What is needed is an industrial revolution in banking. Deep cost cuts should be combined with product and service investment to bring banks up to date with improvements in other industries.
About a quarter of all IT spending globally is in financial services. Inside banks there are huge IT factories that were built up over decades.
It wasn’t uncommon for CIOs to equate a new application with a project successfully completed, resulting in thousands of applications. In contrast, engineering, manufacturing and other industries were streamlining and outsourcing equivalent operations.
The first movers among the banks are facing reality. In the past, taking two or three percentage points off the cost-income ratio was seen as an achievement; now they are looking to take 40 per cent out of their cost base to ensure survival.
These banks also know their product offerings are not good enough and that this will get worse as technology and customer expectations develop.
Offerings must be customer driven. Even banks that come top of customer satisfaction surveys, such as First Direct in the UK, can do better.
Improving core systems can give banks the agility they need to create efficiencies and market-leading products.
We worked with a client to produce a product that paid a bonus according to scorers in a major sporting tournament. From the original idea it took 11 weeks to get the product into thousands of branches.
Most of that time was spent getting the marketing and compliance right – not the systems. As the CIO told me: “I’m no longer the problem.”
In-memory systems let banks speed up product delivery to react to new market conditions. One customer recently created an Isa (a UK tax-efficient wrapper) quickly to attract rate-hoppers and migrate existing customers on a lower rate later while the competition was still trying to get the product out.
The comeback from some CIOs is: “That sounds great but I haven’t got billions in cash to sort out my systems.”
My advice is to get some basics right like process orchestration so you can understand the process and have a road map that delivers early benefits instead of pouring huge costs in before any gains.
And as I’ve said before, doing nothing isn’t an option.