Before I joined SAP I spent a number of years in CIO and CTO roles at several large global banks so when it came to blogging, I decided to write from a former insider’s viewpoint about the challenges facing bank CIOs I talk to every day.
Banks used to operate in a world of abundant resources: earnings, capital and liquidity were plentiful, the best people wanted to work in banking, and it was easy to grow the balance sheet.
The job of the CIO was largely to keep the bank running, delivering new projects for business lines. With plenty of money around, layers of complexity were built on top of aging systems to accommodate each business’s needs. Regulatory spending was something to be kept as low as possible.
The banking crisis has changed all that, and banks are only now coming to terms with how fundamental the transformation is. To illustrate the point, the theme of a recent strategy awayday at a big European bank was: the world has changed for good.
Costs, risk and growth
In a world of scarce resources, bank CIOs face three big, conflicting challenges: reduce cost and complexity; increase spending on the priority of risk and regulatory compliance ; and enable business growth through innovation.
Reducing cost and complexity is a priority everywhere but the balance between the three challenges varies by geography In Western Europe, regulatory pressures are particularly high while in Asia Pacific the emphasis is more on growth and expansion. North American banks also largely need to stay focused on risk and regulatory compliance but are also looking for new ways to grow the business and make up for revenue reductions from low interest rates, less lending, and new constraints on fees.
In the long run, everyone is looking for growth. In emerging markets that means deploying technology to bank new customers; in mature markets, it means innovating to get a greater share of customers’ wallets or to lure them from competitors.
In this environment, CIOs can no longer simply mind the IT shop. They are under pressure to cut costs and add new business value as their companies look for routes to growth.
On top of these demands is the increased burden of legal and regulatory compliance. Meeting regulatory requirements is no longer a second-order priority: you have to spend much more than ever before in these areas just to stay in business.
Risk and regulatory compliance costs are eating into budgets already squeezed by shrinking revenues. At the same time, growth requires greater agility, innovation and speed to market. The CIO is at the centre of these pressures.
Banks for some time to come will likely remain among the biggest spenders on technology as a share of revenue, but the long boom lulled many into accepting large ongoing “run the bank” IT spending as the norm. Now CIOs have to consume less and do more.
What is needed is a fundamental shift in banks’ IT spending – from mostly just “running the bank” to much more investment in standardization and innovation that can “change the bank”. I’ll expand on this in my next blog.