The Co-operative Banking Group has become the first retail bank to implement a new solution to combine accounting and risk data in a central hub. Kevin Long of Teradata, joint developer of the solution with Microgen, considers the advantages of data integration and centralization.
The UK’s Independent Commission on Banking (ICB) has recently recommended that the investment and retail arms of banking are divided, but, in reality, banks are already decentralised and fragmented organisations. This situation has been made worse by the recent trends for acquisition and diversification, resulting in complex departmental divides, silo processing and mismatched technology.
When each division within an organisation runs its own systems, with separate accounting and risk functions, each with its own interfaces to risk analytics and the general ledger, it is almost impossible to achieve an overall view of the current state of the entire business, from either a risk or finance perspective. Today, retail banks are faced with additional concerns including demand for greater corporate accountability, increased regulatory pressures and harmonisation of accounting standards. As a result, the finance function is challenged to keep aligned with the business strategy.
Yet without a single view of the truth, how can banks improve the efficiency and effectiveness of their operational environment or provide the transparency now demanded by regulators and customers alike, let alone develop competitive strategies for the future or measure risk with any degree of accuracy. This was a question concerning the Co-operative Banking Group (CBG), part of the world’s largest consumer co-op and recognised for its ethical approach to banking. The CBG embraces The Co-operative Insurance, The Co-operative Investments and The Co-operative Bank and offers a range of financial products and services including high street and internet banking, current accounts, mortgages, credit cards, loans, pensions, unit trusts, insurance plus general financial advice.
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To address the problem the CBG has become the first retail bank to work with a new partnership of Data Warehousing and business rules and processing specialists to re-engineer its accounting processes as part of its core financial transformation programme.
Through a comprehensive transformation strategy finance functions can improve the efficiency and effectiveness of their operational environment that is more in keeping with the business strategy
Teradata and Microgen have been working together for the past 18 months to optimise their complete solution. It appears a natural partnership. Teradata is known globally for its ability to process huge amounts of data. Microgen, with its Accounting Hub solution, can process millions of transactions every hour. Microgen takes account level data from disparate operational sources and via a rules-based approach undertakes complex computations to create the accounting entries for transactions, and postings to other operational systems. The granular account level input-data, the rules applied and the resultant calculations are all stored in the Teradata Data Warehouse. This rich source of consistent, reconciled auditable can be used for reporting, analysis and complex statistics. Increasingly the two companies found themselves working with the same customers, so decided to formalise the relationship by providing a joint business intelligence application designed for the financial services and banking industries.
The first release of the CBG’s Financial Transformation Programme had already been delivered to its corporate customers, but the bank needed to augment this new operational environment with a business intelligence solution. The bank has around seven million customers – and has to handle around four to six million times as many transactions every day. Therefore, flexibility, scalability and reliability were among the key requirements it looked for in a solution. Impressed by the high performance of the Teradata/Microgen partnership, especially in comparison with competitive solutions such as Oracle, it opted to become an early adopter of this new joint application.
The CBG made the decision to invest in Teradata’s Financial Services Data Model (FSLDM) to act as a firm foundation for credit risk and accounting-based business intelligence. As part of this solution, the Microgen Accounting Hub (MAH) brings together all disparate information, enabling all transactions to be processed in one place and a Microgen Aptitude business process management suite writes standardised accounting rules to ensure consistency. This information is used to feed the general ledger and the Teradata Data Warehouse with financial data.
The business rules ensure that data is of the quality required for all accounting purposes in all regions, avoiding the problem of discrepancies between different reporting regimes. As a result, all departments can share the same data, enabling an accurate view with the single source of truth. This standardisation also deals with the problem of incongruous risk and finance reporting which undermines control and comparisons across an organisation.
For the CBG, the hub supports customer account level journal information, as well as summary general ledger data. It is this level of detail that enables CBG to align risk and finance data back to the general ledger and group financial statements. The hub, together with Microgen Aptitude also enables CBG to de-risk the implementation of other strategic systems by creating flexible accounting rules to replace older, less open, interfacing into the general ledger. Changing these rules is managed by business users, rather than IT, but in a well-controlled and auditable manner.
The FSLDM can be scaled across the entire enterprise so that other functional business intelligence needs can be met in the future. When decision makers are presented with a single, reliable source of data, they no longer have to have the time-consuming task of reconciling inconsistent sources of information, leading to shaky predictions and increased risk. Instead they can focus on adding value by using data wisely, increasing potential to upsell solutions and products or more accurately assessing credit risk. By integrating profitability with risk data, banks can enhance their management of capital, ensuring the best return and protection against unexpected losses in a volatile environment.
The new, ultra-competitive, post-crisis landscape is intensifying the need for increased insight into the business and into customer behaviour. Consequently, technologies such as those developed by Teradata and Microgen are increasingly being seen as business-enablers rather than back-office functions. Greater transparency and accuracy in banking may be essential to satisfy the regulators, but they also bring significant business advantages too.