A five-pronged approach by V. Ramkumar is a Senior Partner at Cedar Management Consulting International
editor's pickThursday 13, December 2018
Even as the banking industry in Middle East is bracing for the winds of change driven both by market forces and a number of consolidations across the region, the impetus observed in technology upgrades—both by large and mid-size banks alike, is hard to miss. And this is not without reason.
The spate of innovations that are declared almost every-day around the world, thanks to the emerging new world of fintech and an equally active regulatory demand across markets, have had its own imprints in the boardrooms of Middle East banks, both in terms of direction and also in the emphasis of their IT plans.
Technology, at the end of the day, is only but the means to a larger end. While there is always an almost insatiable appetite for enlisting innovations and their related use-cases in and around the region, it is important to view them from an angle of what these initiatives are looking to address, and where the primary focus areas are required to be.
From a strategic perspective, there are five critical focus areas that have a serious implication for any bank, when it comes to evaluating the eventual benefit that any IT investment can bring in.
Focus area 1: Enhanced customer experience
Almost inevitably, every innovation that is driven by the new splurge in fintech investments will need to pass the litmus test of “what it means to the customer”. Having a best-in-class CRM system or a great digital channel offering with a best-inclass UX, is a given for any bank that seeks to stay relevant across the spectrum of segments it seeks to serve.
However, their legitimacy is accrued only when they make a real difference to experience of the customer. Be it the innovations in payments, omni-channel experience, real time credit decisioning or in enabling a customised digital transaction banking offering, the underlying theme of any new IT investment in this space is consistent: you got to deliver superior experience to the customer from what it had been.
Focus area 2: Higher operating efficiencies
When banks look to move into the cloud or when robotic process automation (RPA) is introduced to replace manpower, initial skepticism notwithstanding, the inevitable question that any CIO would need to demonstrate is the efficiencies they got bring about in the overall cost footprint.
Even in the case of recent IT innovations enabled by blockchain or Artificial Intelligence and Machine Learning (AI/ ML), where there may not necessarily be significant short-term savings or quick benefits, they will ultimately still need to translate into savings in the medium term. Sustainability of any efficiency enabling IT initiative is directly correlated to the degree of dollar savings, eventually propelling the scalability across other similar areas.
Focus Area 3: Improved risk management
Driving IT investments in machine learning or predictive analytics driven real-time risk management systems, or the interesting areas of biometric driven security standards, are no longer esoteric and are much beyond being a fashion statement.
Smart banks have understood the sophistication manifested in the more recent frauds or cybercrimes and realised the need to keep with changing times. Dollar spend that are made in cybersecurity, for example, are akin to an insurance. It is a hygiene factor in the digital world, and increasingly perceived as being a component of the cost of doing business.
Focus area 4: Renewed operating model
Digital banking is the new order—be it a brand positioning, subsidiary offering or a full-fledged pure-play digital banking model. Yet, there is more to it than meets the eye. While the core of the model yet remains in the products offered to customer, the mantra of renewed operating model is in integrating with new age open banking APIs and collaborating with external players for continued innovation and participation in the market-place.
This also means revisiting the customer journey from a digital perspective, and the delivery framework aligned to the operating model. Quite obviously, this calls for a sustained investment of effort, time and money to keep the wheels of digital innovation moving, and the courage of conviction to the cause may well be the critical differentiators between those who succeed and those who also ran.
Focus area 5: Building stronger foundations
No matter what the application layers visible to the external world are, the stability of the technology architecture is always dependent on its core foundation. Banks can ill afford to ignore the need to keep its transaction banking and core back-office platform to be outdated. Even while large number of IT investments are driven towards online, digital and the cool fintech initiatives, the single most important investment that banks yet need to make—both in terms of size of investment and criticality of its purpose, is the core banking platform, the backbone that keeps the bank running.
It is therefore not a surprise then, to see quite a number of Middle East banks looking to upgrade their core banking systems. A typical banking technology architecture includes channels, front, mid and back office, data and analytics, support, payments as well as the integrator—while these are all critical, ensuring they remain contemporary is a key pre-requisite to remain competitive.
Adapting to change is not just about driving products and services that meet the needs of the new age customer, but also ensuring that the underlying technology platform is aligned to deliver on the above focus areas. As we know, it is not the fittest or the strongest that survive, but the most adaptable to change that does. And as banks embrace the need for change, technology investments follow suit, and the key would be to stay focused on the above five areas.