How technology keeps banks and customers connected

Click here to view an edited video of the discussion

Q: Banking used to take place only during business hours and only in the branch, but that is not necessarily the case anymore. How are things changing and why?

A: I think branches will continue to be the place where banks will meet their clients and do business. Having said that, there are two important drivers which have changed this behaviour; one is convenience, and the other connectivity. People want convenience and people are connected to their friends and the marketplace today. They are able to do things that... used to only be possible in a branch.

Q: Do these behavioural changes mean banks are at risk of losing customers?

A: Whether it’s a retail segment or a corporate segment, it’s all about getting the right value and right service at the right time. Because of the connected world… people have a choice, and a plethora of options to negotiate the best deal that they can. So, from that perspective, loyalty for the sake of loyalty is a bygone virtue. People want to have the right services at the right time and the right price irrespective of what the market segment.

Q: Customer demands are obviously shifting; how do banks cater for these? 

A: It isn’t easy for the banks. They are dealing with heterogeneous clients here. There are ageing clients who want personalised advice and personal touch points, they probably want to visit the branch and they want hard copies of documents so that they feel secure and feel safe. On the other hand, you have the 'Generation Y' customers who don’t even want to know where the branch is. They want to do everything online, and they have probably the best deal that they can negotiate online. Banks have to deal with technology that is able to satisfy both these client segments. 

Q: Technology is obviously important for holding on to these disparate customer segments, but it can help provide efficiencies, too. How important is that to banks at the moment?

A: Extremely so. If you really look at what [difficulties] banks are facing today, one is that there is an uncertain macroeconomic environment. Second, this heterogeneity of client expectations that comes in. Third, they are faced with a complex IT infrastructure. It’s all about getting things done with the right technology at the right time. Most banks also have a growth agenda... They want to diversify and they want to be more efficient. Innovation drives both growth and efficiency. 

If you really look at what banks are trying to do, it is [akin] to running a marathon and 100-metre sprint at the same time. In that context, technology rationalisation assumes greater significance. It’s all about getting the infrastructure right and getting the application landscape right. It’s getting the operations integrated properly to deliver the lower cost per transaction that they need. In some banks this means replacing the core systems. Banks are wary about doing some of these things, but hopefully not for long.

Q: What kind of technologies are banks actually employing to achieve these dual goals of keeping up with customer demand and boosting efficiency?

A: Mobile technology, in particular, is growing thanks to two or three factors. The first is that there is a greater adoption of smart phones by people all across the globe. Second, on the internet banking or online banking side, technologies have leapt ahead. Things such as Java, Web 2.0, and Web 3.0 mean that customers want a very interactive, instantaneous, and intuitive way of conducting transactions or using banking services. Combining these two together, the banks are able to offer interactive and instantaneous features [via] the mobile… banks are attempting to do transactions which cut across these channels. So you can start a transaction online at home, connect to the call centre and pick up the same transaction while driving, and complete it on the mobile or by visiting a branch during lunchtime. 

Q: On the efficiency side, green IT has been something of a buzzword over the past few years. What do you see banks doing there?

A: Most banks have a green IT agenda, either knowingly or unknowingly. Clearly, cost pressures are pushing banks to adopt some of these, but broadly there are two pillars in which most banks have initiated some green projects. One is reduction in IT energy power, the other is reduced paper consumption. Reduction in energy consumption is achieved through simply replacing old servers and equipment with far fewer, more efficient, more energy-efficient servers. 

Reduced paper consumption is a result of initiatives such as enterprise digitisation, where every document – such as cheques or customer proofs – are scanned and digitised and available to all downstream applications. These two types of initiatives are both typical and they have resulted in a significant amount of cost savings and a direct or indirect contribution to the environment.

Some banks have taken this initiative to the next level by teaming up with consortiums such as Green Grid or Carbon Registry. That is an indication that there is a real vision for the whole green IT programme which is driven from the top. It’s really a business shift, and society very clearly recognises those efforts.

Q: Another major talking point in financial technology in recent years has been cloud computing. Despite its apparent popularity, however, it does not seem to have achieved mass acceptance. Is the financial industry finally ready for cloud?

A: I think cloud computing is certainly on the agenda of most banks today… There are certainly real concerns about data privacy and data security issues, which have put the brakes on that particular technology. However, most banks have adopted well-calibrated strategies here. The first is an internal or private cloud.  This is all about rationalising and consolidating IT infrastructure using virtualisation software and higher-capacity servers. Then, using virtualisation to offer – for internal applications or internal usage – storage and computing pretty much on demand. 

The second is an external or public cloud. People have looked at external cloud and external infrastructure for newer applications through cloud service providers, in which case the entire responsibility of delivering virtualisation both on the infrastructure side as well as the application side is left with the service providers themselves. Most banks have started to look at this side of cloud computing from a perspective of starting with non-mission-critical situations such as e-mail exchanges. Our business continuity services are pretty much on external cloud today. 

Q: Have security concerns been the biggest barrier for banks looking to adopt cloud technology?

A: The privacy and data security issues are always there, but there are solutions that the industry has offered. It is pretty much clear that the vulnerability of an external cloud in terms of data security and privacy is no more than what you would otherwise see in an internal or private cloud. So, it’s a question of time before – I think – the industry adopts the public cloud more openly and more holistically. 

I think what we see in the industry is that the momentum towards cloud computing is picking up, and people... when they look for new applications today, don’t want to buy a licence. They don’t want to buy hardware. They would much prefer to buy a service. That service is pretty much operating on a public cloud.

Q: How are these technologies being deployed amongst TCS Financial Solutions’ clients?

A: One interesting example is in line with the expectations of the industry to buy a service as opposed to buying pieces of it and then doing it themselves, [as] I mentioned earlier. One of our large clients, [UK Insurance provider] Phoenix Group, had a problem with servicing its closed insurance policy books. It had more than 4 million policies spread across 100-plus application systems, with more than 1000 insurance product variants. The cost of servicing each of these policies was getting out of hand, and the cost per policy was just completely out of the ballpark. So, we teamed up with Phoenix Group, and given that it is a regulated business, we set up an FSA-regulated entity called Diligenta PLC. We took over the entire IT infrastructure, the people, and the entire problem in this utility and then… started to rationalise the product variants to about 200, then consolidated all the application systems onto a single platform.

Another example involves core system migration within Deutsche Bank's transaction banking division. From an IT systems perspective, it has a home market strategy and an international market strategy. It was dealing with a number of core systems in various countries and wanted to look at one consolidated infrastructure which will give it the ability to standardise products and operations… We jointly decided on a model office approach, by which we rolled out a model office and model bank where the products are standardised, the checks and balances are standardised, its training infrastructure is standardised, the data migration exercise is industrialised, and so on. It’s very heartening to know that that’s fairly successful. Within the first year, we could roll out two countries and we are working on the third and fourth country as we speak.