What Do Customer Centricity and Risk Management Have in Common?

Some readers may consider this question an oxymoron while others may be puzzled by the fact that there could be common attributes that link customer centricity and risk management.

Both groups may benefit by stepping back from the question and reflecting on how their financial institution approaches each subject. Of course, there is a third group of readers, although fewer in number, who are already invested in IT solutions that leverage customer centricity across their institutions, including robust, customer-centric risk management capabilities.

What do I mean by customer centricity and risk management? Customer centricity provides the foundation that is needed to support both the operational and business intelligence capabilities associated with customer relationship management. Risk management, on the other hand, has lots of rooms in the house of banking, many of which become much more functional with a customer-centric foundation. My view is that many risk management solutions really start with a customer whom the institution needs to understand and serve as comprehensively as possible.

Some of the leading financial institutions –- like USAA (tops in customer service) and Wells Fargo (tops in products/services used per customer) -– figured out a long time ago that having a customer-centric foundation was critical to the institution's long-term mission, strategy, and success. If an institution does not have a customer-centric foundation, how can its employees see all those relationships easily in a single view or know which service a customer could add to existing ones? In today's challenging environment institutions should address how to become customer centric.

I recently published an executive brief, "How Banks Can Generate More Revenue and Profit by Enabling Customer Centricity," which describes the difficulty, from an IT standpoint, in overcoming a portfolio of account-centric systems. Even institutions that have invested in comprehensive core banking solutions need to expand their customer-centric framework beyond the core system's capabilities to capture customer relationships that reside in stand-alone applications, often supplied by outsourcing firms (e.g., credit card, mortgage). These stand-alone systems often contain the most important credit risk exposure at a customer level. Why wouldn't a bank want to connect all relationships to make the best possible operational and business intelligence (BI) decisions?

These issues (customer centricity and risk management) extend to the commercial or corporate banking world, too. In many institutions there is an even greater fragmentation of core systems for business/corporate customer product requirements. There is a critical need for financial institutions to have in place a rock-solid risk management capability for customers and counterparties (think AIG). Unfortunately, it is not as easy as flipping on a light switch. Transaction-centric business processes and the inherent complexity of counterparties, customers, products, and accounts make it difficult for institutions to accurately assess and manage risk. I just published a second executive brief, "Does Your Risk Management Approach Pass the Sink or Swim Test?," which takes a closer look at multidimensional risk aggregation and counterparty risk on a global perspective.

Another common thread that connects customer centricity and risk management is the need for a comprehensive master data management (MDM) solution that captures and aggregates customer relationships and risk management exposures across the enterprise. An MDM solution enables an institution to modify operational business processes and make smarter BI-based decisions. I would welcome any comments from readers, pro or con, on the question headlining this column. Bill Bradway, founder and managing director of Bradway Research LLC, analyzes the business strategies and IT investments of US banks and credit unions.