Market Volatility and Aggressive Regulatory Environment Top Concerns for Lenders, CGI Survey Finds

Financial institution executives identify volatility in the consumer lending market and mounting compliance regulations as their top business concerns, according to results of a survey released by CGI Group Inc. (TSX: GIB.A; NYSE: GIB), and TowerGroup.

In a CGI commissioned survey of top IT and operations executives in the consumer credit granting industry, TowerGroup examined business drivers, strategic responses and technology initiatives of companies across the U.S. and global financial services market.

More than two-thirds (71%) of the respondents identified the volatile consumer market – most recently affected by rising interest rates, flat to slightly declining loan demand, and the sub-prime mortgage dilemma – as one of the top challenges they face today. In addition, 43% of respondents said that increasing compliance regulations are a concern, adding cost and complexity to daily operations.

“Many of our clients tell us that their business is facing a headwind in the next several years,” said Jame Cofran, Senior Vice-President, Banking & Investments with CGI. “Revenue is impacted by reduced demand for loans, while regulatory pressures and rising defaults increase costs, resulting in a profit squeeze.”

“Financial services organizations have significant challenges ahead of them, coping with a much less friendly consumer credit market,” said Bobbie Britting, senior research analyst for TowerGroup’s consumer lending practice. “The key to success for these institutions will be their ability to adapt to this changing market by innovating processes and products to best meet customer needs and expectations.”

Respondents indicated that their strategies will be focused on innovation and automation. According to the study, 57% of the respondents said they will concentrate on product, channel, and service innovation, while 50% said that Business Process automation will be a top strategic direction. Participants ranked cross-selling (55%), product and market expansion (38%) and service quality initiatives (63%) as top strategies for growth.

Resultant IT priorities cited by respondents included core system transformation (79%) and automated workflow and Business Process Management adoption (50%). Many financial service organizations are moving toward “consumer credit groups” and away from product silos. This requires a shift from traditional, product-oriented systems and processes for core operations such as originations and collections, to an enterprise-wide, customer-focused approach.

“Core system transformation will be increasingly important over the next two to five years as organizations respond to evolving customer needs while reducing ongoing IT and operations costs,” said Mr. Cofran. “In our experience, major IT initiatives typically bite off too much at one time, resulting in failed or cancelled projects. Transformation should be built on the premise of evolution rather than revolution – prioritizing investments, adding achievable pieces in a phased approach, and reusing systems whenever possible rather than developing new ones. Service Oriented Architecture (SOA) provides a technology to allow for a progressive approach to transformation. Companies that can transform their systems and processes into a cost-efficient growth engine will gain greater market share and increase top line revenue.”

Methodology
CGI commissioned the survey to better understand the business, strategic and technology objectives of leading financial institutions and identify innovative revenue generation strategies, leading-edge best practices, and actionable insights on how credit granting organizations can enhance top line revenue. Participating institutions rank among the top 40 consumer credit granting institutions in the United States and leading institutions in other advanced credit markets including Canada, UK and Ireland. The survey was performed for CGI by TowerGroup during March and April 2007.