As we all know, the bank of the future is going to be much different from the bank today. Changes in technology, client needs, regulatory pressures, and the emergence of new players are impacting the way banks service their clients, operate, govern, and invest in adapting to regulatory and client needs. With AI & Automation at the heart of this evolution, there is a clear distinction between how the banks of today operate and respond to business imperatives and how the banks of the future will adapt and respond to the challenges they encounter.

Today’s Bank

Even today, largely the function of banks and wholesale banking has been aligned with the business structure of the organizations. From a perspective of service rendered to the business, this has served the organizations well in the past. However, emerging trends suggest a deeper thinking in of organizing the business applications, which drives competitive advantages in building the shared services utility model within the banking IT space.

Within the Banking industry, the exclusivity of services has been considered a logical extension of the business model based on the foundation of relationship and trust. Besides, there is always an overbearing consideration for customer-centric confidentiality of the information held by the organization. Therefore, the cost associated with the service organization for the business is considered as the cost of doing business and hence warranted little or no attention.

The cost associated with the services has been, to a large extent, covered through the various forms of service fees and retention considerations from the end customer. Customers have not taken offense at the same since most of these fees are well covered from the return banks have historically generated in addition to the other value-adding services. Reflecting these views as a principle of doing business, banking organizations paid little attention to mandate their IT organization structure to look into cost drivers and ask for optimizing the same. Service availability and support requirements have historically been considered important IT drivers than cost optimization through process improvement and reorganizations.

The changing paradigm

Broadly, when we look at the key areas that are dynamic in the banking system and which we believe should be the focus areas for the Bank of the future, a few significant items come into view.

  • Technology :
    Changing technology is leading to emergence of new challenges and an opportunity to service clients with differentiated offerings. This is possible today with deep customer segmentation using advanced analytics capabilities of AI. AI & Automation offerings accelerate digital transformation and amplify business possibilities. Automation particularly helps rewire traditional enterprises by connecting siloed systems and automating manual tasks without a compete rehaul of existing systems, eventually making them more agile and competitive. Automation platforms helps enterprises reduce operational costs while improving the overall process efficiency and elevating the customer experience.
  • Products :
    Financial Products are evolving to cater to the changing demographics and regulatory/technology changes. In housing finance, for example, lenders can no longer base their decisions on traditional credit scoring and are making way for alternative credit scoring mechanisms to cater to the gig economy. In trade management, order routing to multiple execution venues can be machine-controlled based on the current market conditions and pre-determined rules.
  • Channels :
    Emergence of new channels has necessitated banks to look at accelerated digitization and integration of multiple channels to provide a single view to their clients.
  • Operational :
    Banks have re-jigged their internal systems, processes and governance model to be nimble and adapt to changing market dynamics.

Bank of the future

In the new normal economy, the scene is different. In the era of heightened competition and due to the need for continuous improvement in the execution of service cost to the larger clients, Banking organizations have increasingly taken outsourcing and off-shoring route to ensure lower cost of ownership of IT assets. Leading industry research firms such as Gartner and Tower Group in their various research outputs have placed the number anywhere between 30-50 percent of outsourcing of IT functions. With these initiatives, over a decade, Banking organizations have taken the significant portion of their fixed cost out of their systems. By increasing the variable component in their overall cost structure, they can address significant demand for business agility in this volatile environment.

However, the thinking in the past two years has changed the landscape of IT organization within the financial services industry. In an interconnected world, the exclusivity of information does not last long enough to be advantageous. What it means from the perspective of banking is that they are increasingly redefining their market segments to respond to emerging competitions from non-core banking businesses such as Telecom and Retail. The emergence of Google and Amazon in the FS industry can only be countered by creating a social graph (using social media) and building an in-depth knowledge about the customer.

