Parveen Bansal talks to Bertrand Lavayssičre, head of Capgemini’s Global Financial Services Sector and managing director of Financial Services North American Region.

Speaking with extensive experience on consulting and IT in financial services, Bertrand Lavayssičre shares Capgemini’s view on the main issues in the financial services industry and their possible solutions. He highlights three key issues that continue to plague retail banks: creating customer loyalty, integrating different channels and, in particular, the need to reduce back office costs.

The issue of customer loyalty is not new, he notes, it is a permanent question that has always been a problem for banks, “but the way you address it now is different from years ago and will be different in the future”.

Relationship management

One way of improving loyalty is to increase the number of customer relationships with each customer but this is not enough, it is the quality of the relationship that matters. He suggests that banks need to make better use of sales automation and relationship management tools. But Mr Lavayssičre says: “Banks are still struggling to make really good customer relationship management systems. There have been very different responses [to this problem] from the market, with very different results.”

He identifies the lack of good business information databases as one of the main issues holding banks back.

This leads to the second problem which is the integration of different banking channels. “Customers are nomadic, it is difficult to change consumer behaviour and channel preference, they want to be able to choose to use any channel,” he says.

Integration of the channels so that they can deliver accurate and consistent of information and service is very important. Mr Lavayssičre points out that the banks must also consider that while some channels are better adapted for sales, others may be better for serving customers and handling transactions. “The nature of the problem is very different today from before, it is just not acceptable to have distributed channels anymore,” he says.

The need for good customer information and the need for consistent information across the multiple channels both make the third issue – cost savings – seem difficult to achieve.

Cutting back office costs

Reduced margins and demanding customers are forcing banks to rationalise their back office functions. “The average cost income ratio of banks is between 40%-60%. Some are higher than 60% and it is a major competitive disadvantage,” says Mr Lavayssičre. Banks need to consider how they can better structure the cost of operations, and whether this can be shared among the departments or across the whole organisation. Indeed, Mr Lavayssičre notes that this provides banks with an opportunity to reconsider changing underlying IT architecture to change cost structures.

Without the large budgets once enjoyed by the banks, the big challenge is how to move forward and extract even more value from the existing IT infrastructure. “Banks should look at their back office systems and consider in which area they can share the back office costs, how they can change the front office and branch costs,” says Mr Lavayssičre.

This change is made necessary by today’s price war. According to Mr Lavayssičre, having a vision of the functional and technical architecture helps to determine what strategies can be used to change the cost structure of the bank and its different parts.

Outsourcing

One of the options to enable a change in the cost structures is to outsource, be it IT outsourcing or business process outsourcing. Outsourcing offers an attractive strategy to accelerate cost and process improvements. “The questions to ask when considering what to outsource is whether the system or process is a financial asset that can be liquefied, can it be shared with others and whether it is critical to own it in-house or not.”

Again Mr Lavayssičre notes that having a clear idea of the preferred technical architecture can help determine what and whether to outsource.

Mr Lavayssičre notes that decentralisation of the back office and front office makes it possible to change the core accounting systems, a growing focus for financial institutions worldwide. The pressure to deliver results faster and regulatory pressure to improve reporting for anti-money laundering and operational risk are some of the reasons for a rise in change projects. “These make for very large projects and essentially highlight businesses’ need to have an integrated information database.”

Mr Lavayssičre highlights that, with the advent of internet technologies, there is a general move toward standardisation and the use of web services to access the disparate back office systems. Capgemini calls this the service architecture, also known as a service-oriented architecture, which integrates existing systems, applications and users into a flexible architecture that can easily accommodate changing needs. Standard data models, such as XML and SOAP, as agreed by trade and industry organisations, are promoting such an architecture and also future consistency of information and better systems integration.

Mr Lavayssičre explains: “In banking, the differentiation is really about the speed of change as well as the breadth and quality of implementation, because eventually all banks can do the same thing [that is, implement the same systems and technology].”

Another important aspect of differentiation is the quality of information and the level of integration between the back office and front office.

Mr Lavayssičre says: “The speed of projects and the ability to change systems fast and adapt to customers needs will depend on having a good IT architecture and systems. How you combine things, for example using new models with old systems, and the ability to be flexible, is what makes you different.

“There is no time for banks to be lagging in technical implementations. Their existence in the future marketplace depends on how fast they can make their systems flexible,” Mr Lavayssičre emphasises.

At the same time he notes that larger banks could take longer to change because they are more secure about their market share, and this presents the smaller banks with an opportunity to catch up to them.

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