Despite predictions that the Basel II capital adequacy accord is now doomed – following doubts expressed about its efficacy by the US Comptroller of the Currency and the European Central Bank as well as the Chinese and Indian governments, the British Banking Association, the European Banking Association and ISSA – consultants and market analysts Datamonitor continue to believe that it will be a major driver of investment in analytics and business intelligence software by European banks and broker-dealers.
In a new report, Business Intelligence And Analytics In European Financial Services, Datamonitor predicts that overall expenditure in this area will grow at a compound annual growth rate of almost 7 per cent between 2002 and 2006 – fuelled by anti money laundering legislation as well as the Basel II initiatives. Datamonitor says that compliance and risk management solutions in particular will experience the strongest growth in terms of investment. For compliance and risk management combined, investment will amount to $1.7bn in 2006. Spending on fraud detection mechanisms is also tipped to be a key area of investment.
Datamonitor predicts that investment by European financial institutions in business intelligence and analytics will hit $4.8bn by 2006. Datamonitor’s report splits business intelligence and analytics solutions into six solution areas – customer intelligence, risk management, fraud, performance management, financial analysis and compliance. Combined expenditure on compliance and risk management solutions are predicted to grow at a compound annual rate of 9.5 per cent between 2002 and 2006.
Datmonitor holds that Basel II – if it meets its current deadline of 2006 deadline – will oblige banks to implement a range of new processes to determine capital requirements in order to cushion themselves against credit, market and operational risk. Many of these processes will require investments in business intelligence and analytics software that enable banks to gain a consolidated view of data stored in different departments across the organization.
Similarly, banks will increasingly invest in anti-money laundering solutions in order to prevent major fines from regulators that take money laundering increasingly serious. Royal Bank of Scotland, for example, was fined in December 2002 for non-compliance with FSA anti-money laundering requirements.
Fraud detection solutions are also expected to see strong growth with compound annual growth estimated at 7.5 per cent between now and 2006, when Datamonitor estimates spending will reach $420 million.
Datamonitor reckons vendors from various backgrounds, including traditional business intelligence and analytics vendors as well as firms from the data management, enterprise resource planning (ERP), customer relationship management (CRM) and other transactional processing backgrounds, will be aboard the gravy train.
Vendors area already providing tailored Basel II, anti money laundering and other reporting and financial analysis solutions. Vendors that have had the toughest experience in recent years – such as Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) – are particularly anxious to capitalize on the growth potential of the front-end reporting space as well as use the opportunity to gain more direct exposure to business users across organizations.
“The business intelligence and analytics industry, as most of the IT space, has seen some slower years recently,” says Daniel Lessner, Datamonitor financial services technology analyst. “The financial services sector – traditionally the largest market for business intelligence and analytics – is going to play a pivotal part in fuelling this recovery in the coming years as banks and insurance companies are pressed to satisfy regulatory requirements and meet pressure from shareholders to provide a more complete picture of risk exposure, compliance and profitability.”