How texting could transform bank services
By Peter Tanner, managing director of Boomerang SMS Solutions
Published: November 12 2009 17:48 | Last updated: November 12 2009 17:48
Growing numbers of banks and financial institutions are adopting text messaging as part of a raft of measures designed to improve customer communication, enhance service levels and attain competitive advantage.
However, the constraints of traditional text technology have limited the range of services that can be delivered to customers.
But using an auditable, two-way texting solution will enable banks to transform the relevance and quality of their customer service, from ordering new cheque books to checking transaction patterns in a bid to reduce the impact of fraud.
Critically, I believe that by integrating this solution into core banking applications, workflow can be automated, significantly reducing costs by removing the need for manual intervention.
Financial institutions are looking to transform customer interaction with new innovative services and a wider range of communication options. For these institutions, however, economic pressures dictate that such services must be delivered without big investment or ongoing costs. The delivery method must also be simple and widely available to ensure banks can reach as many customers as possible.
As a result, growing numbers of banks recognise that investing in SMS offers excellent value, while enhancing the quality of the service provided. Quick, simple and used by the vast majority of customers, SMS is a useful tool to update customers on account balance, for example, or raise an alert for unusual transaction patterns.
However, this method of communication is still one dimensional: traditional SMS technologies do not enable a customer’s reply to trigger action. If there is a problem that demands a response from the customer, such as confirming if a transaction is fraudulent, the bank will be burdened by the time and cost associated with manually handling that customer response, whether at the call centre or in branch.
Next generation technology, however, can guarantee that multiple outbound messages are specifically matched with their appropriate response. This is key, as it enables banks to integrate SMS reliably into their workflow processes, transforming the potential range and nature of services available to customers
Automating the production of texts, just as standard letters are produced today, and triggering database actions on the basis of a customer SMS response eliminates the need for manual intervention at local branches or the call centre, greatly reducing the administrative burden.
For example, a bank sends a text to a customer reporting a suspicious transaction and the customer’s response is automatically recognised by the core software. If the customer responds “Yes” to the question: “Is this transaction genuine?” the system will process the transaction as usual. If the response is ”No”, the database will suspend the account and move automatically into its anti-fraud process.
Critically, as long as there is no problem, the bank will need to undertake no manual administrative process: the entire process is handled automatically by the system, providing a quicker, more efficient and less costly means of communicating with the customer.
With 80 per cent of texts being received within 60 seconds, this full circle texting technology provides the fastest way to communicate efficiently with customers.
Critically, these messages are inherently secure; texts are extremely hard to intercept and, in the unlikely event that a phone is stolen, actions such as money transfers can be additionally secured via the use of variable PIN codes.
Fears of mobile phishing can also be allayed through the use of specific text number ranges by the bank and supported by additional personal information.
For customers, the appeal of a two-way text solution is clear. Information from the bank is instantly retrieved irrespective of location and where a response can be made by SMS, the inconvenience of a lengthy phone call or branch visit is avoided.
The two-way approach also enables customers to access a range of services offered by the banks, starting perhaps with simple options such as a text-based chequebook ordering process.
Indeed, further down the line customers may well be willing to pay for some of these more sophisticated services, such as potential fraud alerts or notification of nearing overdraft limits.
For the customer travelling abroad, the fact that the bank raises a text-based alert of an overseas transaction provides a high level of confidence. The ability to respond via text confirming that the transaction is genuine, in seconds, removes the risk of the account being suspended which is an inconvenient by-product of today’s transaction tracking technology.
If the transaction is fraudulent, the immediacy of the communication and the automation with core systems to suspend the account boosts customer confidence while also minimising their exposure to financial distress.
Indeed, the provision of real time transaction information via text improves confidence in the quality of service and enables the customer to take control. It can also be applied to a range of financial services. From loan applications to insurance policy renewals, as well as the added value services increasingly being offered by card providers such as booking flights, financial institutions can empower customers to take control of their finances.
Those financial services organisations that have already embraced texting to improve customer services are providing better, more immediate information. But the next generation of texting technology enables banks to transform the quality and immediacy of these services.
Critically, by fully integrating this technology into core applications, this transformation in service and communication can be achieved while also streamlining processes, increasing automation and driving down manual intervention to achieve significant cost benefits.
By closing the loop with two way SMS communication, tightly integrated with core systems, financial institutions can improve customer service while also driving down administration overheads and reducing the financial and personal impact of fraudulent transactions both on the institution and the customer.