In addition, there is the key lesson learned in the past decade, which initiated the first wave of cost rationalization. Banks, to a large extent have moved away from individual-based programming and supporting applications to a more matured service level agreement-based development and support functions. They have increasingly out-sourced non-core functions of the business to external service providers globally. This route was considered low risk once to achieve target saving in the IT support functions. Considering that this move was primarily to exploit the labor arbitrage, cost-saving has significantly influenced the thinking.

Destination IT

However, business changes are shaping new thinking in the IT organizations of these enterprises. Changing dynamics of the market as well as predictable nature of IT application to solve the business needs are creating defined shared service utilities across functions. Potentially these concepts can enable building leaner and efficient IT organizations, that can meet the dual objective of further cost rationalizations and building superior IT support structure to support business. Though some of these concepts are in an early stage of thinking, it appears that the factors are driving the change once again, within the world of financial service. We believe Banks have an opportunity to reshape the IT organization to lead these industry changes by answering below leading questions.

  • Is it realistically possible to build shared service organisation across business units?
    Shared services within certain functions of single LOBs are somewhat proven concepts in the industry, though organizations have faced some difficulties when it came to the point of cross border trade and business due to varying degrees of regulations. However, building cross LOBs supporting services is yet to be understood in detail. One significant challenge organizations are facing in the decision-making process is rooted in fear of disturbing process which is working well. A radical approach to take IT organization into the next wave requires a few examples of first movers for the industry to feel comfortable. Fear of the unknown, as well as awareness of the risk involved, deters trying to change the course. The question for many organizations is to be or not to be.
  • A significant challenge in mindshare among diverse team across LOBs
    Consolidation of services on the utility concept requires a broader consensus among a diverse set of business users and participants. Consolidation also means a leaner organization structure. It may force decision-makers to make multiple hard decisions that may not be liked by all. Unless a consensus is built, embarking on major initiatives can disrupt the organisations.
  • Difficulty in analyzing cost benefit of these initiatives
    Rebuilding legacy platforms supporting various business processes, consolidating databases,migrating applications and reorganizing message flows and changing downstream application interfaces are difficult to conceptualize and analyse from the perspective of cost benefits. This is further complicated by the choices available today. Considering the vastness of the changes which is required to build a newer way of IT supports, decision-makers are facing significant challenges to build a future case based on current realities. Since some of the decisions are forward-looking, quantifying the value of outcome is proving to be difficult. In this context, certain decisions may have to be taken on the principle a leap of faith so as to build an uncharted path of cross LOB IT support.


In conclusion

We believe, while we look at simplifying application architecture at banks along with infrastructure supporting the same, it is pertinent to address the vital issue of mapping raw data from source systems into an appropriate canonical representation that downstream applications will consume as they are provisioned. Hence, for a successful bank-wide IT services model, it is pertinent to address the key issue of mapping raw data from source systems into an appropriate canonical representation that downstream applications will consume as they are provisioned. With the advent of Service-Oriented Architecture and Batch Integration mechanisms, today’s technology is far entrenched in addressing these challenges.

  • Lowering the cost of transactions & increased operational efficiencies – through enhanced standardization of services (infrastructure, application /maintenance and operations) and harmonization of life cycle managed across processes.
  • Leveraged data management through proper life-cycle management– enabled through enhanced dashboards, minimized faults through proper checks & balances and visibility into all aspects of the banking relations with customers and suppliers – effectively managing larger eco system of the banking industry.
  • Enhanced risk management services – through proper alignment of risk servicing infrastructure to enable a consolidated view of Liquidity, Market, Product and Credit Risk across different entities, accounts & geographies.
  • Adaptation of “Single Customer View” – through the adoption of creating a complete and accurate customer warehouse. Provisioning of an organization-wide standard of customer data for representation, access, control, and governance leads to significant cost savings and increases operational efficiencies.
  • New business models – through the application of advanced analytics and technologies like AI, Automation, Blockchain, Cloud that can enable a new way of working in which the organization does not need to own the IT or Operations infrastructure (as-a-service) to give a superlative service to its clients.

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