International banking platforms: the new imperatives

There is a perceptible shift in the global banking axis. Firstly, banks that have traditionally held sway on a global scale are rethinking their expansion strategies, withdrawing to their local markets for consolidation. This is opening the field to highly ambitious newer players with the stamina and drive to go the distance. Secondly, with the opening up of their economies, emerging markets across the world are fertile ground for two-way trade and business expansion. This is allowing successful banks in these regions to progressively expand their footprints across borders, following in the footsteps of their corporate clients. 

Banks on the expansion path address these opportunities in several ways. In our experience, we see four kinds of operating models in vogue: the international branch network, the super-regional bank, the international wholesale bank, and the global transaction bank. Depending on the economic profile of the base country, its geo-political position and history, and their own growth strategy, among other factors, banks tend to adopt one or the other model. Some banks move progressively from one model to the next as a strategy for growth.

Under constant review

In order to equip themselves for the future, banks need to constantly review the technology that supports their business. Are their respective technology platforms merely stable, or are they truly scalable? And what are the business challenges that they are likely to face in newer business environments that their technology ought to address?

Common to all the operating models for international systems are the following challenges: complying with a multitude of regulations and regulatory authorities, adhering to seamless and time-bound payment frameworks, providing a real-time management information system (MIS), tracking exposure centrally, offering single-customer views, and delivering differentiated yet consistent products and services on the go across markets.

A technology platform that claims to address these challenges must be ‘multi-everything’: multi-lingual, multi-currency, multi-entity and multi-cultural (for instance, banks must ensure that their core system is capable of offering Islamic banking services for the long haul on the same platform). The processing engine must be sufficiently flexible to slice and dice data for the purposes of region or country-specific reporting and MIS. It must also be built on a  modern technology platform is a modular yet integrated architecture: modularity allows banks to choose the scale of deployment based on their size or focus, thus reducing their cost of ownership; and, it is an integrated system that can offer the customers of a bank a seamless, consistent experience across channels. In fact, an optimally sized, fixed kernel, wrapped by layers of extensible functionality, helps banks reduce vendor dependency and customisation costs.

In order to even remain relevant to – if not proactively servicing – the banking needs of their corporate customers embarked on business ventures in newer geographies, banks need to constantly reinvent their product spread. The ability to design, define and launch standardised products with a local flavour is a key feature that technology platforms must support. These are the standard requirements. The specifics of the platform that a bank chooses would hinge considerably on its business strategy. 

International branch banking

A core system that is cost-effective, and which has a considerable breadth and depth of functionality, would ideally support international branch banking. A bank with an international network of branches that serves its non-resident customers would, primarily, need to conform to local regulations and currency restrictions. Therefore, apart from supporting the bank’s reporting requirement, the technology backbone must be a highly streamlined payments and transfers gateway. Further, in order retain and attract small and medium-sized enterprises (SME), the trade finance modules must be functionally rich, as this would form a huge chunk of the bank’s fee-based business.

In terms of scale, a platform developed on a service-oriented architecture, which allows a bank to standardise data, interfaces and applications across its operations, would be a pre-requisite. Such an architecture would provide deployment options to the bank, such as: clustered, centralised, independent or semi-dependent. 

Super-regional banks

Super-regional banks (SRB) are those that offer a standard array of products and services to their retail, SME and corporate clientele in a geo-politic region. SRBs tend to flourish in emerging economic regions, such as Africa, parts of Asia, Latin America and eastern Europe, as a result of their opening up to global capital flows. The opportunities for growth both in terms of interest and non-interest based incomes is particularly attractive in these regions.

The technology platform for banks with a universal banking focus, aspiring to leverage their brand equity across a region, must primarily support a high volume of transactions and real-time exposure tracking across jurisdictions. Its products and services capability must extend to high-end self service, wealth management, loans and deposits, and cash and supply chain management. Since SRBs would be competing with local banks for market share, a nifty and modular architecture should be a prime consideration. In Oracle’s experience of working with banks that have adopted this growth strategy, we found a centralised hub an ideal deployment strategy.

Wholesale banking

Banks focusing their international operations on wholesale banking would, self-evidently, require a core engine that offers evolved cash and liquidity management facilities, and commercial loan and deposit, treasury, capital market and trade finance functionality, including loans syndication facilities. Moreover, since banks would need to distinguish themselves in the market with extraordinary value-added services such as dedicated portals for corporates, they would need a system that is business-process driven, so that they are able to define, modify and operationalise workflows at will.

Integrating the entire supply chain through an enterprise resource planing system, for instance, would help improve data mapping and operational efficiency, which, in turn, would considerably reduce risk. Finally, an international wholesale bank would find a system that enables data warehousing – for data cleansing and analytics – a business enabler. Not only would this feature considerably augment business responsiveness, it would also improve insights into client behaviour, thus bettering the client experience.

Transaction banking

With a global regime of tighter capital adequacy norms, banks have begun to focus on fee-based incomes. Global transaction banks (GTBs) exemplify this trend. These banks, with a large presence in several countries and an unstinting focus on transaction banking and fee-based revenues, focus heavily on their corporate customers by offering them innovative products. Their business typically spans areas such as domestic and cross-border payments, professional risk mitigation for international trade, and trust, agency, depositary, custodial and related services. A typical product and services suite for a GTB would include demand deposits, liquidity management, trade services, payments and securities services (transfer agency).

The technology platform that supports this business model, evidently, must be equally sophisticated in terms of functionality and deployment scale. In our view, the platform must be open and extendable, and deployed on a hub and spoke model. Possessing templates for greenfield rollouts reduces cost. Also, to accommodate divergent regional requirements, banks must specifically look for a system that offers configurable, business-process-driven workflows. Not only does this obviate expensive region-specific customisations of the system, it also provides for evolving regulatory requirements. A bank looking to roll out a single technology platform for its operations is without doubt embarked on the most complex technology programme in banking.

An investment of such magnitude, in terms of resources, time and material, is best justified over a multi-country rollout of the platform. In fact, such a rollout not only optimises costs while improving operational efficiency, it offers banks the true flavour of benefits over a longer term, and indeed well into the future.

No matter what their path to internationalisation, the ability of banks to identify a technology platform that is modern in design and construction, and which will serve them over the long haul with little customisation and maintenance, is critical to their success. We believe flexibility, scalability and reduced vendor dependency are the hallmarks of such a platform. 

Chris Curtis is the vice-president of Oracle Financial Services Global Business Unit.