By Paul Jones, Head of Technology at SAS UK & Ireland
Does your bank manager know who you are? Unless your net worth is unusually high, the answer is probably no, and that’s been the case for many years. Banks have been using statistical models to inform credit-related decisions since at least the 1970s, and today almost every aspect of operational decision making is driven by sophisticated real-time analytics. So, while customers may hear about the outcome of their loan application from a bank employee, the decision itself has already been made in the background by computers without any human input.
Model-based automation has unlocked huge benefits for banks and customers alike because credit decisions can now be made in minutes or seconds, rather than hours or days. However, managing models at scale creates significant challenges of its own, and designing efficient model operations (ModelOps) is still largely an unsolved problem for most financial institutions.
Big banks, big problems
For example, the more established banks tend to have adopted model-based approaches piece by piece over the years. The use of models now extends far beyond the retail credit risk marketing function, and different parts of the business are using different methodologies, tools and techniques for managing the model life cycle. Both the data and the models themselves are isolated in departmental silos, so the bank often ends up making decisions in unconnected ways or based on only a fraction of the information it possesses on each customer. In simple terms: If the mortgage department’s model doesn’t have the same information as the loan team’s model and isn’t aware that a customer just took out a large loan, it may not make the best decision.
Similarly, the size and complexity of these banks tend to sap the agility of their model deployment processes. Going live with a new model involves surmounting countless organisational and regulatory hurdles. SAS research indicates that it can take three months to get a model deployed, while Gartner has found that over 50% of models never make it into production. The opportunity cost of failing to have the right models in place can be significant. I recently spoke with a CRO who estimated that during the credit crisis in 2007, delays to model deployment had cost the CRO’s bank around £500,000 per month.
New challengers, same old issues
The newer digital banks and fintechs tend to do better at agile model management. Since the burden of legacy systems doesn’t apply, they can potentially start from scratch and adopt a more joined-up approach. And because they have fewer customers and their failure poses less of a systemic risk to the economy, they attract less scrutiny from regulators, which means they can have lighter processes.
However, as these smaller banks grow, the weight of regulation they must shoulder will grow too – a burden they may lack the infrastructure and expertise to sustain. While they may currently be able to get away with a simpler approach to model management, that’s not going to work in the long term. To compete at the scale of the larger incumbents, they will need to tighten up their governance and industrialise their processes.
Model management as a key battleground
Whether the established banks maintain their dominance or the challengers prevail, ModelOps will play a key part in shaping the industry over the next few years. As artificial intelligence opens up new possibilities for even smarter cross-channel, real-time decisioning, the ability to design, train, deploy, monitor, update, audit and explain models will separate the wheat from the chaff.
Currently, almost all banks are struggling with model life cycle management, and especially with deployment. A recent McKinsey study found that less than 6% of companies had the ability to easily embed AI into formal decision making and execution processes, and less than 15% had the technological infrastructure to support deployment. This jibes with a recent article where Gartner Vice President and analyst Jim Hare stated: “Where organizations need help is how do [they]scale and operationalize and really handle an increasing number of models in production.”
At SAS, we believe that the inability to integrate analytic solutions into workflows and achieve front-line adoption is the No. 1 reason why data and analytics initiatives fail. That’s why we’ve concentrated efforts on industrialising the deployment of AI.
Why is model management so hard?
To start moving in the right direction, banks first need to understand the problem. Why are model management and deployment so hard? One of the biggest reasons is more human than technical: It’s is a place where two different traditions meet.
On one side, data science, which comes from an academic background and aims to turn groundbreaking research into game-changing business value. On the other, IT operations, which focuses on delivering reliable services within technical, regulatory and business constraints. These two traditions work in different ways, move at different speeds, and target different goals – so it’s not surprising that there’s often a clash of cultures.
How ModelOps can help
The promise of ModelOps is that it provides a robust workflow that acts like a set of intermediate gears between the data science and IT operations teams, enabling the smooth transmission of models from development into production while allowing both teams to work productively and at the right pace. By automating handoffs between teams throughout the model life cycle and providing end-to-end traceability and governance, a ModelOps approach can turn a misfiring modelling pipeline into a well-oiled machine.
At SAS, we’ve had firsthand experience of the challenges of moving to a ModelOps approach. We’ve always been both a data science company and an IT operations company, so we’ve had a foot in both camps for over 40 years. But it’s only relatively recently, with the maturity of cloud technologies and the widespread adoption of DevOps practices such a continuous integration and deployment (CI/CD), that we’ve really cracked the problem.
For example, we’ve learned how to use the cloud to break the model life cycle out of departmental silos and provide a commercial model that suits the experimental, fail-fast approach that data scientists need. Meanwhile, modern DevOps tooling provides common ground for data scientists and IT operations teams to collaborate effectively and ensure proper governance while managing models at scale.
