Optimizing Core Banking
Solution features that boost business optimization
Achieve deep new business insights from data
Data can be extremely valuable if utilized properly for optimizing the business. It serves as input to predictive modelling and deeper business understanding, which supports stronger decision-making across the organization.
Holistic assessments and pricing
When assessing and pricing clients it is very important to do it in a holistic fashion, such that all the relevant information is included and pricing results reflect the actual profitability of the client.
A common failure when assessing and pricing customers is that it is performed on an insufficient basis, without including all relevant information. This leads to flawed and misleading results, that potentially introduces incentive biases and wrong decision-making assessments of customers and pricing that does not assure profitability requirements.
The AQOPTIMIZER solution assures that all relevant data and information is included.
Derive business insights from data
Data in and of itself has little value. To derive valuable insights from data, quantitative methodology is applied to help detect patterns and relations to provide business opportunities.
The AQOPTIMIZER solution is loaded with embedded quantitative analytics that help easily extract insights from data. Besides providing an abundance of added business value, it also minimizes the need for having many IT and quantitative experts employed or committed to the solution.
Scale decision-optimization across the business
To scale the benefits from derived business insights across the organization, the AQOPTIMIZER solution makes it easy to execute decision-optimization with hundreds or even thousands of daily users - like bank advisors, branch directors, regional directors, as well as staff specialists and Management.
Although the AQOPTIMIZER solution concerns complex matters, it is very user-friendly and easy to learn and apply.
Boost revenue and profitability
A key target of any bank is to increase revenue and become more efficient and profitable. Two very important drivers to do this is that Management can set risk appetite nuanced across the business and bank advisors and more are supported in decision-optimization.
Setting risk appetite and return requirements
When bank advisors assess and price clients, the pricing must assure that the desired profitability level of clients is achieved. The desired profitability target is set by Management based on their risk appetite and return requirements. These will differ across the business because of strategic considerations and differences in client risk profiles.
The return requirements across products and clients consist of two main components: the minimum required return and strategic adjustments. The strategic adjustments can be set across a wide range of business and customer dimensions, like regions, products, and rating categories to fine tune the return requirements in a nuanced fashion. Strategic adjustments can both add to or subtract from the required return.
Because the AQOPTIMIZER solution allows for a framework to easily set nuanced return requirements, it provides a seamless and explicit framework, where bank advisors automatically adhere to Management required return requirements and risk appetite, with no added work.
Power large-scale decision optimization
One of the most important elements in optimizing the core banking business is making sure that bank advisors are supported with strong and user-friendly decision-making analytics to perform effective client assessments and pricing.
A common challenge in many banks is that there is very little analytical support to financial advisors in assessing clients in a holistic and optimal fashion. Operating very ad hoc or with very simplified frameworks clearly exposes the risk of operating very biased and systematically underperforming due to lack of insight.
The AQOPTIMIZER solution allows bank advisors to optimize their work on many fronts.
Advisors can review the overall profitability on client level, as well as more granularly for individual products. The solution offers high flexibility to easily apply and evaluate a wide range of potential changes with profitability consequences available instantly. This allows advisors to simulate effects from different client actions to support optimal decision-making, including suggesting appropriate interest rates, based on comprehensive algorithmic client evaluations.
When new products or collateral are added or existing products and collateral are excluded or changed -updated client profitability including capital requirements are available instantly.
Because potential new clients can be assessed very quickly, it furthermore saves a lot of resources in branch offices.
Using the solution, advisors are managing interest rates and fees, which typically is a primary source of the total revenue in banks.
The effects of having all bank advisors optimizing profitability systematically has massive financial impact and helps banks become much more efficient and profitable.
Reduce potential credit loss
A primary source of loss in banks is due to customers defaulting on their credit obligations. Credit loss is a natural cost of banking and can never be completely mitigated, but it can be significantly reduced by early detection of credit deterioration.
Banks assess customers in relation with new granting and (often annual) renegotiations or via ad-hoc follow-up. These actions are often very manual and require considerable resources from staff and banking advisors. They are also quite infrequent - so the vast majority of customers are not presently being thoroughly assessed.
When this is the case then customers can deteriorate undetected which significantly increases potential credit loss.
The AQOPTIMIZER solution changes that!
Because the solution performs algorithmic analysis of all products, individual clients and groups on a daily basis, all clients are always currently being assessed. This makes it easy to automatically detect when the performance of clients starts declining. When profitability decreases below a certain threshold, the solution helps notify bank advisors, who can quickly engage with customers to mitigate further potential loss.
Early involvement of bank advisors when clients deteriorate, greatly reduces the potential credit loss and ultimately improves the bank’s bottom line.
In banking many tasks and processes are manual. An obvious way to become more efficient is to provide much better support with systems and automation. That is one of the main focuses of the AQBanking Solution Suite and it helps saving resources on many fronts.