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Showing posts with label Financial Services. Show all posts
Showing posts with label Financial Services. Show all posts
Thursday, November 12, 2009
Monday, June 09, 2008
Don’t prepare for the world as it is – it’s the future that matters
Don’t prepare for the world as it is – it’s the future that matters
By Richard Brown of Ernst & Young
Published: June 9 2008 09:42 | Last updated: June 9 2008 09:42
We can all make predictions: the financial services world will continue to change, and there will continue to be rapid technological advances, both of which stimulate further demands and increasing expectations from all stakeholders.
Virtualisation, green IT, privacy and identity management are some of the new(ish) ones on the block while cost management, sourcing and standards have never gone away. Securing mobile devices continues to be a subject of conversation at any event where CIOs gather.
Regulatory demands are unlikely to decrease. Technologies will continue to evolve – seeking the right adoption point where they move into business-as-usual. And customers will continue to demand convenience, flexibility and privacy at the same time. Business leaders will expect more for less from IT, a demand fuelled by the desire to free up funds for further growth or simply to reduce costs. And there will undoubtedly be another financial crisis to deal with – the question being not whether but simply what and when?
In reality, CIOs in the financial services sector continue to face a multitude of competing demands from changing business models to moves to offshore business and delivering major change programmes while keeping the lights on – cost effectively, of course. On top of this, the financial services sector has had other specific challenges – increasing regulatory demands and expectations, and consumer demands for flexibility, convenience plus security, to name but a few.
Continued high profile instances of loss or compromise of personal data have caused increased interest not only from the regulators but also from business partners and consumers. The credit crunch and sub-prime are taking their toll on the sector, resulting in some rapid business decisions being made on products and services offered, and a variety of cost cutting measures. More than that, there is great uncertainty about the duration and nature of the current economic situation.
How can this mountain of individual predictions be used to create a plan for the future?
A couple of things are clear. If financial businesses continue to look at individual activities, processes and incidents in isolation, then they will face the future unprepared. Organisations also need to start learning from their experiences – even if it’s just on post-project reviews, it’s a start. And finally it is also necessary to take a hard look at people and their capabilities to help you into the future.
Why are these factors so important, when there are so many others?
Each business and IT priority justifies a major programme of activity in its own right. More important, they all bring with them a host of further considerations from risks to skills, governance, timeframe, and globalisation, which need to be looked at more broadly than the main activity itself.
So can you really see the big picture? And if you can, can you see it any time you like or just once a year at planning time? And how big does the wall have to be to hold the picture? The volume of available data and the speed of consolidation make many things possible. This could mean putting a precise value on system downtime at a precise time, on a particular day, or the opportunity to become a very fast follower.
But is IT really helping to join the dots to spot the gaps and the anomalies? Has IT grown up sufficiently that we can move seamlessly from projects to business as usual, and that asking “what if?” and “so what?” becomes a natural part of doing business?
Many organisations purport to carry out post-project reviews, but in reality some brush problems under the carpet, and sometimes even the best rarely take the lessons further than the project team. In order to get better, financial services companies need to adopt a culture that continuously learns from mistakes. If there is a struggle to learn lessons and apply them, what chance is there to learn from broader business and economic situations?
Strategies, plans, processes and governance will only get you so far. People and their capabilities is the key thing. For example does the IT management team include those who are constantly scanning the horizon? Does it include those with the vision to see potential, and have the courage to seize new opportunities without losing sight of commercial reaity? Regardless of functions and roles do your teams have the right balance of cynics and visionaries?
These may be simple questions, but the financial services industry has faced an unprecedented volume of incidents and change resulting in some knee jerk reactions and shaken confidence, leaving a great deal of uncertainty. And IT is now in a unique position where it really can make or break a business. So these questions deserve well considered responses. Will you stand up to the scrutiny?
Richard Brown is the head of technology security and risk services, Northern Europe, Middle East, India and Africa, at Ernst & Young
Copyright The Financial Times Limited 2008
By Richard Brown of Ernst & Young
Published: June 9 2008 09:42 | Last updated: June 9 2008 09:42
We can all make predictions: the financial services world will continue to change, and there will continue to be rapid technological advances, both of which stimulate further demands and increasing expectations from all stakeholders.
Virtualisation, green IT, privacy and identity management are some of the new(ish) ones on the block while cost management, sourcing and standards have never gone away. Securing mobile devices continues to be a subject of conversation at any event where CIOs gather.
