Digital Banking:
Bank on bank’s agility
By: Guy Clapperton
September 2016

If you’re in banking, watch out. Your relationship with the customer is about to change and if you don’t change with it, you’ll simply fade away. Put bluntly, the customer is about to take control as never before. If you can’t keep up, they’ll go somewhere else.

Banking used to appear straightforward if cumbersome. If you had money or a cheque, you would stand in line to pay it in. Everything would be hand written. Banks would open when they felt like it, generally closing at 3.30 pm, making things very difficult for most customers. Since there was no alternative, we lived with it for a long time.

Fast forward to a digital age and you can see things had to change. It wasn’t that 3.30 pm was an impossible time, or even when they extended it to 4.30 pm to keep in step with customer needs a bit. While the Financial Services industry was still working in the old style, the rest of the world was orienting itself around customer service. This was never going to be sustainable in the long term. As the customer grew more accustomed to being in charge of their services in other areas and the technology emerged to allow the banks to operate differently, they had to change.

It’s worth considering the underlying technologies that have become available. Analytics has become a major factor in a great deal of organizations in the financial sector. What’s less easy is turning the data from the analytics into something more actionable. “Analytics” in fact is a meaningless term when out of context. The financial professional needs to be able to ask the right questions and to see the answers presented in an easy-to-digest manner; for example, gathering data on what clients are doing before they reach a particular website and how they landed there and how long their dwell time might be is instructive only if you have information on whether they are the right target customers in the first place.

Numerous technologies now exist to make this happen. From the bank’s point of view, one of the more important implications is that the role of the CIO is going to move from being an enabler of other people’s strategies to a strategist in his or her own right. The traditional view was always of the CIO saying whether or not someone else’s ideas would work. Now they are much more likely to suggest something proactively because they have the technology at hand to gain the right understanding and make predictions.

Things are going to change further as robotic process automation and later Artificial Intelligence (AI) gain in importance. Robotics is the outsourcing of repetitive tasks, which might formerly have gone to an outsourcing centre, to software processes. Artificial Intelligence means these software robots will be able to start making their own decisions at some stage. AI is already happening but not in an environment like banks, in which the notion of trust is more than vital.

There will be practical issues to face, he explains. “The AI systems won’t have the historical transactions to be trained on, therefore this will need to be built from scratch or taken from someone else’s (i.e. another bank’s) experience.

 

Certainly, if you want to be agile, the notion of having a workforce that can be switched off, scaled up or down and which never needs a holiday or coffee break is pretty useful.

 

This is dependent on digital middle and back-ends achieving maturity and doing so quickly. According to the World Retail Banking Report, According to Nitin Rakesh, CEO and President of Syntel, a leading digital modernization and IT solution provider, banks have an opportunity to level the playing field with their digital competitors by allocating their technology investments more equitably among front, middle and back-end systems.

The banks better catch up. According to the World Retail Banking report once again, banking executives accept that their customers are very comfortable with the Internet. “We should not consider front, middle and back offices as separate entities, but as connected parts of the customer lifecycle,” said Rakesh. “Banks need to rework their IT architecture and infrastructure to encourage more streamlined results and significantly improve the customer experience.

 

This is all good in theory. It’s worth taking time now to think about where IT investments are best placed, rather than wait for a future race to catch up. Many people will be watching the financial sector carefully to see whether outsourcing, in the forms of offshoring, nearshoring, or automation, is adopted as predicted by Burgess.

One such group of people, watching the banking industry for change, is the Everest Group, an international advisory company working in the sourcing sector. It publishes an annual survey about what is happening in the sector and the 2015 edition shows that banking’s profitability had reached a peak since the crash of the late 2000s. The report identifies a number of key players in the business process outsourcing area, with partner Rajesh Ranjan saying: “Banking BPO growth is showing early signs of revitalization, driven by stabilizing macroeconomic conditions and increased demand for regulatory compliance support from banks. In addition to traditional solution components, buyers today are not only demanding risk management and regulatory compliance support but also RPA, digital banking/payments support and analytics to help them drive effectiveness and efficiency.

The 2016 version is due to come out as this publication goes to press. However, the Everest Group claims it will forecast moderate increases in spending on banking technology worldwide as the North American institutions, in particular, look to compete with the financial technology firms. European spending, the report will say, is going to be a lot more depressed by the issue we haven’t mentioned yet – Brexit. The British decision to leave the European Union is massively significant to the banking industry because of London’s position as a financial centre. Once London has exited from the EU there may well be room for different offerings on a macro level and if the pound continues to vacillate a lot of businesses and consumers may wish to place their deposits and investments elsewhere. The ability to react to customer behaviors quickly and launch new products with no delay, as well as to remove the ones that are not performing, is important now; as the implications of Brexit start to sink in for the industry it will be even more so.

 

It’s not just the products that can get to the market more swiftly but the banks themselves. High streets around the world are starting to fill up with unfamiliar names in the financial world and the virtual high street even more so. Supermarkets like Tesco and Sainsbury’s have banks of their own. Names like Atom, Metro and Tandem are cropping up without the baggage of legacy applications. The ones without physical premises on the High Street can be dismantled as easily as they can be set up as a brand, meaning it’s relatively inexpensive to use an actual bank as a market testing exercise. Using robotics you can fire up an entire organization and take it down when you wish, and artificial intelligence means you can leave elements of it to run itself.