By Mohua Sengupta, Senior Vice President & Head – Banking Financial Services & Insurance and Sujeeth Samrat, Retail Banking Solutions Lead at ITC Infotech
Advancing technology provides both a big opportunity and a big challenge to businesses in all sectors today. It has created a generation of consumers who demand ever more freedom and accessibility to services, while also granting companies an unparalleled chance to understand and engage with their customers. While it affects all aspects of business, none feel it more keenly than the world’s banks, that face constant pressure to build a customer-centric framework but are faced with many technical and regulatory limitations.
Banks, especially the most well-established institutions are at a relative disadvantage because of their sheer age. Many of the leading banks are over 200 years old, and while being so well established has many advantages, it also means they had to explore new technology as it becomes available, and integrate it as best they can. A technical legacy stretching back half a century or more means that many banks have found themselves trapped by the restrains of their own systems.
These limitations have a negative aspect across all areas of operation. For one, the rigid architecture that these older systems are built on prevents them from effectively developing new products and bringing them to market, as everything they do is defined by the legacy. It also means that the cost of day-to-day maintenance is much higher, as older systems need more work and may require specialist skills.
Alongside simply keeping up normal operations, any attempts to change and update systems can become a major challenge. Banking is far more complicated than most other sectors, and is also subject to very stringent regulations. Any change to the way data is managed leaves them at risk of strict penalisation if they do not comply.
To complicate matters, multiple systems have usually been built over the years, and there is often a lack of integration. This also prevents the organisation from responding to new needs in an agile way – a serious issue when the system is hit by technical challenges.
Unfortunately, banks are increasingly hit by technical challenges, with most of the leading banks around the world having suffered very public issues in recent years. Problems range from online crashing and cashpoint blackouts to serious issues that have stopped paydays. A short service outage or system crash, which may have slipped by, largely unnoticed, 10 years ago will be instantly shared on social media today, bringing it to the attention of millions of other customers. The potential for reputational and financial damage has thus grown much greater and it has become much more difficult to manage the the same in recent years.
The financial sector is particularly susceptible to a negative reaction as it is still suffering from the pall of the financial crisis of 2008. So with many consumers still lacking trust in the sector, it’s more likely for technical failures to be seized on.
The good news is that we have definitely seen the financial sector take on board the importance of the reputational impact of a technical problem in today’s connected society. When I first entered the sector many years ago, IT risks were never on the agenda of the CIO. Today however, it is a shared concern of the C-suite, and we see most organisations understand that a system failure can actually cause more damage to reputation than it does to operations.
A full system transition from legacy systems is a Herculean effort that will take a long time to complete, but we have seen many banks already start mapping their journey. Banks cannot risk even a small amount of downtime, which limits what they can do with live systems. As a result a major focus is to revisit existing systems and devise a way to migrate operations without disruption.
A lot of work is being done on building confidence with new systems now, so banks can experiment later without risk. The traditional models of core system transformation that uses a large system integrator have in many cases injected more complexity in the programme that it intends to simplify. Looking forward, a major focus is the construction of the ‘building blocks’ of modular system architecture. A modern, modular infrastructure grants a powerful advantage in terms of agility, allowing the organisation to replace or add components without affecting the rest of the system Many banks are working with specialised IT service providers for expert value added services at optimized cost, as opposed to going with the traditional SI model.
Technical limitations are so deeply ingrained that moving away from legacy systems will also enable an institution to reinvent their business model. Everything from data management to business logic and business processes may need to be reassessed in the light of changing business dynamics and regulations. Beside the obvious benefit of avoiding major IT failures, many banks are keen to change their processes so that they can become more efficient, driving down costs and providing a powerful differentiator in the market.
Ironically, it is the newer and less well established institutions that are leading the way. In emerging economies, for example, a lack of legacy has brought a great deal more freedom and agility for the banks. We have worked with ‘new age’ banks, such as those launched by leading retailers, who are developing at an accelerated pace. While older banks still have a long way to go, , they have made an impressive amount of progress in modernising their systems, and hence giving us a hope that we would see less and less of attention grabbing IT failures. The sector is all set to transform in the next few years, revolutionising everything from the way they engage with customers to the very structure of their business operations.
Commerzbank to lose 1.7 million clients by 2024 – Welt am Sonntag
FRANKFURT (Reuters) – Commerzbank expects to lose 1.7 million customers by 2024 as part of its current restructuring, resulting in a 300 million euro ($364 million) hit to revenue, weekly Welt am Sonntag reported, citing sources close to the bank.
The lender hopes to offset the drop by growing its loan business as well as by expanding its business with corporate and very wealthy clients, the report said, without giving any further detail of why customer numbers were expected to decline.
It also didn’t say if any specific category of client was most likely to be lost.
Commerzbank declined to comment.
According to the bank’s website it serves around 11.6 million private and small-business customers in Germany and more than 70,000 corporate and other institutional clients worldwide, so the reported loss of customers would suggest a drop of around 15%.
The bank earlier this month reported a $3.3 billion fourth-quarter loss, sinking further into the red as it continued a major restructuring and dealt with the fallout of the COVID-19 pandemic.
The bank’s restructuring plan involves cutting 10,000 jobs and closing hundreds of branches in the hope it can remain independent.
($1 = 0.8253 euros)
(Reporting by Christoph Steitz and Tom Sims; Editing by David Holmes)
Citigroup considering divestiture of some foreign consumer units – Bloomberg Law
(Reuters) – Citigroup Inc is considering divesting some international consumer units, Bloomberg Law reported on Friday, citing people familiar with the matter.
The discussions are around divesting units across retail banking in the Asia-Pacific region, the report https://bit.ly/3pD57WP said.
“As our incoming CEO Jane Fraser said in January, we are undertaking a dispassionate and thorough review of our strategy,” a Citigroup spokesperson told Reuters.
“Many different options are being considered and we will take the right amount of time before making any decisions.”
The move, part of Fraser’s attempt to simplify the bank, can see units in South Korea, Thailand, the Philippines and Australia being divested, the Bloomberg report said.
However, no decision has been made, according to the report.
Revenue from Citi’s consumer banking business in Asia declined 15% to $1.55 billion in the fourth quarter of 2020.
The divestitures could be spaced out over time or the bank could end up keeping all of its existing units, the Bloomberg report said.
The firm is also reviewing consumer operations in Mexico, though a sale there is less likely, the report said, citing one of the people.
Last month, New York-based Citigroup beat profit estimates but issued a gloomy forecast for expenses. Finance head Mark Mason said the lender’s expenses could rise in 2021 in the range of 2% to 3%, weighing on its operating margins. (https://reut.rs/2ZwXRB1)
(Reporting by Niket Nishant in Bengaluru; Editing by Maju Samuel)
European shares end higher on strong earnings, positive data
By Sagarika Jaisinghani and Ambar Warrick
(Reuters) – Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.
The euro zone index was up 0.9%, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.
The pan-European STOXX 600 index rose 0.5%, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.
Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.
Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.
But basic resources stocks outpaced their peers this week with a 7% jump, as improving industrial activity across the globe drove up commodity prices.
“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.
“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”
Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.
The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.
The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.
London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years. [.L] [GBP/]
French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.
(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)
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