Regulatory demands are unlikely to decrease. Technologies will continue to evolve – seeking the right adoption point where they move into business-as-usual. And customers will continue to demand convenience, flexibility and privacy at the same time. Business leaders will expect more for less from IT, a demand fuelled by the desire to free up funds for further growth or simply to reduce costs. And there will undoubtedly be another financial crisis to deal with – the question being not whether but simply what and when?
In reality, CIOs in the financial services sector continue to face a multitude of competing demands from changing business models to moves to offshore business and delivering major change programmes while keeping the lights on – cost effectively, of course. On top of this, the financial services sector has had other specific challenges – increasing regulatory demands and expectations, and consumer demands for flexibility, convenience plus security, to name but a few.
Continued high profile instances of loss or compromise of personal data have caused increased interest not only from the regulators but also from business partners and consumers. The credit crunch and sub-prime are taking their toll on the sector, resulting in some rapid business decisions being made on products and services offered, and a variety of cost cutting measures. More than that, there is great uncertainty about the duration and nature of the current economic situation.
How can this mountain of individual predictions be used to create a plan for the future?
A couple of things are clear. If financial businesses continue to look at individual activities, processes and incidents in isolation, then they will face the future unprepared. Organisations also need to start learning from their experiences – even if it’s just on post-project reviews, it’s a start. And finally it is also necessary to take a hard look at people and their capabilities to help you into the future.
Why are these factors so important, when there are so many others?
Each business and IT priority justifies a major programme of activity in its own right. More important, they all bring with them a host of further considerations from risks to skills, governance, timeframe, and globalisation, which need to be looked at more broadly than the main activity itself.
So can you really see the big picture? And if you can, can you see it any time you like or just once a year at planning time? And how big does the wall have to be to hold the picture? The volume of available data and the speed of consolidation make many things possible. This could mean putting a precise value on system downtime at a precise time, on a particular day, or the opportunity to become a very fast follower.
But is IT really helping to join the dots to spot the gaps and the anomalies? Has IT grown up sufficiently that we can move seamlessly from projects to business as usual, and that asking “what if?” and “so what?” becomes a natural part of doing business?
Many organisations purport to carry out post-project reviews, but in reality some brush problems under the carpet, and sometimes even the best rarely take the lessons further than the project team. In order to get better, financial services companies need to adopt a culture that continuously learns from mistakes. If there is a struggle to learn lessons and apply them, what chance is there to learn from broader business and economic situations?
Strategies, plans, processes and governance will only get you so far. People and their capabilities is the key thing. For example does the IT management team include those who are constantly scanning the horizon? Does it include those with the vision to see potential, and have the courage to seize new opportunities without losing sight of commercial reaity? Regardless of functions and roles do your teams have the right balance of cynics and visionaries?
These may be simple questions, but the financial services industry has faced an unprecedented volume of incidents and change resulting in some knee jerk reactions and shaken confidence, leaving a great deal of uncertainty. And IT is now in a unique position where it really can make or break a business. So these questions deserve well considered responses. Will you stand up to the scrutiny?
Richard Brown is the head of technology security and risk services, Northern Europe, Middle East, India and Africa, at Ernst & Young
Copyright The Financial Times Limited 2008
Thursday, June 05, 2008
Technology and financial services – with power comes responsibility
Technology and financial services – with power comes responsibility
By Neville Howard of Deloitte
Published: June 5 2008 10:09 | Last updated: June 5 2008 10:09
Financial services institutions were early adopters of technology and have used it to transform their businesses. The earliest areas of IT spend were on accounting software in the banking and insurance sectors where technology could automate highly manual processes, dramatically increase accuracy and reduce costs.
This spending was initially focused on process automation in areas where benefits were clear and easy to define, such as clearing and settlement. The entire middle office was, in effect, removed, resulting in huge savings.
The trend of replacing people with technology gathered pace during the 1990s and vast technology departments were created, often employing as many staff as traditional non-IT banking.
However, by the end of the 1990s rapid expansion of technology across all areas had led many financial services organisations to create huge IT silos that were not always aligned to core business strategy and were too large to be agile and responsive to rapid changes in market conditions. More and more ways to introduce technology were found and the business case for investment became increasingly blurred.
Fast forward to 2008 and we are now seeing a change in direction. The most progressive financial service institutions are dismantling their IT silos and realigning their IT teams with the business units they serve.
Now the chief information officer will often come from an operations background, bridging the gap between the business and technology. And CIOs are receiving recognition and a place on the board where they can help define business strategy, rather than simply provide a commodity service.
