the seismic shift experienced by the global financial services industry during the past few months is driving fundamental shifts in how firms respond to the evolving, long-term economic stresses and how, in turn, they can position themselves for the eventual growth and opportunities that will emerge when the current challenges subside.
Today, financial services companies are examining not only their ‘run the bank’ programmes and squeezing efficiencies out of funded initiatives, but they are also examining their ‘grow the bank’ programmes, slashing funding and even cancelling projects outright. In many scenarios, the imperative to preserve resources has extended beyond simple cost-savings and has become more a question of: “where can you give budget back?” Given the difficult economic backdrop and unknown tenure of this economic spiral, what should be the focus of technology investments in 2009?
Spending patterns
As a provider to a wide range of top-tier financial services organisations, EMC is seeing four distinct spending patterns emerge from the turmoil: customer centricity; risk management and compliance; business operational efficiencies; and IT operational efficiencies. Investments in these areas are addressing critical ‘run the bank’ projects, aimed at cutting costs and bringing back customer confidence, as well as laying the groundwork for future ‘grow the bank initiatives’. There are commonalities across these initiatives where firms can cut their costs and re-purpose their investments to meet multiple objectives.
Within customer centricity, customer multi-channel communications as well as business intelligence and analytics are critical ‘run the bank’ spend areas. Using these technologies, financial services firms are looking to reduce churn among their current client base, and also to create a captive market in which to sell new products and generate new revenue streams. To communicate with this existing client base, firms need a way to create and repurpose information and data across multiple lower cost channels.
Technology recycling
At EMC, for example, we are seeing our customers reuse and repurpose technologies, such as EMC Document Sciences, which includes a personalised and tailored capability to send and receive customer information, across multiple projects. These include end-of-month batch runs for customer statements, customer communications and updates, and customised investor correspondence. Such technologies allow financial services firms to gain measurable improvements in customer experience surveys, and to increase customer loyalty and satisfaction.
In addition to communicating with clients within a customer centricity model, analytics projects are now under way to help firms better understand existing product mixes for each client and, in turn, their likelihood to buy additional products and services. This complex analysis requires tremendous amounts of data which must be highly available and efficiently managed. In the past, dedicated front-office business intelligence/data warehouse (BI/DW) silos were created to meet these needs. With the limits on spending across the banks, we are seeing our customers create BI/DW backbones. These analytic infrastructures consist of proven and integrated high-end data management and data storage arrays which are designed as multi-purpose data warehouses across various spend areas for ‘run the bank’ projects. By having a common backbone across these analytics projects, firms are able to lower their cost of data analysis and data maintenance and thereby meet their IT spending reduction objectives.
The next spend area to examine is risk management and compliance. Within this area numerous ‘run the bank’ projects, designed to meet regulatory and best-practice requirements, are ongoing. While not exhaustive, the following list describes major areas that are still being funded: within the payments arena, single euro payments area (SEPA), Target 2, the payment card initiative (PCI) are still commanding resources, while within the capital markets arena, Markets in Financial Instruments Directive (MiFID), Basel II, SOX, Know Your Customer (KYC), anti-money-laundering (AML), identity and access management and fraud prevention are key issues.
In the risk management and compliance area, there are multiple analytics projects. As with front-office analytics, traditionally middle office and back-office systems operate as silos with dedicated architectures and infrastructures. We are seeing our clients begin to recognise that siloed cost structures can be reduced by re-architecting analytic backbones in order to gain scale across their firms. By leveraging a common information infrastructure and data management layer, our customers are reducing spend while addressing their critical compliance issues.
In addition to BI and DW, security and fraud reduction projects are very important ‘run the bank programmes’ in the risk management and compliance spend area. We are seeing common requirements across front, middle and back-office systems which are best addressed and managed not with siloed authentication schemes, but rather with a strong enterprise-wide security framework that incorporates identification and authentication.
In a common framework there are fewer gaps between systems which can be exploited, the risk of which has been underlined in recent times by rogue trader incidents. And with common frameworks, firms are positioning themselves to address expected future compliance requirements.
Web security
Beyond security, another area for continuing spend in our clients’ ‘run the bank’ programmes is that of fraud reduction. In these challenging economic times, we are seeing a rise in fraudulent websites, phishing and malware attacks. These attacks are sophisticated assaults often combining social engineering techniques to gain user information including IDs and passwords. Whether it is through seemingly benign e-mails or complex ‘man-in-the-middle-attacks’, whereby hackers intercept web-sessions, the costs to both consumers and firms are rising rapidly.
In addition, as businesses go through redundancies and restructuring, the risks of malicious and/or criminal acts from within the business increases. EMC is recommending to our clients that they actively monitor and control information access, transit use in order to identify and mitigate risks to which the information is exposed.
In the spend area of business operational efficiencies, our clients are very focused on reducing costs in day-to-day business operations. One area in particular which is under intense scrutiny is that of payments. With the advent of SEPA, Target 2 and Faster Payments, firms have had to cut their operating costs just to preserve their margins. Legacy payment systems, dependent on overnight batch processes, have been stretched to near breaking point. The overloads are taking place because electronic transactions are rapidly rising due to shifts in consumer behaviour: using debit cards and credit cards before pulling out paper notes or metal coins, for example.
Greater electronic transactions put more of a burden on overnight batch runs and increasingly, due to service level agreements (SLAs) and regulatory shifts such as the UK’s Faster Payments initiative, firms have to process many transactions in real-time.
Firms are faced with a number of difficult scenarios from which they have to choose: upgrade their mainframes and processing systems to address the growth of data in their real-time and batch processes; redesign their legacy core banking platforms to meet the new requirements; or find a way to make do with their existing systems until markets and climates permit new investments in this area.
EMC believes that, as firms set up payment factories and global transaction banking business units or address their lagging systems, they should address performance issues that will allow them to increase processing volumes while decreasing operating costs.
Saving energy
The final area for ‘run the bank’ spend is in IT operational efficiency, where green IT initiatives are morphing into cost savings programmes. Data centre migrations, application consolidations and system co-locations are being considered for reducing latency in trading applications and improving performance in real-time payments systems. They are also being considered for reducing footprints of systems and cost reductions in power and cooling by moving to locations outside major metropolitan areas.
While there are many more individual projects to list (single sign-on, business process redesign, network management, application virtualisation), EMC’s clients are focusing on ‘run the bank’ initiatives in customer centricity, risk management and compliance, business operational efficiency and IT operational efficiency. EMC is recommending that our customers reuse and repurpose as many systems as possible across front, middle and back-office projects. Many ‘grow the bank’ issues have been postponed but many current projects are providing benefits to our customers today, positioning them for growth when market conditions improve.
Ivan Fernandez is marketing director, financial services, at EMC Global Verticals.
CAREER HISTORY
- Mr Fernandez is the global head of EMC’s marketing and vertical strategy for the financial services industry. He has more than 10 years of experience in the global financial services marketplace. Mr Fernandez covers all of the major market sectors such as retail and wholesale banking, investment banking and capital markets and all of the lines of insurance.
- Mr Fernandez has focused on the use of technology to automate business processes, cut costs, reduce time to market and mitigate risk across multiple lines of business. As well as being very well versed in the operations and functions of the diverse lines of business, he has focused on global and regional compliance issues that challenge the marketplace.
- Mr Fernandez has worked with many clients to solve diverse problems such as payments transactions, credit origination operations support, customer on-boarding, derivatives trade processing, claims processing, and many compliance-related issues.
- Mr Fernandez is currently based in London. Prior to this he was based in New York City for five years where he focused on issues related to the Americas.
