. Often needs are small and community or locality centric. Such subtle needs can be well detected using data warehouse techniques. Increasing Penetration: Data needs in a bank does not stop at managerial level. Data warehouse design may be initiated to provide data and information for decision makers, but the ultimate objective that has to be kept in mind is to provide data at every level including customers and external agencies. A data warehouse which has little scope for expansion and is bound to be redundant over a period of time. The figure 2 given below shows the growth of the data warehouse over a period of time.

Fig 2: Growth of Data warehouse

Current customers, potential customers, investors, Govt agencies etc.

TIME

All the staff in all the branches

Asst.managers, officers, Cashiers Mngrs & Exectvs

Internal marketing: Data warehouse must support the function of internal marketing i.e the task of hiring, training and motivating able employees who want to serve the customer well9.The final aim of the data warehouse is to provide better and improved service to the customer. As we have observed that this involves a large amount of commitment from the employees who have to transform information in to actions. Data warehouse has to adopt a structure which takes in to consideration the skill-set, motivation level and the creativity of the employees. If the structure does not commensurate with the employees capabilities the whole system will collapse and instead of improving the services may lead to overburdened employees and more data with no meaning. Employee Training cost: Employee training is an issue which has been mentioned earlier in the text. However the cost which the organization will incur is a critical and subjective issue. Cost that has to be considered will not only cover the financial cost but also invisible costs of man hour lost and employee redundancy has also to be considered. Often training is followed up by promotion/redeployment. Either case adds up to the cost. Data warehouse strategy has to be supported by well designed Human Resource policy. New services and NPD: A successful data warehouse will support innovative thinking and will lead to improved problem solving throughout the organization. With the advances in telecommunication and information technology, demands for newer products and services in the financial sector are on the rise. Addition of new services and

new product developments (NPD) must be one of the major objectives of the data warehouse. For this the data warehouse should be flexible enough to support a wide variety of application software and also be susceptible to technological innovations. E-Banking and security issues: Retail banking is fast adapting to the technological changes that are taking place. A data warehouse that does not support E-banking function will not fully utilize the potential of data warehouse. In a survey conducted by Claus Nehemzow (2003) of the Online Banking Association, member institutions rated security as the most important issue of online banking 10. A data warehouse should be secure enough to withstand security breaches and should ensure customers confidentiality, privacy and security of transactions at all levels. Channel Integration: Channel integration means that an institution presents an identical face to the customer-be it in the branch, on the web, at an ATM or for that matter, through a sales representative or a broker. An identical face, an identical message. Or better still, messages that reinforce each other. If a sales representative tries to sell a housing loan, you get e-mail a day later reminding you about the loan. An efficient data warehousing strategy must support channel integration as this will result in incremental economic activity and improved efficiencies of communications. Planning for the future: Data warehousing being a relatively new is unpredictable as to what the future developments will be. However it is

clear that data warehousing will evolve from being an ocean of free-floating data sets to a more comprehensive Knowledge providing unit. Already areas such as Knowledge Management (KM) are emerging out of data warehousing techniques which promise newer frontiers. Organizations of lately have realized that organizations who cannot be innovative and adaptive will perish. Knowledge Management is an area which will be a predictable advancement on data warehousing. Technologies like artificial intelligence (AI) and Blue-tooth will soon take over conventional data processing and retrieval techniques. Changes in the hardware front will also greatly affect the future shape of data warehousing. Wireless networking and devices which are compatible to a wide variety of platforms will enhance the capabilities and scope of data warehousing. Development of parallel computing especially in the areas of data base with improved query engines will be one of the major developments of the future. The availability of improved tools for data visualization (business intelligence) will allow users to see things that could never be seen before. Data warehouses may become the future brains of the company with advanced capabilities to take decisions and make judgments. Conclusion: The ability of a brand to add credibility has been proven through various research studies (Carpenter, Glazer and Nakamoto 1994). Retail Banking in India has come to a point where brand differentiation in terms of improved and customer oriented services has become crucial for long term survival and growth. Data warehousing

technique provides for a new solution in data storing and retrieval and can be the basis of a brand differentiator from its competitors. Although data ware housing is a relatively new concept, but with the ever increasing processing power, wider band-width and improvised storage devices, it will not be long before this technique becomes synonymous to decision making. In the coming few years, the growth of data warehousing is going to be phenomenal with new products and technologies coming out frequently. In order to get the most out of this period, it is going to be important that data warehouse planners and developers have a clear idea of what they are looking for and then choose strategies and methods that will provide them with performance today and flexibility for tomorrow. References: 1. www.rbi.org/39058.pdf 2. Data warehousing technology Copyright 1996 by The Ken Orr Institute; revised edition, 2000 3. As quoted by Lewis, William J (2001), Data warehousing & Ecommerce, Prentice Hall NY 4. Amor, Daniel (2000), The Ebusiness (R) evolution, prentice Hall NY 5. Gupta, Vivek R (1997), An Introduction to Data warehousing, http://www.system-service.com

6. Banerjee Subhojit (2000), Emerging Trends In ECommerce: Data Warehousing And Data Mining, Commerce Education in the new millennium (Ed), Prayag Pustak Mahal 7. Kharbanda, Vikas and Parthasarthi (July-December 2001), Decision, Vol 28, IIM-C 8. Enders Albrecht, From ebanking to e-business at Nordea (Scandinavea): The worlds Click-and -Mortar bank, Copyright 2004 INSEAD, Fontainbleau, France, Distributed by European Case Clearing House, England and USA 9. Kotler Phillip (1999), Marketing Management, Millenium Edition, pg 22, PHI (Indian reprint)

10. As quoted by Mishra AK, Internet Banking in India, www.banknetindia.com 11. Carpenter, GS, Glazer R, Nakamoto K, Meaningful brands from meaningless differentiation: The dependence on Irrelevant attributes, Journal of Marketing Research 31 (August 1994): 339-350

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