Today, the trend is for technology spend to be focused on business value and clearly aligned to strategy. For example, investment banks are using technology to automate trading where the risk levels can be set and activity monitored. And clients are offered on-line portfolio aggregation where they can move between asset classes at the press of a button and the entire process is completed quickly and accurately using straight-through processing.
Technology has helped the financial services industry become the being it is today. Without technology, traders would still wear bright coloured jackets and leap around energetically, insurance claims would take weeks to settle and banks would not be able to offer products such as offset mortgages. It has also allowed investment banks to exploit tiny arbitrage differences to make vast sums of money, enabled back and middle offices to be dismantled creating huge cost efficiency and enabled the creation of highly complex financial instruments.
Technology can also produce problems: we are going through a banking crisis in which technology played a part. The creation and globalisation of collaterised debt obligations (CDOs) was based on complex packaged debt rapidly sold via cross border, electronic trading.
To move forward, the financial services industry needs to ensure that the business drives technology and that the right people, with the right skills are retained to ensure that governance and controls can be put in place. If this is progressed the technology can remain centre stage and continue to shape, benefit and enhance the financial services industry.
Technology can certainly deliver great benefits, without creating dependency, but with it the need for controls and governance grows ever more important. With power comes responsibility. And the financial services industry is now realising the responsibility that the use of technology entails.
Neville Howard is a partner in Deloitte’s consulting practice.
Copyright The Financial Times Limited 2008
By Neville Howard of Deloitte
Published: June 5 2008 10:09 | Last updated: June 5 2008 10:09
Financial services institutions were early adopters of technology and have used it to transform their businesses. The earliest areas of IT spend were on accounting software in the banking and insurance sectors where technology could automate highly manual processes, dramatically increase accuracy and reduce costs.
This spending was initially focused on process automation in areas where benefits were clear and easy to define, such as clearing and settlement. The entire middle office was, in effect, removed, resulting in huge savings.
The trend of replacing people with technology gathered pace during the 1990s and vast technology departments were created, often employing as many staff as traditional non-IT banking.
However, by the end of the 1990s rapid expansion of technology across all areas had led many financial services organisations to create huge IT silos that were not always aligned to core business strategy and were too large to be agile and responsive to rapid changes in market conditions. More and more ways to introduce technology were found and the business case for investment became increasingly blurred.
Fast forward to 2008 and we are now seeing a change in direction. The most progressive financial service institutions are dismantling their IT silos and realigning their IT teams with the business units they serve.
Now the chief information officer will often come from an operations background, bridging the gap between the business and technology. And CIOs are receiving recognition and a place on the board where they can help define business strategy, rather than simply provide a commodity service.
Today, the trend is for technology spend to be focused on business value and clearly aligned to strategy. For example, investment banks are using technology to automate trading where the risk levels can be set and activity monitored. And clients are offered on-line portfolio aggregation where they can move between asset classes at the press of a button and the entire process is completed quickly and accurately using straight-through processing.
Technology has helped the financial services industry become the being it is today. Without technology, traders would still wear bright coloured jackets and leap around energetically, insurance claims would take weeks to settle and banks would not be able to offer products such as offset mortgages. It has also allowed investment banks to exploit tiny arbitrage differences to make vast sums of money, enabled back and middle offices to be dismantled creating huge cost efficiency and enabled the creation of highly complex financial instruments.
Technology can also produce problems: we are going through a banking crisis in which technology played a part. The creation and globalisation of collaterised debt obligations (CDOs) was based on complex packaged debt rapidly sold via cross border, electronic trading.
To move forward, the financial services industry needs to ensure that the business drives technology and that the right people, with the right skills are retained to ensure that governance and controls can be put in place. If this is progressed the technology can remain centre stage and continue to shape, benefit and enhance the financial services industry.
Technology can certainly deliver great benefits, without creating dependency, but with it the need for controls and governance grows ever more important. With power comes responsibility. And the financial services industry is now realising the responsibility that the use of technology entails.
Neville Howard is a partner in Deloitte’s consulting practice.
Copyright The Financial Times Limited 2008
Technology and financial services – with power comes responsibility
Technology and financial services – with power comes responsibility
By Neville Howard of Deloitte
Published: June 5 2008 10:09 | Last updated: June 5 2008 10:09
Financial services institutions were early adopters of technology and have used it to transform their businesses. The earliest areas of IT spend were on accounting software in the banking and insurance sectors where technology could automate highly manual processes, dramatically increase accuracy and reduce costs.