We’re now applying the insight we’ve gained to help clients throughout the financial services sector adopt a ModelOps approach. For example, Covéa Insurance chose SAS to enable the deployment of complex machine learning models in a high volume real-time scenario, while Standard Chartered Bank gained more efficient model deployment in support of IFRS 9 and won the Asian Banker’s Enterprise Technology Implementation of the Year award. Find out more about ModelOps or take a deeper dive.
It’s all relative: Older generations feel helping out the family financially is more important since the Covid-19 outbreak
Before Covid, 23% of people prioritised helping younger generations out financially, that increased to a third as a result of the pandemic
A recent survey* conducted by Hodge has revealed that the Covid pandemic has led to more people wanting to help younger family members financially.
A third (31%)** of those questioned said that since the Covid outbreak giving a financial gift to children or grandchildren is more important to them, compared to 23% who said it was a priority before the pandemic.
The traditional “Bank of Mum and Dad” is still very much open for financial help, with parents being responsible for 72% of the gifts, but the study also revealed that financial gifts can come from all corners of the family – including children (14%) and siblings (14%).
The survey also found that a third of people have received a financial gift from family, with those aged between 25-34 as the most likely to receive
The most popular reason for gifting money to family is for special occasions such as a quarter of gifts were given for weddings and birthdays but 11% of people have received money to help with big purchases such as cars and houses. In addition, 19% of people have received help with day to day finances, with around 14% of those receiving a gift have done so to pay off debt.
Emma Graham, Business Development Director at Hodge, said of the research: “Our study showed that, as a nation, we all want to help our family out when it comes to money. And whilst we all think of the Bank of Mum and Dad or Gran and Grandad as a traditional source, we were surprised to see that 14% of brothers and sisters are also helping out.”
The findings come from a recent intergenerational study conducted by Hodge, who interviewed over 3000 people about their attitudes towards finances and their aspirations for the future. The full research findings can be found at https://hodgebank.co.uk/2020/05/19/money-its-all-relative/.
As part of the study, people were also asked about paying back the gift, with 40% of beneficiaries expecting to pay their parents back, but this dropped to 28% if the gift came from grandparents.
From the gift donor’s perspective, 26% expect the gift to be paid back, however just 15% of grandparents expected the money back.
Hodge has produced a set of guides on how families can navigate the tricky subject of giving financial gifts within a family, as well as the considerations and steps that be families should think about taking before a gift is given, such as is it a loan or a gift and thinking about contingencies if the family member’s circumstances change. The guides can be found here: https://hodgebank.co.uk/news/
Emma continued: “It’s clear that families feel strongly about offering financial support to each other if they are able and this has increased since the Covid pandemic. Before Covid, 23% of people prioritised helping their families out financially in the next five years. Since the Covid-19 outbreak that has increased to a third of people saying helping a family member financially had become more important.
“So, it is clear that the Covid-19 lockdown and subsequent predicted economic downturn, has led to more families looking to share wealth to help younger children or grandchildren during this difficult time. Many people may look to Later Life mortgages, where many products have reduced their rates and have flexible lending criteria, to help out a loved during these difficult times.”
New report identifies the factors which will determine SMEs’ chances of a successful COVID recovery
· Analysis of the performance of over 1,000 UK small and medium-sized businesses by Allica Bank provides roadmap for SMEs
· Regular training, an openness to innovation, and a clear vision all contribute heavily to an SMEs’ chances of success
· Allica Bank has launched a programme of free workshops to expand on the findings and support business owners
Business bank, Allica Bank has combined data and insight from over 1,000 UK SMEs with a multiple regression analysis to determine what factors most closely aligned with an SMEs’ chances of success and separated the highest-performing businesses from their peers. These ‘rules for success’ have been compiled from the research data to support British businesses as they look to chart a course to post-Covid recovery.
The full report identifies six behaviours for small and medium businesses to follow, to maximise their chances of a successful COVID recovery. The six top-line rules emphasised by the data were:
Rule 1: SMEs should regularly train staff
Of the top-performing businesses analysed, 47% provided training for employees at least on a quarterly basis, compared to just 32% of other businesses. Regular employee training was linked closely to success by the model.
Despite this, many small businesses have neglected training and nearly half (46%) of the small businesses analysed only provide training for employees about once a year or less often. This included 15% that never provide employer-funded training. This discrepancy could represent a significant opportunity for small businesses to unlock the potential of their employees and thrive in the post-Covid economy.
Rule 2: SMEs need to focus on innovation and technology
Looking again to the best performing businesses, 76% were found to either continually (39%) or often (37%) be considering new opportunities for technology in their business. This is compared to only 51% for businesses considered to be outside of the top ranks, out of which only 27% admitted to continually looking for new technology opportunities.
Rule 3: Small business must have a formal, long-term vision
Nearly two thirds (66%) of the most successful businesses in the survey had a formal, long-term vision, compared to just 50% of businesses outside the top 100. Looking to the businesses that scored the lowest on the SME Performance index, only 37% claimed to have a formal, long-term vision.
