A call to arms
Top executives must win over the naysayers and drive change so that banks can deliver 21st century solutions to 21st century customers.
In the fifteen years since the start of the 21st century there has been a revolution in communication. We can hardly remember how we coped without mobile, email and the internet.
While we have changed how we communicate, get our news, do business and organise our lives, retail banks are only just waking up. The new digital era demands a new IT approach: customers are already years ahead in their demands.
Before the financial crisis, banks were making pots of money – they could afford expensive legacy systems and pay for coding to patch and expand their core systems as and when required. Then 2008 struck. Their balance sheets were decimated and their costs were no longer sustainable. The focus was on short-term survival.
Understandably, it was a step too far to rebuild the balance sheet and replace the beating heart of the bank. Today, the banks have rebuilt their balance sheets, cut the easy costs and many banks now have new management teams focused on the medium and long term. These executives are younger, more digitally savvy, more connected to IT. And the more plugged in and connected they are, the more their banks are pushing forward with plans for modern core systems that can deliver a competitive service fit for the 21st century consumer. And that means digital.
The decision makers holding back due to fear of the cost and upheaval just don’t understand today’s IT offer nor that the direction of the financial sector is inexorably towards a retail-like methodology that demands complex analytics capabilities. Indeed, some of the more far-sighted banks are actually recruiting senior executives from a retail background because they understand about putting the customer at the heart of what they are doing.
Sometimes it’s the IT department that’s stuck in the past, and the IT people are traditionally a very powerful force within a bank thanks to the size of their budget and the core nature of their role; sometimes it’s the compliance and risk officers more concerned with ensuring the system works today than looking ahead and risking risk; it might even be the board itself that is just out of touch. Whoever it is, CEOs need to lead the way because when it comes to the costs, banks could save up to 8 percentage points on their total opex spend by ditching the legacy systems and running off the shelf vendor IT. And these new systems are not just cheaper, they are compatible with the 21st century.
The new IT structures are modular, offer analytics and allow IT teams quickly and easily to create or adapt new products and services to new regulations, consumer trends and shifts in strategy. They are also robust, not least because they are simpler than that spaghetti mess so many banks still put up with today. These messages must be fed down to the relevant departments, which must be won over or the whole bank will be done over.
I’ve seen many a client kick the tyres for years before finally realising that they need to open the bonnet and look at the engine. Inertia runs through organisations like “Brighton” through a stick of rock. It’s up to the board to drive this change right through the organisation.
Earlier this year a French bank finally commissioned a project to look at digital banking. It’s taken 10 years of regular meetings, but most crucially, a change of CEO. Just one coffee with the new guy in March sealed the deal. The difference? He understands the importance and power of the new digital systems, their analytics that can power niche markets and allow him to compete with the disrupters such as Apple, Google and PayPal to stop them taking his sexy, high-margin business.
He is so enthusiastic that he has pushed through a wholesale change in attitude across his bank. Where before, the IT department was unenthusiastic, feeling threatened by a third-party vendor taking away power and budget, it is now wholeheartedly behind the new project because it can finally see how dynamic a digital system can be. It has seen the future and finally realises that it’s not as scary as the present.
All the naysayers and Luddites must be won over, brought on side and set to work. Once they understand the power of the digital systems with embedded analytics and scalable capacity they will embrace the changes and wonder why it didn’t happen before.