This spending was initially focused on process automation in areas where benefits were clear and easy to define, such as clearing and settlement. The entire middle office was, in effect, removed, resulting in huge savings.
The trend of replacing people with technology gathered pace during the 1990s and vast technology departments were created, often employing as many staff as traditional non-IT banking.
However, by the end of the 1990s rapid expansion of technology across all areas had led many financial services organisations to create huge IT silos that were not always aligned to core business strategy and were too large to be agile and responsive to rapid changes in market conditions. More and more ways to introduce technology were found and the business case for investment became increasingly blurred.
Fast forward to 2008 and we are now seeing a change in direction. The most progressive financial service institutions are dismantling their IT silos and realigning their IT teams with the business units they serve.
Now the chief information officer will often come from an operations background, bridging the gap between the business and technology. And CIOs are receiving recognition and a place on the board where they can help define business strategy, rather than simply provide a commodity service.
Today, the trend is for technology spend to be focused on business value and clearly aligned to strategy. For example, investment banks are using technology to automate trading where the risk levels can be set and activity monitored. And clients are offered on-line portfolio aggregation where they can move between asset classes at the press of a button and the entire process is completed quickly and accurately using straight-through processing.
Technology has helped the financial services industry become the being it is today. Without technology, traders would still wear bright coloured jackets and leap around energetically, insurance claims would take weeks to settle and banks would not be able to offer products such as offset mortgages. It has also allowed investment banks to exploit tiny arbitrage differences to make vast sums of money, enabled back and middle offices to be dismantled creating huge cost efficiency and enabled the creation of highly complex financial instruments.
Technology can also produce problems: we are going through a banking crisis in which technology played a part. The creation and globalisation of collaterised debt obligations (CDOs) was based on complex packaged debt rapidly sold via cross border, electronic trading.
To move forward, the financial services industry needs to ensure that the business drives technology and that the right people, with the right skills are retained to ensure that governance and controls can be put in place. If this is progressed the technology can remain centre stage and continue to shape, benefit and enhance the financial services industry.
Technology can certainly deliver great benefits, without creating dependency, but with it the need for controls and governance grows ever more important. With power comes responsibility. And the financial services industry is now realising the responsibility that the use of technology entails.
Neville Howard is a partner in Deloitte’s consulting practice.
Copyright The Financial Times Limited 2008
By Neville Howard of Deloitte
Published: June 5 2008 10:09 | Last updated: June 5 2008 10:09
Financial services institutions were early adopters of technology and have used it to transform their businesses. The earliest areas of IT spend were on accounting software in the banking and insurance sectors where technology could automate highly manual processes, dramatically increase accuracy and reduce costs.
This spending was initially focused on process automation in areas where benefits were clear and easy to define, such as clearing and settlement. The entire middle office was, in effect, removed, resulting in huge savings.
The trend of replacing people with technology gathered pace during the 1990s and vast technology departments were created, often employing as many staff as traditional non-IT banking.
However, by the end of the 1990s rapid expansion of technology across all areas had led many financial services organisations to create huge IT silos that were not always aligned to core business strategy and were too large to be agile and responsive to rapid changes in market conditions. More and more ways to introduce technology were found and the business case for investment became increasingly blurred.
Fast forward to 2008 and we are now seeing a change in direction. The most progressive financial service institutions are dismantling their IT silos and realigning their IT teams with the business units they serve.
Now the chief information officer will often come from an operations background, bridging the gap between the business and technology. And CIOs are receiving recognition and a place on the board where they can help define business strategy, rather than simply provide a commodity service.
Today, the trend is for technology spend to be focused on business value and clearly aligned to strategy. For example, investment banks are using technology to automate trading where the risk levels can be set and activity monitored. And clients are offered on-line portfolio aggregation where they can move between asset classes at the press of a button and the entire process is completed quickly and accurately using straight-through processing.
Technology has helped the financial services industry become the being it is today. Without technology, traders would still wear bright coloured jackets and leap around energetically, insurance claims would take weeks to settle and banks would not be able to offer products such as offset mortgages. It has also allowed investment banks to exploit tiny arbitrage differences to make vast sums of money, enabled back and middle offices to be dismantled creating huge cost efficiency and enabled the creation of highly complex financial instruments.
