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Keeping up with the Joneses – how can banks compete?

 

Keeping up with the Joneses – how can banks compete?

At iGTB’s Middle East Client Advisory Event in Dubai (see here for more details), a survey of 48 senior bankers included two key questions. First, how important would technological innovation be to the success of Middle Eastern banks in ten years’ time? And would Middle Eastern banks need to “catch up” with regard the implementation of more innovative technology?

The answers were revealing. 100% of attendees agreed that technological innovation would be an important factor, with a substantial 61% identifying it as the “most critical” element. Furthermore, with regards to playing catch-up around technology adoption, 89% of attendees stated that Middle Eastern banks either “significantly” or “somewhat” lag other regions.What is clear is that technology is now all-important for both corporate and banking success. So when it is such a priority, what is it about technology innovation that banks find hard to achieve? And why are some regions advancing faster than others? Mike Rayfield, Senior Consultant, Channels, and Amit Gupta, Delivery Head, Middle East, share their views.

Amit Gupta, SVP, Delivery Head – Middle East Mike Rayfield, SVP, Senior Consultant, Channels

Amit: The continued development of technology and pursuit of innovation is critical for any kind of commercial growth – there’s no doubt about that. Because the world has changed; technology is everywhere. Look at the popularity of smart phones – it was less than a decade ago that the first iPhone was released, but nowadays, particular amongst younger generations, you’ll struggle to find someone who doesn’t own a smartphone. This one factor alone has had a huge impact on customer expectations, and trends in retail banking (for example, the prevalence of mobile banking apps) wield significant influence over the future of corporate banking and treasury management.

Mike: Absolutely. And why should your expectations differ between your personal life and your working life? If you’re a 40-something CEO, say, and you use the latest technology on your weekend – from smartphones, tablets and wearable devices to “intelligent” home thermostats and refrigerators that send you a text when you’re running low on milk – then why would you walk into the office on Monday morning and be satisfied with anything of a lower standard? Quite understandably, expectations have increased, with today’s CEO or corporate treasurer looking for solutions that offer greater accessibility, visibility and flexibility – for example, the ability to view real-time cash positions and approve payments while on the move, using any device.

Amit: Expectations have also increased around the speed with which new solutions are brought to market. For example, the day after the launch of the Apple Watch, clients were asking if existing solutions were compatible. So expectations really are at an all-time high. In the Middle East, this is coupled with the fact that local banks are facing greater competition from new entrants and an influx of foreign banks – meaning there is huge pressure to invest in innovation.

Mike: In today’s technology-saturated world, the keystone of banks’ success has gone beyond “keeping up with the Joneses” – it’s more a case of “keeping up with the Jetsons[1]”! The real question is where and how to invest; budget restraints (not helped by the onslaught of compliance-related projects) mean providers must be able to accurately identify and prioritise the most critical improvement projects. So how to choose between them?

Even if we ignore the complexities banks face balancing investment spend across multiple businesses and concentrate purely on transaction banking, there is a fundamental customer expectation that a bank’s digital services and the supporting infrastructure must be infallible. Indeed, the robustness (or otherwise) of an online banking service almost becomes a proxy for the strength of the bank itself. Failures routinely hit the headlines, therefore resilience, security and performance are paramount for banks.

While these critical attributes satisfy a core need, they don’t in themselves provide the answer. Ultimately, customers want “easy”; a factor that returns time to the corporate, suggests an understanding of the underlying business and creates a likelihood that the user will return.Translated into something tangible, this means intuitive, device-agnostic interfaces that do simple things well, provide accurate real-time data and leverage the available technology without trying too hard. No gimmicks.

Amit: In the Middle East, the key focus for banks is updating legacy infrastructure. There’s a cultural aspect – one of conservatism and risk-aversion – that mean some local or regional banks have previously been reluctant to make changes, and so haven’t been as aggressive in terms of adopting new technology. This means much of their legacy infrastructure is no longer fit-for-purpose – and they realise now that they’ll lose ground if they aren’t able to keep up with end-client demands. So many are now looking to invest in extremely innovative software that will transform these legacy systems.

Another regionally-specific consideration is the existence of multiple central bank payment gateways; a complication that makes the development of a single integrated payments hub – one that can handle the differing needs of all the central banks across the region – a strategic investment that will significantly enhance operational efficiency and visibility, in turn benefitting end-customers.

Mike: Your point on legacy infrastructure is interesting, as it’s something we’re also seeing in developed markets such as Europe and North America. Whereas new providers and newly-emerging markets (the CEE is a good example) have the opportunity to dive straight into using the latest electronic platforms, long-established banks in more mature markets have to contend with what can be relatively clunky and inflexible existing infrastructure. But they cannot simply throw it away. Even if you disregard the mammoth cost of dismantling such infrastructure and starting again from scratch, the fact is that banks can’t just close shop while this happens. Which means it’s a bit like trying to fix a train while it is travelling at 200mph.

So what can they do? One option is to isolate problem areas and introduce new technology to address specific functional/non-functional needs. Modernising can be aligned with simplification to bring benefits in process efficiency alongside reduced run-costs, and many banks are now looking at isolating functional components between integration layers in order to maintain clear demarcation of purpose. This approach removes the need to dismantle the entire underlying infrastructure, allowing the bank to achieve its innovation ambitions much faster while avoiding the substantial costs associated with a foundations-up overhaul. It also provides the opportunity to implement the very latest in technology, enabling the bank to devote more time on other factors such as client service – more important than ever in this era of increased competition.

Amit: And let’s not forget what this means in terms of flexibility. Another reason such “isolation and integration” solutions are gaining traction is the fact that banks – if they decide to dismantle and rebuild their own infrastructure – will quickly find it is out-of-date again; they won’t be able to keep up with technological developments. So the insertion of intelligent layers means new capabilities can be plugged in almost immediately, as it is only the isolated components that needs to be maintained and updated.

Mike: Yes; successful banks – those that will be able to continue to support their corporates as they grow, and will both retain and enlarge their client base – will be the ones that don’t just change, but also change their actual model for change. They need to move faster, adapt quicker, become more nimble and flexible. Of course, this is a tall order for inherently slow-moving beasts – but the technology to achieve this is now there, and it’s just a case of understanding how to use it.

 

Date Modified: 

Friday, August 14, 2015
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