Rule 4: SMEs should broaden their customer reach and find new markets
Of the top-performing businesses, 65% of these have overseas customers compared to just 40% of the worst performing businesses. Among the best performing SMEs, over a third (34%) identified international expansion as one of the top three drivers for their success.
Rule 5: SMEs need to develop reinvestment plans
22% of the best performing SMEs reinvested some of their profits into the business in the past three years with an average 9% of profits being redeployed. Tellingly, this is nearly double what other businesses admit to reinvesting in their business (5%).
Rule 6: SMEs should engage with local business organisations and networks
Of the top 100 SMEs, 30% had obtained external credit to expand over the past three years (compared to 24% of other businesses). Meanwhile, only 16% of all other SMEs had engaged with local enterprise partnerships or growth hubs in the past three years (compared to 23% of the top 100 SMEs).
Chris Weller, Chief Commercial Officer, Allica Bank, said:
“All small businesses are different, as are all small business owners, but one trait they share is an innovative resilience. Whilst the coming months and years will undoubtedly continue to present extreme challenges, there is no doubt that small and medium sized businesses across the UK will rise to meet them head on.
“To give them the best chance to succeed, though, they need to be equipped with the right tools. There is certainly no silver bullet or panacea for every small business, but as this study has found, there are a number of common factors found in the most successful businesses that allow small enterprises to thrive and that they can consider individually for their business.
“This research has identified common ‘rules for success’ that speak to every aspect of running a business, not just the financials. Once we saw these results, we wanted to use them to help small businesses begin to re-build and prosper, by outlining common factors and then examining how best they can be practically applied to businesses in all sectors of the economy.
“Small business owners and their employees have been hit hard by the crisis, but they have the drive and resourcefulness to breathe new life into the economy and bring energy to post-Covid Britain. Our commitment at Allica Bank is to give them the support they need to do so, every step of the way.”
The full report contains a wealth of additional data and insight into each of these topics. As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.
New research finds that financial wellbeing should be at the heart of banks digital experiences as the UK enters recession
MullenLowe Profero have today launched a new report focusing on two communities who will be hardest hit by the recession: 18-25 year olds and small businesses. These communities need financial wellbeing support at the core of an increasingly digital relationship. MullenLowe Profero partnered with Censuswide to survey 1,004 18-25-year-olds and 504 small businesses.
Concern around financial shocks is harming individual’s wellbeing
The survey finds the ability to absorb financial shocks being the critical worry affecting wellbeing and 40% of 18-25-year-olds are sometimes afraid to look at their bank account.
They are seeking financial education to relieve worries
With over two-thirds of respondents demanding financial education in order to find peace of mind and 40% of 18-25-year-olds state that thinking about their money has a negative impact on their wellbeing the report highlights the audience are open to more active support from banks. 60% of the audience feel banks should help them have the capacity to absorb a financial shock.
When our bank is in our pocket reminding us of our anxieties, is there now a duty of care to support our wellbeing?
The survey finds that the digital experience is now the number one reason for choosing a bank for 18-25 year olds.
With this shift in digital preference, people are expecting banks to play a bigger role in wellbeing. 58% of those worried about their money want banks to help them take control.
More than half of 18-25 year olds agree that a bank’s role is now to:
- provide education on money management
- help them keep on top of financial goals
- help them save enough money to cope with the ups and downs of life
People are feeling closer to local communities, but there is a gap in how brands should engage communities in a digital world
Half of 18-25 year olds agree that in the last few months the importance of their local community to them has increased. 40% agree they’ve engaged more with their local community in recent months. There’s a tension between how to engage a community as 60% agree they prefer a bank with better digital tools over a bank that offers more local branches. However, 60% feel banks need a branch presence to support local communities.
The importance of Global Wellbeing rises
Over half of 18-25 year olds agree that the events of the last few months have made them seek out brands that do better for the world. The research findings show that what they want most is to be recognised for their positive behaviours. 56% of the audience highlighted that they would find rewards and benefits for purchasing ethically and sustainably most useful.
Banks digital experience today lack empathy
In this time of reset, the survey found a third of customers and small businesses are considering changing banks in the next year as a result of the impact of the pandemic. The report concludes that brands that will win will champion financial wellbeing in the digital experience through empathy and emotional intelligence.
For the full report, get in touch with MullenLowe Profero at [email protected]
Howard Pull, Head of Digital Transformation Strategy at MullenLowe Profero, said: “Our findings are a wake up call for digital innovation in banking relationships. With digital experience being the number one choice for selecting a bank, there’s a huge opportunity for banks to support individual wellbeing at scale by understanding and responding to our goals and anxieties to build better money habits.”
The research was conducted by Censuswide, with 1,004 18-25-year-old current account holders and 504 small businesses with business bank accounts and annual revenues up to £2m between 23.06.2020 and 29.06.2020. Censuswide abides by and employs members of the Market Research Society which is based on the ESOMAR principles.
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