Andrew England, Head of Strategy at iGTB, explains that banks must look beyond in-house initiatives to ensure the success of complex digital transformations in today’s fast-changing world
There are some critical patterns and behaviours shaping the transaction banking industry today – all of these having consequences for the aspiring leaders of this critical corporate banking business. In particular, I want to focus on three key topics–digital deployment, standardisation and business development.
With most banks well entrenched in digital transformation initiatives, the jury is still out on how such investments have actually transformed corporate banking. The upfront case for wholesale bank transformation is clear, so I am not arguing the merits for an investment. However, that the initial enthusiasm and expectations have been very significantly checked by tangible results is also becoming a reality. The industry is now seeing a number of projects that have stalled, overrun in execution and cost, and failed to deliver the radical revamp of user experience, self-service or client intelligence initially promised. Put simply, delivering front-end veneer has not been accompanied by core back-end content and capability for end clients.
So how do we explain this mismatch of expectation versus results? I think there are a few reasons, some of which are troubling for the financial services industry. Over many years, banks have looked to reduce the cost of supporting their technology “assets” – trimming staff, outsourcing departments and/or shifting contract engagements to larger utility centres. This, together with a high velocity rotation of critical product managers in the front office, has resulted in a pretty dramatic loss of knowledge and understanding of system architectures, capabilities and their interdependencies. I did not loosely use the word asset – asset stripping in banks over many years has resulted in less IP and less knowledge around critical business components remaining in banks. This dearth of knowledge has made any next generation commitments very difficult to progress and manage.
Furthermore, there has been a very real shift in what I describe as C-level behaviour in institutions. The huge pressures on banks has called for tremendous unanimity of action around a handful of strategic projects critical to a bank’s success. Digital transformation initiatives have almost become religious crusades where non-believers have simply not been able to caution expectations, or raise their voices with a strong dose of realism. Whether through fear of retribution or marginalisation, this DNA “cloning” is another worrying element running through a number of financial institutions today.
Finally, and somewhat linked to the above is the pervasiveness of consultants. Their zero option view on how to transform banks into higher performance vehicles through digitalisation has been cloaked with non-proven cases of costs reductions and revenue increases. Such margin promises were probably not reviewed with the necessary level of rigour and proof points – with some of the consequences that we are now seeing today.
The second topic that I want to review is the call for standardisation. It is encouraging that a number of banks now realise that the costs of customisation exceed client benefits. Again, a history of failed projects in banks has influenced executives to demand for product simplicity and replicability, and to stay well clear of customisations. The complexity of IT back offices has been accompanied by a strong drive to have consistent platforms – or even better – single platforms which can be managed as ‘products’ with guaranteed support, regular updates or release versions, and visibility over the sustainability of the software itself. In this respect the development is healthy as it should gradually call into question why certain institutions continue to believe that they should build and develop their own proprietary software which, in effect, supports public, standardised activities in transaction banking, with well understood end-to-end corporate user journeys.
Finally, I want to turn to business development in the context of transaction banking. My assessment is that transaction banking enterprises can only obtain new investment and commitment based on an evidenced track record of superior business growth against peer products sitting within wholesale banking. Parity status will not be sufficient. This is due to the historically large sums committed to transaction banking in the past, the often long tenure of projects, and the short- to medium-term view on interest rate movements.
Doing more business with growing segments of the economy, and delivering core product capability and knowledge to needy client clusters remains critical. The difficult segment remains the SME sector. In the past this was often an overlooked client segment or even outside the purview of transaction bankers. Not so today. With the prize of growing SMEs into high-margin middle market customers, corporate banking heads remain uneasy with the risk profiles of such companies but know they have to act. This has given a new injection of life into the flagging Supply Chain product line. This follows from the theory that, if the bank can better validate the activity of such clients with larger and more numerous counterparties, then credit decisions can be looked at from a “transactional” risk perspective rather than from a pure balance sheet angle.
So the theory continues that armed with such intelligence the bank will be far better equipped to address a few client litmus test questions: How are you enabling me to improve my working capital and manage critical funding gaps? How are you helping me access a wider eco system of suppliers and buyers? What product bundles client are you offering me? How easy are they to draw down? So, if there was ever a doubt that working capital provisioning was within the responsibility of transaction banking, this can no longer be the case today. The above questions will remain, and will be targeted at a product owner.
Dedicated expertise critical for success
So what does this all mean for transaction banking business leaders?I believe that those who can actively influence and persuade their technology partners to leave the shackles of their past behind them will be most successful. In this fast-moving era of change and expectancy, business leaders will need all the IT guidance and support they can get on how to transform their franchises into more successful growth ventures. They will need to fervently argue that in-house IT development can only be a distraction when pitted against the value of a fully dedicated knowledge pillar in architecting tomorrow’s operating model. If these two critical organisations work in tandem, then the voice around digitalisation, the expectations, and the business case will be much better articulated or founded. Standardised solutions will prevail as the voices for periphery development will be drowned by the institutional power of simplicity and relevancy. Finally, delivering all important customer insights will be more fully explored – with more successful outcomes.