Value Creation in Banking: The Key Is Information

Implications: 1.   Banks create value for shareholders by creating value for customers.  Much of that value to customers is embedded in information systems. 2.   The business of banking evolves quickly, forcing banks to evolve their competitive strategy and resulting advantage.  Information systems are at the heart of this evolution. 3.   The recent challenges of risk management will only accentuate the oversight of regulators, requiring banks to seek better information systems (e.g., more accurate, timely, and integrated information). 4.   As noted by the article, this will create a boom for consultants and providers of information systems.

Analysis: Banks and all financial intermediaries rely on competitive advantage embedded in information.  The industry is Darwinian, forcing firms to survive by superior information, used in a superior manner. 

This business is more than merely raising and investing quantities of capital.  It deals with risk.  As the recent challenges have shown us (e.g., sub prime), banks and financial intermediaries are not where they need to be in recognizing, measuring, understanding, managing, or pricing risk.  The cause, and ultimate solution, to this risk management challenge lies in information, specifically enhanced information systems.
 
From shareholders, to customers, to regulators, and beyond, the financial world will never be the same.  To survive today and in the future, financial intermediaries must have enhanced information via improved systems.  The recent turmoil in markets is a prelude to a boom in the information business.