By Rob Kemna, Head of Technology Solutions and Managed Services at Delta Capita
From structurally low interest rates and limited credit demand, not to mention stringent regulations and new competition from fintechs – Europe’s retail banks are currently going through a period of great challenges to maintain their returns on equity.
Aside from reduction of capital and funding wastage (through better data quality, better risk processes and risk models) and implementing capital and funding light operating models, for any European bank, cutting costs is the name of the game. And cost reduction on the current operating model is certainly not the way to start.
The first step is to define a clear market strategy and digital transformation. This is certainly not as simple as digitising current propositions, but more about transforming a firms existing business and operating models. What’s required is a business model that enables collaboration between fintechs, IT vendors and payment players. Alongside this this open system, transformation to a simple, transparent and consistent customer experience is imperative. A simple and seamless customer experience in both day-to-day and their most important customer contact with the bank, is key to achieving this. Of course, information about the end user enables the banks with data analytics to support customers in making the most informed decisions.
Having a clear insight into the current cost structure will serve as an important foundation for presenting business cases detailing the costs of investment needed to enable the cost reduction. It is also important for benchmarking, e.g learning from others in order to significantly improve performance. Already, the most advanced firms have already started to revise their operating model. Branch networks would have been reduced after redefining their role in conjunction with digital channels. Operations are taken out of branches, centralised or offshored to specialised managed services companies. Business and operational processes will be also digitised using new techniques such as Robotic Process Automation. Not only will this improve the overall customer experience because of speed and first time right rates, but most importantly, it will also dramatically reduce costs.
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There is no question IT complexity still needs to be significantly reduced. The problem is that despite this issue being on the agenda for the last decade, it is still to be solved by the traditional banks with very complex technology. To overcome this long-term challenge, the major banks will need to learn from new competitors to display alternative ways of working with IT vendors to reduce time to market and costs.