How bringing systems into the 21st century can be a springboard for success

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Q: Underpinning operations with the right technology is vital for businesses to stay competitive in an increasingly tough banking landscape. What scenarios and drivers can lead to the need to update core systems?

A: Broadly speaking, there are three major areas where we see banks looking to modernise their systems. The first is expansion to a new geography or market, the second is an expansion into new customer segments or new product segments, and the third is sustaining a major domestic franchise. The primary driver for the organisations in all of these scenarios is growth. 

On the customer side, it’s about staying ahead of the curve of customer expectations in the marketplace, or expanding the potential pool of customers which a bank can target. On the competitive side, there are obviously new entrants, and the existing players are increasing their competitive edge too. So the challenge is how to differentiate yourself.

For example, we have been working with EFG Eurobank, a Greek bank which has moved into different countries across eastern Europe as part of its expansion strategy. Other banks are also expanding into new market segments and product classes. Japan’s Jibun Bank, for example, set up a mobile-only banking service, which provides all of its products and customer servicing over a mobile platform. This is something which really targets the 'Generation Y' customer segment, which is not always keen on going through the traditional branch network, and looks for a much more direct and self-service angle instead.

Q: What other services and products are customers looking for?

A: Customers are moving towards a much more self-service approach with the bank. But individual customers, as well as business clients, are also looking for the type of services which have historically been provided only to a small number of high-value individuals or corporations. 

On the self-service side, there is a big push to allow customers to access banks in different ways. Mobile is one channel, but there is also internet banking, and even social media; some banks now provide transactional and relationship services through social networking sites such as Facebook and Twitter. Processes through these channels are also important, and customers expect much faster response times. That often requires fully automatic, straight-through processing of a particular transaction or request, and the transparency to see how it is progressing without being dependent on a banker or a relationship manager.

The provision of tools and capabilities which allow consumers to conduct some of their own financial planning is also growing. These allow them to frame the objectives and relationships they would like to have with their bank.

As for higher-value services, what is interesting is the expectation that the bank will place a value against the relationship with the client, and actually build that into a specific pricing or service offering. Cash management is also changing. In the small and medium-sized enterprise or individual consumer markets, customers are starting to ask for the kind of facilities and services which traditionally existed only for large corporate-level relationships.

Things are changing in the wealth management business too. With the rise of the mass affluent we’re seeing across mature and emerging markets, the ability to provide wealth services and capabilities to this broader-based set of consumers is key.

Q: Once a project is under way, or even completed, how do you measure success?

A: Broadly speaking, there are some common metrics that are being used, based on revenue, agility, efficiency and also satisfaction, both of the end customer and employees.

With growth being a primary driver behind modernisation, there is an expectation that the top line revenue will increase, but more subtle metrics such as numbers of products per customer can also be considered. The agility side really plays to the enhanced customer experience, such as the time taken to provide a particular service, as well as things such as reduction in the time to launch a new product. One of our clients, UBank, a new Australian direct bank, reduced the time taken to open an account down to five minutes from a local standard of two to three days, for example.

On the efficiency side, cost-to-income ratio is a fundamental measure of a modernisation project and banks will be looking to gain five to 15 percentage point benefits. They’ll achieve that through rationalisation, both of products being offered to clients, as well as of the infrastructure required to support those clients. 

As for satisfaction, because they’re providing a more tailored, value-added service, customer satisfaction is expected to increase. Employee satisfaction is also being brought into play. In the age of Apple’s iPods, iPads and iPhones, employees will be a little bit disappointed if they walk into the workplace and face technology which is essentially 10, 20 or 30 years old. A modernisation programme will provide them with an experience which is consistent with the consumer technology they use outside of work.

Q: Presumably these criteria will differ quite significantly by region.  Will a large Western bank have different measures of success compared with a smaller emerging market bank?

A: Historically that was the case, but there’s now a convergence in goals. In south-east Asia, for example, banks are raising the same issues that we’re seeing in the more mature markets. Rates are reducing, competition is increasing, customers are becoming more demanding, and there is a real alignment between what both market segments are experiencing.

The real difference is in major growth economies such as Brazil, India and China. Much of the population is still unbanked, so there are key metrics there for rapid expansion in numbers of branches and customers. And the volumes are phenomenal; there are literally millions of customers per year coming onto the books, and hundreds if not thousands of branches being opened up annually. Because of the social development in those countries there are other metrics too, such as how are they helping the socio-economic growth of the country as a whole, by opening operational centres in rural areas which drive employment and growth, for example.

Q: Once a banks’ leaders have actually bought into the need to modernise, where do they start?

A: Obviously there are a lot of stakeholders involved in a modernisation programme, from business as well as IT departments, so it's crucial to make sure that everybody is focused on the same outcome. The first discussion points we get involved in are the business strategy over the next three, five and 10 years. That includes markets and segments a bank wants to move into, and also means looking at things such as distribution strategy, the kinds of services it wants to provide, and its merger and acquisition plans.

The next step is to define the business architecture, and look at how to move to a more sophisticated model to support these goals. 

With that in place, the bank then needs to look at what enterprise processes will be required to support the business and move forward. It has to ensure that these are as efficient as possible and reduce the possibility of failure. 

Finally it needs to look at the sourcing side. As banks move to a more sophisticated technology platform and operating model, we are now seeing some move towards a 'multi-sourcing' environment, where some aspects are catered for internally, and others are provided by multiple external vendors. 

Q: How do you go about moving from older systems to new, and how is the IT department involved?

A: Assuming we’re looking at a larger modernisation programme across both business and IT, the common starting point is to look at a progressive transformation, but one which aims to deliver benefits within one or two business cycles. The critical aspect here is the sequencing. It is at this point that the business leaders as well as the IT leaders have to come together and decide what is realistic, what can be achieved within a particular timeframe, and the steps that can be taken to achieve the final goal.

IT departments will have to look at the technology architecture and decide what is required to support the target business strategy. They will also have to decide what the current systems can enable over one or two business cycles; what quick wins can be achieved initially. They then have to lay out a roadmap for a realistic and lower-risk approach for moving from what is quite a complex existing IT environment to the target end state. Increasingly, the IT group is playing a more strategic directional role, rather than just being the designer and builder of an IT environment.