Still other changes have been triggered by consolidation, which has forced the sale of weak business lines, broken up the value chain, and contributed to the patchwork of IT infrastructures. All of this on top of the increasing competitive needs to satisfy a more demanding customer base and build long-term client trust.
Part of today's dilemma has been that banks are spending too much money keeping old software platforms running to avoid disruption to their respective organizations and customer bases. Major reasons for this reluctance to change the status quo are cost and risk. However, the costs involved with maintenance and support are relatively low. Bankers need to ask themselves: how much opportunity and profit have been lost because they could not implement new offerings faster than their competition or, worse, not at all? They should also consider the operational risks when reputations and ratings are impugned due to noncompliance, poor security, and fraud.
Simplify processes
While business model transformations won’t happen overnight, the current environment is ripe to start taking small steps toward instilling real-time interoperability, flexibility, and adaptation as competitive advantages. Incumbent banks should start by simplifying the processes they currently have in place to reduce redundancy and bring immediate value.
These banks should seriously consider rationalizing their number of solutions and vendors by taking a “smart win” approach — a course of action that provides the most business value and benefits out of a single project. This approach will be a popular choice that will evidence itself with integration and consolidation to IT platforms that can serve multiple business and product lines — and, as a result, reduce complexity, increase flexibility, lower costs, and leverage leading-edge core banking functionalities.
For many years, no definitive banking platform existed that could offer the long-term value needed to justify a huge investment. Now, with a service-oriented architecture, banks have the technological ways and means to transform to an innovative business model that is not just “me too” against their competition, but a quantum leap over them.
Strategies for success
So, what should incumbent bankers do to make that leap?
First, the adoption of that enterprise-services architecture that evolves from legacy environments will enable the transformational business growth that bank shareholders demand. As new mobile distribution channels quickly change the business landscape, banks must adapt to customer demands for real-time information and mobile payment accessibility, while efficiently handling security and authentication. The route that banks take to achieve all this will ultimately determine who makes acquisitions versus who is acquired during future industry consolidation.
For those who want to be in the first group, among the key strategies for profitable growth should be to:
- Manage risk more effectively: In a post-September 11 world with corporate accounting scandals, the dot-com implosion, regulatory changes, and identity theft and other forms of fraud, banks must find better ways to identify, manage, and price the added credit and operational risks. Financial and risk management solutions can combine calculations for market value and profit-and-loss risk examination in a single function, and to meet new regulatory reporting requirements, provide tools for measuring credit default risk as well as online transaction checks for credit exposure work with flexible reporting hierarchies for different user groups.
- Improve efficiency with information management tools: Banks need fully integrated business processes, but this requires IT infrastructures that can centralize data management across the enterprise and interface with external data sources — all while controlling expenses. To help automate and standardize business processes across different business lines, a single, fully integrated IT solution is required, one that draws information from across the enterprise. An open, component-based solution that supports third-party applications and can be configured to the bank’s organization is the lowest cost solution for these information management requirements.
- Improve customer management: The path to profitable growth lies in effective cross-selling strategies that can accurately identify the most valuable customers to meet their specific needs. Such strategies require strong customer trust built on world-class products and services, and the means to determine the needs of both new and existing customers. This translates to strong background analytics, campaign management, event-triggered marketing, and inbound marketing. Customer-oriented processes must be aligned and supported with enterprise integration — from customer-facing applications to back-office systems. The right customer relationship management (CRM) solution can connect marketing, sales, fulfillment, service, and operations for a smooth enterprise workflow that promotes a fully integrated, functional customer management strategy.
- Enhance revenue with upgraded distribution channels: Banks can significantly improve operational efficiency if they replace multiple distribution strategies involving disparate channels with one fully integrated strategy that uses a common browser-based architecture. Banking leaders are automating routine transactions and designing branches to suit local preferences for products, services, and pricing. They are also adding robust, customer-facing functions that are specifically designed for their business — while empowering employees with improved call-center support and lead-management tools. Such an integrated solution provides a single view of customers across all delivery channels and can help overcome the siloed nature of customer data in many existing banking systems.
- Enhance revenue by optimizing business process outsourcing: In today’s competitive environment, many leading banks are focusing on their core competencies and outsourcing their non-core business processes, such as document management, archiving, and credit card issuing. To make the most of core competencies, banks must develop a clear business processing outsourcing (BPO) strategy that addresses related geographic, application, and vendor risks. Appropriate exit strategies must also be defined to accommodate any change in business plans. The key to a successful BPO strategy is retaining control over business processes related to outsourced functions. This can be done through an open architecture solution that can define and control specific business processes irrespective of their physical location or the applications that run them.
- Improve business management by enhancing business knowledge: As reporting requirements expand, consumer privacy laws have become more stringent and complex. At the same time, new business strategies require higher quality business information for enhanced decision making. The increased need for reporting transparency and global standardization on one hand and the protection of sensitive customer information on the other requires increasingly sophisticated systems for capturing, formatting, and distributing information. What’s needed is a solution to convert internal and third-party data into actionable information for effective business outcomes. Online collaboration tools connect users to each other and communicate business intelligence according to pre-determined conditions, resulting in complete integration with established policy-management systems for gathering data. Add to this equation high powered analytical tools, and bankers now have critical business insights and support for strategic, tactical, and operational decisions throughout the bank.
Falk Rieker is Vice President, Banking Solutions for SAP Americas, headquartered in Newtown Square, PA.
