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Beat the Core Transformation Conundrum

by internationalbanker

Ashwin Goyal (3)By Ashwin Goyal, Group Vice President, Oracle Financial Services



It is hardly a secret that the IT infrastructures in many of Britain’s banks today are in poor health. Recent comments by Andrew Bailey, chief executive of the Prudential Regulation Authority recently took the discussion one step further, exposing the complex nature of current core banking systems and revealing that it may in fact be a false economy for banks to keep avoiding investment in new IT systems.

The cost of doing business today continues to rise. At the same time, many organizations are forced to direct their limited funds and energy towards navigating an increasingly challenging market and responding to frequent regulatory developments. Given this state of affairs, it’s not surprising that investing in an overhaul of IT infrastructure falls low down on the list of priorities for many banks.

The truth is that the core IT solutions available to financial institutions can have a dramatic positive impact on their processes. These technologies have the potential to help banks respond more effectively to the pressing issues they face today – with less effort. To add to this, modern IT systems can help banks make their businesses processes more agile so they can focus on differentiating themselves with profitable strategies in a competitive market.

Core IT systems are integral to banks’ ability to innovate and deliver innovative services to their customers, and the time has come for bank executives to make the most of IT solutions as catalysts for growth rather than just a large expense.

Public opinion of banks is at an all-time low. At the same time, scrutiny around the operations of financial institutions is more severe than ever. It is therefore no surprise that many financial institutions are reluctant to invest in transforming their IT systems, regardless of the long-term benefits these stand to deliver. 

In reality, however, stagnation is not an option in an industry that is collectively pushing towards modernisation, especially as banks look to meet the many needs of their diverse customer-base.  According research from Accenture, banks could lose as much as 35% market share to digital players by 2020, and yet many of these institutions stick to dated legacy systems that cannot support the digital services they will need to compete in the digital era.  

Instead of judging IT investment against funding for the development of new services, offers, advertising and marketing efforts – all of which are perceived to have a more direct impact on the bottom line – banks need to realise that IT can in fact fuel success in all these areas.  New technologies also offer a more long-term solution to the problems banks will face in the coming years, and offer a platform for the delivery of more quick-to-market, personalized services to customers.

Waning consumer trust

Today’s consumers have little patience for technology failure in what has progressively become a more digital, always-on service culture. Social media and online channels are now the first point of call for customers to vent frustrations at service outages and failures caused by aging IT systems, so a single outage can lead to damaged reputations and PR nightmares for even the largest banks with the strongest brands. Similarly, customer loyalty to banks is in decline, and these kinds of incidents can be the final straw leading to irreparable attrition. Indeed, Ernst & Young’s Global Consumer Banking Survey 2012 revealed that 40 per cent of consumer banking customers said they are losing trust in the industry and only 22 per cent said they are gaining confidence.

With this in mind, banking executives must take the lead to modernise and build the case for business transformation.

Taking the lead with modernisation

A transformation program will impact financial institutions in three main ways:

  1. Transformation can improve agility. With a successful core IT upgrade, banks can use new technology to quickly deliver new products and services. Customers will in turn benefit from a real-time and more user-friendly experience as banks are able to create more tailored services and deliver bundled service offerings. Transformation is central to a bank’s ability to innovate and respond quickly to a changing landscape and the needs of consumers, whilst simultaneously reducing costs and managing resources.
  2. Transformation can enable revenue growth. Banks can be empowered by transformation and use the improved access to customer data to offer more tailored and profitable services. These tailored solutions can boost customer loyalty as consumers see their bank supporting new applications and services which suit their needs, enabling banks to improve cross-selling effectiveness and unlock revenue potential within their existing customer base.
  3. Transformation can enable a customer centric approach. All banks want to achieve customer centricity to better retain clients and upsell services. However, according to Ernst and Young’s 2012 Global Consumer Banking Survey, less than half of customers said that their bank adapted its products and services to meet their needs. Traditionally, it has been a bank’s technology, processes, and data that have hindered the delivery of such customised experiences. Transformation enables banks to be more relevant to customers by integrating customer data into customer interaction. One-size-fits-all banking is no longer good enough for today’s discerning consumer, it must be a tailored, personalised and efficient experience.

Bold transformation for big growth

The market will only develop transformation strategies when the cost of not investing in core IT systems outweighs the cost of inaction, and many institutions are now finding themselves nearing this tipping point.

The decision to progress with a core transformation should not just be about cost reduction or unseating old technology. The fundamental drivers behind core transformation should be business growth and the desire to be able to adapt more quickly to a rapidly changing environment.

Minimising risk for maximum benefit

While risk can never be completely eliminated from a major IT transformation initiative, it can be managed and mitigated. Careful planning, aided by modern tools and solutions, can help banks embrace positive change and benefit from powerful IT systems at the lowest risk point.

One option is for institutions to take a progressive, phased approach to business transformation. This will allow them to gradually experience all the benefits of modern IT systems while carefully managing their resources, capital, and commitments along the way.

Whichever course of action they choose to take, banking executives will need to challenge their business models if they want to avoid stagnating and falling behind new agile competitors. The time has come for financial institutions to implement change at their very core. Transformation founded on antiquated strategy will not be enough. In addition to an overhaul of their existing systems, banks will need to rethink how they operate altogether to get the most from their IT systems. Those that act boldly stand to be richly rewarded.

Photo by Håkan Dahlström 

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