Disruption

VARIOUS FORCES INFLUENCE THE STRATEGIC DIRECTION AN ORGANIZATION TAKES

RegulationOrganization e.g.

Bank

Competition

Shareholders’ Expectations

Customer Preferences

Society’s Expectations

Revenue & Cost Pressures

POTENTIAL EFFECTS OF REGULATION

Cost of Compliance

Level of Innovation

Competitive Landscape

Value to Consumers

Value to Organization

Regulation

Organization

e.g. Bank

Level of Regulation → Too Low Balanced Too High

Cost of Compliance

Competitive Landscape

Level of Innovation

Value to Consumers

Value to Organization

REGULATORY CHANGES: OBJECTIVES, OPPORTUNIES AND CHALLENGES

Key Objectives of Regulations:

Increase Industry Competition through a level playing field

This can foster innovation amongst industry players to be competitive

Customer protection and benefits via improved services

Organizations innovate to provide better services to customers

Foster Financial Stability in the system: Institutions are safer

Organizations innovate to meet requirements and become efficient.

Innovation Opportunities:

Key Challenges:

Compliance

Maintenance

New Ideas Deep Analytics

Is Resource and Fund allocation efficient?

Are we exploring everything?• all data – internal and

external?• all advanced techniques?• all partnerships possible?

We may have a lot of data –but do we have enough data and analytics experts

RegulationRegulatory

ObjectivesAnalytical Opportunities

Responsible Lending (e.g. CCCFA in NZ)

✓Deeper analytics to determine customer affordability based on accurate estimation and calculation of customer’s income and expenses.

✓Potential advancements in transaction data analytics

Comprehensive

Credit Reporting

✓More complete customer picture enables more accurate models and strategies. This results in:

▪ Better and faster decisions for more efficiency

▪ Better deals for customers

▪ Better Risk management for better stability

Changes to

Regulatory Capital Framework

✓Higher capital in the system may result in shift of focus from capital modelling towards operational efficiency and better credit decisions.

✓Opportunity to build more powerful decision modelsand optimized lending strategies

✓Explore more advanced analytical techniques with emphasis on responsible data use, strong governance

REGULATORY CHANGES PRESENT OPPORTUNITIES FOR ANALYTIC INNOVATION IN FINANCIAL SERVICES

Dotted lines indicate evolving regulation/ legislation

RegulationRegulatory

ObjectivesAnalytical Opportunities

Persistent Debt

Requirements✓Opportunity to perform in-depth analytics to find at-

risk customers

✓Predict likelihood of future hardship

These results in:

▪ Better customer outcomes

▪ Better risk management

Open Banking✓Opportunity to not just create APIs for compliance,

but set up internal processes, analytics and modelling leveraging the APIs to get more complete customer information in an automated manner and save costs

✓Opportunity to collaborate with disrupters in creation of valued added services

REGULATORY CHANGES PRESENT OPPORTUNITIES FOR ANALYTIC INNOVATION IN FINANCIAL SERVICES

OTHER POSSIBLE INNOVATIONS IN FINANCIAL SERVICES AND EVOLVING REGULATION

Cloud Computing

✓ Better change management in context of regulatory changes

✓ Flexibility for businesses✓ Cost effective option to manage

growth with change

Regulatory Evolution❖ Security of Data & Process❖ Data privacy, responsible use❖ Building trust with process

Machine Learning

✓ Learn complex non-linear trends✓ Information handling capacity across

multiple dimensions✓ Computing power being augmented

with advancements in transparency

Regulatory Evolution❖ Appropriate level of transparency❖ Responsible usage and data privacy❖ Strong governance process

Industry Data Sharing

✓ 1 + 1 > 2: Enhanced Data ✓ Complete Information leads to

better models and analytics✓ Better, faster and easier decisions

for customers and entities

Regulatory Evolution❖ Data privacy, responsible use❖ Data Security & Governance❖ Certification of entities

SUMMARY

▪ There is increased regulation around customer centricity, responsible lending, financial stability and prudential restrictions in financial services sector.

▪ Regulatory changes internationally and in New Zealand provide opportunities for organizations to leverage and strengthen analytics capability.

▪ New regulations, while challenging and costly in some aspects, also create opportunities for use of all relevant customer information to ensure we are taking the right decisions for the customers

▪ These changes also create opportunities to make changes to our analytics and associated data driven business strategies in a faster manner than before.

▪ We can also learn from regulatory changes in other parts of the globe to prepare ourselves in advance of these changes coming to New Zealand. Advanced analytics has a big role to play here.

▪ Predictive analytics will evolve as a result of the changes via availability of additional data sources. This will be accompanied by strong data and privacy governance to ensure responsible use of this data.

REFERENCES

▪ OECD paper on Regulatory Reform and Innovation (http://www.oecd.org/sti/inno/2102514.pdf)

▪ Regulation driving banking transformation – by Deutsche Bank Global Transaction Banking (http://www.cib.db.com/docs_new/GTB_Digital_Whitepaper.pdf)

▪ SUERF Policy Note, Issue No 31 - by José Manuel González-Páramo(https://www.suerf.org/docx/f_f8b932c70d0b2e6bf071729a4fa68dfc_2511_suerf.pdf)

▪ https://en.wikipedia.org/wiki/Cloud_computing