Bankosaurus: why the banking sector has to change it’s view of technology
strategy in order to survive. By Nasir Zubairi, MD, EuroTRX
I
t has been impossible to pick up a newspaper over the past four years and not read something relating to the woes of the banking sector. The Impact is being felt downstream by consumers; with the SME sector, across the globe, being the hardest hit in terms of access to capital. Be it the drying up of the credit markets, the losses on bad investments, the lack of M&A activity or the general lack of liquidity, banks are tackling their internal capital issues by stripping down the services they provide to Small and Medium sized businesses.
The issue with the largest banks, the traditional names that have been ever present in the headlines, extends deeper then the front line business functions. Banks rely heavily on technology to deliver services to market and support their internal operations. Demographic trends logically point to a future where banking clients, be they you or I, businesses or other financial institutions, will increasingly seek technology enabled services on mobile, web or private networks, with enhanced functionality to access and manage their finances.
New competitors
My belief is that, without redesigning their business models, without closely examining the components of the financial services value chain they seek to own, and without looking at technology strategy hand in hand with business strategy, there is a strong possibility the major banks will sooner, rather than later, become extinct. The market is clamouring to fill the shoes of the grandfathers of financial services with innovative models to satisfy changing consumer profiles and needs. Peer to Peer (P2P) lending networks are exploding, some statistics claiming that P2P now accounts for 10% of consumer lending. Alternative payment networks/services are blooming and fast becoming the belle du jour in the Venture Capital industry. E-Invoicing hubs, electronic asset based lending, consolidators,
aggregators.....and there is still more to come as the financial services industry goes through a systemic transition over the next 10 years.
The ‘front office’ has too much power
Throughout my career, I have found it fascinating, and many a time frustrating, to watch the technology divisions of banks go about their business - to witness the inefficiencies and
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waste. Investing time and resources to define and implement a robust technology strategy is far down the list of priorities for the majority of financial institutions, particularly so at the leading investment banks. Of course, banks do invest heavily in technology to facilitate their business. Trading and information management has evolved and is almost entirely dependent on technology solutions: exchanges all over the world have migrated from the sweaty and boisterous trading pits to virtual trading arenas delivered through secure networks that have broadened accessibility to the global market. No trading floor can survive without access to Reuters and Bloomberg information services. Data within banks needs to be stored and distributed. The bank’s consumers are increasingly demanding electronic access to the banks’ services, be it via websites, dedicated workstations or, increasingly, interfaces that provide the flexibility for the user to develop their own way of interacting with markets and data.
However, I have found that banks focus their priorities and resources on the ‘business’ – the front office functions such as Sales and Trading, Mergers and Acquisitions and Fund Management that generate the bulk of their revenues. Technology is a cost centre. Technology projects in banking are reactive, facilitating the demands of the business functions for new tools and services, needing to meet expectations of functionality and delivery timeframes dictated by the business functions; expectations which are almost always too aggressive due to the lack of understanding of the technology business and lack of foresight in terms of planning. The result is that short term projects are the norm, long-term projects tend never to see the light of day. The technology division need to jump from one project to the next without the freedom to think about long term interoperability and effectiveness.
A mish-mash of technology solutions comes to exist, solutions that are expensive to maintain and enhance, with considerable redundancy adding to inefficiency. I chuckle at the headlines I sometimes read in the press about Bank ABC investing an extortionate amount of money in technology; the money is needed not to progress but to survive, to right the wrongs of years of investment in systems that are close to buckling under the strain of sticky tape upgrades and enhancements. Imagine wanting a faster car, and, rather than considering a new model or looking at enhancements such as a supercharger that requires modifications to the
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