Connect with us

Banking

TRANSACTION BANKS NEED DEDICATED EXPERTISE TO ENSURE DIGITAL TRANSFORMATION SUCCESS

Published

on

Andrew England

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

Andrew England

Andrew England

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.

Digital deployment

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.

Standardisation

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.

Business development

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.

Banking

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society

Published

on

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 1
  • More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
  • Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
  • Fewer SMEs believe nearby branches are important when choosing a bank or building society
  • 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
  • When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account

Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.

Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied.  In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.

When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.

The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.

However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.

In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September.  However, the Post Office could be fulfilling the role of branches in some areas.

The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.

While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.

Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.

“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”

Continue Reading

Banking

The Next Evolution in Banking

Published

on

The Next Evolution in Banking 2

By Young Pham, Chief Strategy Officer at CI&T

Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.

The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.

Expanding offerings

It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.

There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.

More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.

The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.

Disruptors vs incumbents

The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.

These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.

While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.

Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.

What’s next?

All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.

Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.

Continue Reading

Banking

Banks talk a good game, but are bankrupt when it comes to change and innovation

Published

on

Banks talk a good game, but are bankrupt when it comes to change and innovation 3

By Erich Gerber, SVP EMEA & APJ, TIBCO Software

You hear all the time about the incredible pace of change in technology and the way that it affects business, but sometimes we kid ourselves about the real speed of that change and the depth of its effects. Retail banking is a perfect example to illustrate the yawning chasm between the illusion and the less attractive reality. In this article, I want to provide a critique of the banking sector and its failure to change fundamentally and to modernise.

Banking is an old sector: the Banca Monte dei Paschi di Siena has its roots in the 15th century and the oldest UK banks go back to the 17th century. We often talk about legacy holding companies back, restricting their speed of operations and hampering their ability to adapt. Well, established banks have legacy in spades.

They also have cultural challenges. The old saying has it that something is “safe as the Bank of England” and that is a standard for security. But today we need banks to be more dynamic and represent something more than being a deposit box for our wealth. Consumers are accustomed to the superb customer experiences in entertainment (Spotify), devices (Apple), retail (Amazon), travel (Uber) and much else. Surveys show that they want their banks to be responsive, easy to use and available across multiple channels. They’d like banks to be secure but also to be advisors, enable flexible movement of assets between accounts, provide useful data analytics, be cloud- and mobile-friendly and offer deals that are specifically targeted at their interests.

S-l-o-w progress

At their core, banks now must become digital enterprises but, frankly, it has been slow going. As Deloitte observed: “While many banks are experimenting with digital, most have yet to make consistent, sustained and bold moves toward thorough, technology-enabled transformation.”

Erich Gerber

Erich Gerber

We all know that retail banking has changed significantly: you can see that in the proliferation of apps and the fact that, in pre-pandemic times, the morning and evening commute are peak times for transactions as people arrange their finances while sitting in trains, buses and subways. Banking has become a virtual, often mobile business, thanks to new tech-literate consumers pushing banks in that direction. But my fear is that the banks aren’t moving even nearly fast enough and that’s bad for us as consumers and bad for the banks themselves.

Banks are under pressure to change because challengers don’t have the legacy constraints of incumbents and because PSD2 and open banking regulations are having the intended effect of promoting banking as a service, delivering transparency and greater competition.

Attend any business technology conference and banks will talk about their digital transformations and customer experience breakthroughs, but it’s my contention that a lot of this work is more window-dressing than platform building. Or, to put it another way, banks are injecting Botox, rather than undergoing the open-heart surgery that they really need. It’s a case of ‘look: fluffy kittens and shiny baubles’ in the form of apps and websites, but the underlying platforms remain old and creaking and that means that the banking incumbents are hampered.

To be fair, I have lots of sympathy here. They simply can’t move as fast as the challenger banks that have had the luxury of starting their infrastructure from scratch and sooner or later that will come back and bite them. Look, for example, at cloud platforms where only 10 or 20 percent of infrastructure has been migrated despite promises of cloud-first strategies and the banking data centres where monolithic on-prem hardware still reigns.