Technology can also produce problems: we are going through a banking crisis in which technology played a part. The creation and globalisation of collaterised debt obligations (CDOs) was based on complex packaged debt rapidly sold via cross border, electronic trading.
To move forward, the financial services industry needs to ensure that the business drives technology and that the right people, with the right skills are retained to ensure that governance and controls can be put in place. If this is progressed the technology can remain centre stage and continue to shape, benefit and enhance the financial services industry.
Technology can certainly deliver great benefits, without creating dependency, but with it the need for controls and governance grows ever more important. With power comes responsibility. And the financial services industry is now realising the responsibility that the use of technology entails.
Neville Howard is a partner in Deloitte’s consulting practice.
Copyright The Financial Times Limited 2008
Monday, June 02, 2008
IT in Financial Services: Modernising – innovate or hibernate?
IT in Financial Services: Modernising – innovate or hibernate?
By Peter Redshaw, research vice president at Gartner
Published: June 2 2008 12:45 | Last updated: June 2 2008 12:45
The IT department in a financial services institution (FSI) is a difficult place to be right now. Just as it’s being asked to do more than ever – enabling more personalisation, faster time-to-market, greater agility and tighter compliance and risk management – the sub-prime crisis erupts and its IT budget gets slashed. So the emphasis shifts to efficiency and how it can run ever larger volumes of electronic transactions, for less money, on a creaking infrastructure of legacy applications. Inevitably, the prospect of modernising that old IT portfolio is raised again.
The problem is that there is so much of it and it is all tangled together in a Gordian knot of home-built IT. For many years, the conventional approach in this industry has been to chip away at it a little bit at a time. That approach can work in other industries, such as manufacturing, retail or utilities, where they may eventually rationalise and consolidate their IT portfolios.
However, the trouble with an FSI and its intangible assets is that IT is at the very core of everything it does and part of every customer contact. It is what defines its products and processes, the customer experience, the communications and distribution. Increasingly it is how it innovates. Hence, the tendency is for the IT portfolio at a bank to swell faster than any chief information officer (CIO) can chip away at it and the legacy application set remains stubbornly rooted in its operations.
The alternative “big-bang” approach to IT modernisation is usually dismissed as too risky. IT tends to be even more conservative than the trading or asset management activities it supports. But the barriers to modernising IT at an FSI are mostly nothing to do with IT – the barriers are to do with people, culture, politics, bureaucracy, and so forth. It is much more about project management issues, job security and incentivisation – how many CIOs are sufficiently encouraged to take on risk or to break up their own empires?
Making subtle tweaks to the IT portfolio achieves very little and certainly isn’t going to make a trailing bank suddenly competitive. If a CIO is saddled with a risk-averse culture and a heavily regulated industry (that insists on the banking equivalent of emission controls and crash safety tests), is it really worth modernising IT at all? After all, most banks are still making lots of money, even after the impact of the credit crunch.
IT modernisation needs to address two key issues: one is that simply running-the-bank soaks up about 70 per cent of the IT budget at a typical FSI, and the other is that poor IT hits profitability. High operating expenses mean that very little IT budget is left for innovation, and that means differentiation is being eroded. Poor IT means that product margins are also getting squeezed and that customers show less loyalty, which diminishes the bottom line.
What a CIO needs to do to turn this around is to develop much more sophisticated financial models for calculating the economic value added to the FSI, replacing the current models for calculating the return on investment that technology X offers over technology Y. They need to be able to see if a big-bang approach would radically reduce their cost/income ratio or transform their return on equity. Without a radical boost to shareholder value, why change?
The net result of this would be to polarise the current continuum into two opposite camps – the dichotomy of “innovate or hibernate”. The innovate camp is at the leading edge of technology and embraces the big-bang approach, while the hibernate camp adopts the ultra-conservative approach that avoids IT change until absolutely necessary.
Innovate has developed accurate cost-benefit models that link IT changes to business metrics, so that it can quantify benefits and justify the radical transformations it encourages. Meanwhile, hibernate concentrates on using the “oil-can” by keeping its systems running for the absolute minimum cost (maybe through offshore outsourcing) while building up a war-chest of cash with the money it saves. Ultimately this must be a short-to-medium term approach; hibernators must constantly monitor the market and be prepared to buy up small, smart, innovative FSIs (that may have had the luxury of a green-field start) and then use them as incubators. The hibernator can then gradually migrate its customers and its data over to its protégé once the local contextualisation and scalability is in place.
