Tech transformers for financial services

Financial institutions have plenty to gain by embracing new techonolgies but tailoring that approach to the specific need of an organisation will need bankers and IT teams working together.

It’s been a challenging start to the year for Australia’s banks. Multiple redundancies have been announced, Royal Bank of Scotland has put its M&A and securities business units up for sale and growth in the credit market is estimated to shrink from 12 to 14 per cent of banking revenues to just 4-5 per cent of revenue in 2012. Yet with resilient profits reported by many financial institutions in the past year and continued expansion plans into Asia, there are still positive times ahead for the banks, their accompanying trading arms and partners in the region.

In the wake of the GFC, the financial services market has undergone reviews, restructures and re-alignment.  The consistent message through all of this has been the drive to achieve efficiencies.  BT has been working with many of these organisations to achieve business transformation and is able to cast a light on how change is being embraced and the outcome of these initiatives.

For many, the major targets for this efficiency push has been to more closely align IT to strategic and operational delivery, automate processes and get closer to customers. Technology sits at the heart of this transformation.

Three factors that govern change

Through its discussions with both global and Australian financial organisations, BT has uncovered three key technology drivers that impact the financial services market and the future growth outlook for the sector.  These focus around organisational demands for systems which are reliable, accurate and fast.  

1) Flexibility and agility

How can business flex its IT and easily upscale or retract operations to expand into new markets without a commitment to new hardware?  How can they do this securely without physical infrastructure?   The future is all about better distribution of services and we’ve seen a big move from organisations using fixed hardware to move to cloud-based solutions, even for specialised telephony services...  This means operating units, ranging from a trading floor to a Private Wealth Management group, can deploy distributed solutions, with no need for physical infrastructure, enabling easy expansion into new locations or markets. 

2) Customer focus and differentiated services

From trading floors to local bank branches, financial institutions are changing the relationships they have with their customers.  Banks are keen to change the nature of the in-branch conversation so that low value, low risk transactions happen online or via call centres, while high value, transformational conversations with the opportunity to secure new revenue streams are managed in branch.

This changing dynamic in retail banking has also been mirrored on the trading floor where there is  a growing need to provide information and advice on how factors are influencing people’s portfolios. 

Achieving a single customer view, which documents every interaction an individual has had with an institution, has been seen as the holy grail of customer management.  Yet from a technology perspective, the integration of multiple systems and products has been a complex, and often unachievable task.  Now we see a big shift appearing in the market, with more forward looking institutions embracing a current customer view. 

Rather than collecting every piece of information and putting this into a single data repository, technology now enables organisations to leave data assets in source systems and gather the customer data required in real-time.  Single source, service orientated architecture and the use of cloud technology enables this to be done, and we are likely to see increased take-up of such approaches in the coming months.  It relies on ICT teams working more closely with operational delivery teams to influence customer servicing strategies.

3) Regulatory changes and compliance

The fall-out from the GFC and the erosion of confidence in Europe has had a major impact on customers’ and institutions’ perception of risk.  In response, the banks are working hard to rebuild confidence in financial markets and increase liquidity to compensate for the shortfall in the credit market.

In addition, new regulations set out in Basel III require institutions to strengthen their capital and have introduced new requirements on banking liquidity and leveraging.  As part of the legislation, financial institutions are required to demonstrate controls and protocols around business continuity and risk management. 

As an example, the 2011 Japan earthquakes wiped out trading floors in Tokyo.  In order to stay trading, Japanese institutions needed to move traders and their ICT to Singapore to continue operating.  This was a costly and time intensive exercise that lost traders and institutions millions. 

In the new world, regulation now requires institutions to have far more robust business continuity plans and scenario testing in place, and ICT has been heavily used to help address these challenges.  The need for business continuity planning has created demand for greater flexibility within organisational processes and a requirement for more intelligence within the network

Greater intelligence reduces the reliance on traditional, point-to-point voice circuits.  This allows firms to self-provision connections to counterparties, and to expand or temporarily set-up in new markets much more easily and achieve business continuity.  If you can’t physically get into a new geography floor because of environmental issues or security concerns, the new solution is to operate a virtual service in the cloud to circumvent these issues.  It is technology which allows firms to operate in a way that they were unable to do in the past.

Where firms are looking to expand into Asia, or operate in the aftermath of a disaster, technologies like unified communications and cloud-based services are key.  It strengthens an organisation’s agility and ability to rapidly react to changing market conditions, whether that is through up-scaling or downscaling operations, without incurring significant capital investment.

Reducing time to market

Banks operate in a mission critical environment and are conservative in what technologies they deploy.  Institutions are reluctant to go through wholesale ICT change and instead look for partners who will support them in systematic upgrades, where technology is tested and trialed before implementation.

To respond to risk management and business continuity demands, institutions need new systems to integrate with existing technologies without sacrificing the reliability of silo technologies.  Yet, as businesses increasingly move to open standards software it changes how individuals access services and systems and the level of security they have over operations. 

Those financial institutions which are reaping the greatest benefits from ICT enhancements are those which are embracing the opportunities identified by new technologies, but working to tailor these approaches to the specific needs and requirements of the organisation.  Those which have highly integrated ICT teams, well connected to the operations of the business, as well as their service partners, are those which will achieve competitive advantage and ride-out the challenges that we are undoubtedly going to see in the global banking and finance sector during 2012.

Paul Migliorini is the Chief Executive of BT .