You feel that slowness of action in your interactions with banks that communicate only via issued statements, letters notifying you of changes to Ts and Cs, and threats when you go into the red. Inertia is nothing new in banking either: we like to think that technology change happens in the blink of an eye but in banking contactless NFC took the best part of 20 years to go mainstream.

This is the dirty secret of banks. They see the need to change but remain shackled. Why are the banks so slow? Historically, because it was hard for competitors to gain banking licences and the capital to really challenge so there was no catalyst or mandate for change. Also, because change is tough and fear of downtime or a security compromise to critical systems is very real. More recently, because internal wars in organisations set roundheads against cavaliers, the risk-averse against the bold, resulting in impasse and frustration.

I said change is tough and that’s why banks need to power through on the basis of Winston Churchill’s wisdom that ‘if you’re going through hell, keep going.” How? By a combination of maniacal focus on expunging legacy systems, placing maximum emphasis on superb customer interaction experiences and digitally enabling anything that moves.

Right now, the banks are surviving, not thriving; they’re rabbits blinking into the headlights of approaching traffic, frozen in the moment. But they need to disrupt themselves before others do it to them: change is painful but not as painful as the alternative. They have to do much more or they will see a decline in their fortunes due to their bankrupt capacity for innovation and their inflexible infrastructures.

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2020
2020 Global Banking & Finance Awards now open. Click Here

Latest Articles

Motivate Your Management Team 4 Motivate Your Management Team 5
Business2 days ago

Motivate Your Management Team

A management team, typically a group of people at the top level of management in an organization, is a team...

The Income Approach Vs Real Estate Valuation 6 The Income Approach Vs Real Estate Valuation 7
Business2 days ago

The Income Approach Vs Real Estate Valuation

The Income approach is only one of three main classifications of methodologies, commonly referred to as valuation approaches. It’s particularly...

How To Create A Leadership Philosophy 8 How To Create A Leadership Philosophy 9
Business2 days ago

How To Create A Leadership Philosophy

A leadership philosophy describes an individual’s values, beliefs and principles that they use to guide a business or organization. Your...

How to Build an AI Strategy that Works 10 How to Build an AI Strategy that Works 11
Technology2 days ago

How to Build an AI Strategy that Works

By Michael Chalmers, MD EMEA at Contino Six steps to boosting digital transformation through AI In the age of artificial...

Leumi UK appoints Guy Brocklehurst to property finance team as Relationship Manager  12 Leumi UK appoints Guy Brocklehurst to property finance team as Relationship Manager  13
Business2 days ago

Leumi UK appoints Guy Brocklehurst to property finance team as Relationship Manager 

Multi-specialist bank announces the appointment of Guy Brocklehurst to its property finance team Guy Brocklehurst has joined London-based Leumi UK...

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 14 Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 15
Banking2 days ago

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society

More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support Decline in SMEs using personal current accounts...

Tax administrations around the world were already going digital. The pandemic has only accelerated the trend. 16 Tax administrations around the world were already going digital. The pandemic has only accelerated the trend. 17
Finance3 days ago

Tax administrations around the world were already going digital. The pandemic has only accelerated the trend.

By Emine Constantin, Global Head of Accoutning and Tax at TMF Group. Why do tax administrations choose to go digital?...

Time for financial institutions to Take Back Control of market data costs 18 Time for financial institutions to Take Back Control of market data costs 19
Top Stories3 days ago

Time for financial institutions to Take Back Control of market data costs

By Yann Bloch, Vice President of Product Management at NeoXam Brexit may well be just around the corner, but it is...

An outlook on equities and bonds 20 An outlook on equities and bonds 21
Investing3 days ago

An outlook on equities and bonds

By Rupert Thompson, Chief Investment Officer at Kingswood The equity market rally paused last week with global equities little changed...

Optimising tax reclaim through tech: What wealth managers need to know in trying times 22 Optimising tax reclaim through tech: What wealth managers need to know in trying times 23
Investing3 days ago

Optimising tax reclaim through tech: What wealth managers need to know in trying times

By Christophe Lapaire, Head Advanced Tax Services, Swiss Stock Exchange This has been a year of trials: first, a global...

Newsletters with Secrets & Analysis. Subscribe Now