These are not easy options – the innovators must find the tools needed for more sophisticated financial modelling of IT and the hibernators must efficiently manage global sourcing and spot their potential acquisitions. The vital thing is to avoid the worst-case scenario which for an FSI is to sit in the middle between these two extremes. The in-betweeners will fritter away their IT budget on incremental modernisation for little gain. Far from being fast followers – as they might like to think of themselves – they will be ditherers and laggards.
Copyright The Financial Times Limited 2008
By Peter Redshaw, research vice president at Gartner
Published: June 2 2008 12:45 | Last updated: June 2 2008 12:45
The IT department in a financial services institution (FSI) is a difficult place to be right now. Just as it’s being asked to do more than ever – enabling more personalisation, faster time-to-market, greater agility and tighter compliance and risk management – the sub-prime crisis erupts and its IT budget gets slashed. So the emphasis shifts to efficiency and how it can run ever larger volumes of electronic transactions, for less money, on a creaking infrastructure of legacy applications. Inevitably, the prospect of modernising that old IT portfolio is raised again.
The problem is that there is so much of it and it is all tangled together in a Gordian knot of home-built IT. For many years, the conventional approach in this industry has been to chip away at it a little bit at a time. That approach can work in other industries, such as manufacturing, retail or utilities, where they may eventually rationalise and consolidate their IT portfolios.
However, the trouble with an FSI and its intangible assets is that IT is at the very core of everything it does and part of every customer contact. It is what defines its products and processes, the customer experience, the communications and distribution. Increasingly it is how it innovates. Hence, the tendency is for the IT portfolio at a bank to swell faster than any chief information officer (CIO) can chip away at it and the legacy application set remains stubbornly rooted in its operations.
The alternative “big-bang” approach to IT modernisation is usually dismissed as too risky. IT tends to be even more conservative than the trading or asset management activities it supports. But the barriers to modernising IT at an FSI are mostly nothing to do with IT – the barriers are to do with people, culture, politics, bureaucracy, and so forth. It is much more about project management issues, job security and incentivisation – how many CIOs are sufficiently encouraged to take on risk or to break up their own empires?
Making subtle tweaks to the IT portfolio achieves very little and certainly isn’t going to make a trailing bank suddenly competitive. If a CIO is saddled with a risk-averse culture and a heavily regulated industry (that insists on the banking equivalent of emission controls and crash safety tests), is it really worth modernising IT at all? After all, most banks are still making lots of money, even after the impact of the credit crunch.
IT modernisation needs to address two key issues: one is that simply running-the-bank soaks up about 70 per cent of the IT budget at a typical FSI, and the other is that poor IT hits profitability. High operating expenses mean that very little IT budget is left for innovation, and that means differentiation is being eroded. Poor IT means that product margins are also getting squeezed and that customers show less loyalty, which diminishes the bottom line.
What a CIO needs to do to turn this around is to develop much more sophisticated financial models for calculating the economic value added to the FSI, replacing the current models for calculating the return on investment that technology X offers over technology Y. They need to be able to see if a big-bang approach would radically reduce their cost/income ratio or transform their return on equity. Without a radical boost to shareholder value, why change?
The net result of this would be to polarise the current continuum into two opposite camps – the dichotomy of “innovate or hibernate”. The innovate camp is at the leading edge of technology and embraces the big-bang approach, while the hibernate camp adopts the ultra-conservative approach that avoids IT change until absolutely necessary.
Innovate has developed accurate cost-benefit models that link IT changes to business metrics, so that it can quantify benefits and justify the radical transformations it encourages. Meanwhile, hibernate concentrates on using the “oil-can” by keeping its systems running for the absolute minimum cost (maybe through offshore outsourcing) while building up a war-chest of cash with the money it saves. Ultimately this must be a short-to-medium term approach; hibernators must constantly monitor the market and be prepared to buy up small, smart, innovative FSIs (that may have had the luxury of a green-field start) and then use them as incubators. The hibernator can then gradually migrate its customers and its data over to its protégé once the local contextualisation and scalability is in place.
These are not easy options – the innovators must find the tools needed for more sophisticated financial modelling of IT and the hibernators must efficiently manage global sourcing and spot their potential acquisitions. The vital thing is to avoid the worst-case scenario which for an FSI is to sit in the middle between these two extremes. The in-betweeners will fritter away their IT budget on incremental modernisation for little gain. Far from being fast followers – as they might like to think of themselves – they will be ditherers and laggards.