Some examples of how the AQOPTIMIZER solution helps optimize resources is listed below:
- Assessing and presenting offers to potential new clients is a task that often requires a lot of resources in branch offices. The solution allows bank advisors to prepare offers to potential new customers in minutes, not hours.
- Preparing and providing profitability reporting across the organization is a large task that requires a lot of internal resources, both in terms of development and maintenance. The solution offers out-of-the-box business intelligence reporting with always updated results with no internal resources required at all.
- Performing controls related to granting and credit are common tasks in banking and requires significant internal resources. Since all relevant data is already in the solution, it also has many common controls run automatically, so employees can focus on the control results and not execute them.
So, on many fronts the AQOPTIMIZER solution helps optimize resources by smarter and more automated business practices.
Perform stress testing and scenarios with ease
Being able to perform stress testing and evaluate impacts from business scenarios is an important management tool in modern banking. The AQBanking Solution Suite makes it very easy and fast to perform flexible scenario assessments across the banking book.
When you gain access to the AQOPTIMIZER solution, you in fact get access to two versions – one for daily production and one for performing stress testing and scenario analysis. The latter is dedicated Management and staff specialists working with scenario business analysis.
Performing stress tests and scenarios is very easy, you simply change one or more of the inputs and re-run a full calculation to assess the changes from the production version.
The framework is extremely flexible and allows for changing virtually anything regarding the entire core banking portfolio.
Some examples of changes one can perform include: Customer ratings, Product interest rates and fees, Credit utilizations, Collateral values (hair-cuts), PDs, LGDs, Costs in the bank, Return requirements, Capital requirements and much more.
More business from customer potentials
Adding new business with existing customers is a key focus in banking. An important part of that includes adding new business, that is not core banking products (like loans, credit and guarantees), but opportunities in investment agreements, pensions, and insurance - often via third party providers.
Identifying customer business potentials
Identifying customer potentials must be handled in a programmed fashion, so existing and new potentials are automatically detected and included.
Setting up business potential criteria is an important and sometimes difficult task. Since the criteria must be programmable - to run automatically - it cannot be highly subjective and must be based on data that is available in legacy systems or otherwise.
An example of a customer business potential scenario could be that if a customer has more than 50.000 EUR in liquidity but no investment agreement, then there is an investment agreement business potential.
The AQBanking solution suite includes a business potentials scenario engine, which can be set up to identify customer business potentials or the bank can provide its own identified potentials via an input file.
From identified potentials to added business
Identifying customer business potentials is an important prerequisite but does not itself provide more business. To add business from identified potentials banks can do it automatically via campaigns to identified customers or financial advisors can reach out to let them know of the new products and services that can be available to them, if relevant. That is simply good customer service.
The AQOPTIMIZER solution gives bank advisors and Management an easy customer potential overview and when working more closely with individual customers the identified business potentials are displayed to the advisor - making it easy to engage with customers.
Documenting client assessments and pricing
Documenting decisions and actions in relation to client assessments and pricing is a very important requirement in modern banking. It not only provides a higher quality or stronger processes internally, but also allows for stronger standing with regulatory authorities.
Documentation is becoming ever more important in relation to internal audits and regulatory authorities. It helps provide better quality, awareness, and stronger internal processes.
The AQOPTIMIZER solution provides a full audit trail of customer assessments, pricing and the different settings used to define the entire framework including risk appetite.
While everything is documented digitally within the solution, it is also possible to pdf client assessments and pricing and easily append these in other systems if needed.
Stronger standing with regulatory authorities
Banks are subject to heavy regulation and being able to document to regulatory authorities that they manage the business prudently with sound business practices is very important and provides a value via mitigating regulatory exposure.
Many of the features in the AQOPTIMIZER solution provide banks with much stronger standing with regulatory authorities - some primary reasons are:
- Holistic customer assessments and risk-based pricing
- Framework to implement nuanced Management risk appetite
- Automatic assessment of all clients on a daily basis
- Immediate detection, reporting and handling of customer deterioration
- Easy overview of customer profitability
- Full stress testing framework to assess scenario business impacts
- Documentation and audit trail of client assessments and pricing
Many of these features are far beyond what banks can typically provide and document. AQRISK customers therefore enjoy much better optimization opportunities and stronger standing with regulatory authorities.
Explore other solutions
Working with credit, risk, and capital analysis many complex analytical challenges arise. The AQANALYTICS solution is dedicated to support specialists in solving such analytical tasks/problems. It helps automate manual and ad-hoc tasks and perform them systematically and very fast - allowing for more efficient use of resources.
Running professional operational risk management requires solving very diverse tasks. The AQOpRisk solution includes a unique operational risk framework that combines these tasks in an easy-to-use solution - making it possible to perform effective and high-quality operational risk management with few resources.