Copyright The Financial Times Limited 2008
Wednesday, May 28, 2008
Sweeping away a sector’s chaos
Sweeping away a sector’s chaos
By Ross Tieman
Published: May 28 2008 01:25 | Last updated: May 28 2008 01:25
It sounds like an apocryphal story, but Nigel Woodward, London-based director of financial services at Intel, insists it is true.
“At one of the big UK clearing banks, the core accounting system still does calculations in pounds, shillings and pence,” he says. Decimalisation was introduced in the UK in 1971, 37 years ago.
The scale of the IT transformation needed in many areas of the financial industry is mind-boggling. Cobbled-together systems are still the bedrock of a hugely expanded sector accounting for an estimated 7 per cent of global gross domestic product.
While bad systems did not cause the present credit crisis, they probably contributed. “Some big banks failed to keep track of the risks as the volumes built up,” says Intel’s Mr Woodward.
He uses the example of sub-prime mortgages. When a bank bought a collateralised debt obligation (CDO), “was the transaction recorded and tracked back to a residential property in Texas,” he asks. “The bank might already have had a full exposure to property in Texas but didn’t know.”
Technology-enabled scale allowed traders to run ahead of banks’ ability to measure risk, he says. And when regulators and auditors started demanding answers about the scale of banks’ exposure, extracting the information from fragmented systems and databases was difficult and time-consuming. Hence revisions to banks’ profit warnings, as the scale of risk was progressively uncovered.
Jeremy Badman, partner in the strategic IT and operations practice focusing on investment banks at Oliver Wyman, highlights the problem that arose with credit default swaps, a mechanism used by banks to lay off risk that has turned into a market measured in trillions of dollars.
It started as a market where people fixed deals by phone, recorded them on a spreadsheet and faxed contracts. Back-office processing was manual. But as volumes increased, settlement remained manual, and three-month piles of unmatched contracts built up – alarming regulators over uncertain risk positions.
The lesson, says Mr Badman, is that technology has to support innovation, and processes must be “industrialised” quickly when a new product is successful. The trouble is that many financial institutions find this hard, because they rely on gummed-up legacy systems.
Rudy Puryear, global head of the IT practice at consultant Bain, explains: “Many of the IT solutions have been layered on over 15 or 20 years or more. In the 1990s everyone went out and wanted to buy a best-of-breed solution and then had to bolt that on to the legacy system. Then everybody wanted web access, plus companies have made acquisitions of companies using different systems.
“Almost every organisation I have walked into has a huge amount of unnecessary complexity in IT. It drives up cost and it slows down response in terms of time-to-market. We want IT to be an enabler of change. Right now it is very often like a block of concrete, adding rigidity to organisations.”
His recommendations? “You have to recognise that you have a complexity problem and that it is bad. It is driving up cost and constraining the ability to respond to the market-place and it is using up more and more IT dollars.
“You have to start saying you are not going to introduce more complexity. You have to create a future-state view of where you want to migrate this to in, say, five years time. You need to push a lot of shared, common, off-the-shelf solutions. So, as you make incremental decisions, you can measure it against how it helps you towards your desired five-year target.”
One example of this kind of thinking in action is Oyster, a ticketing system for Transport for London, by which users pay fares with a smart card, which stores cash, and can be used to pay for travel and other services.
Jonathan Charley, head of banking, Europe, at EDS, which advised on Oyster’s creation, says it was built as a stand-alone solution because “to integrate it into an existing system would have been a huge challenge”. The system was built on an off-the-shelf package of services-oriented architecture, put together “like Lego bricks”.
Clipping on ready-made flexible units that can take over tasks fragmented across existing systems seems a promising way forward. Charles Marston, who previously worked in the interest rate derivatives operation of a bank, founded systems and software company Calypso in San Francisco in 1997 to develop a universal front and back office platform.
Today, Calypso offers an off-the-shelf system that can be used to trade a host of financial instruments, from spot foreign exchange via derivatives to equities and commodities, yet which also supports straight-through back office tasks such as settlement, and allows banks to capture the data they need for risk and capital management. About 80 institutions have bought the system, including HSBC, Dresdner and Calyon.
As Peter Van der Vorst, chief financial officer of Sybase, an integration, data management and platform company, points out, one of the biggest challenges for many financial firms is keeping pace with the need to process vast and booming volumes of information at appropriate speeds.
So Sybase has just launched a product called RAP, designed to handle algorithmic computer-based trading, service the data needs of the quantitative analysts who write the algo programmes, and deliver the data needed to monitor trades for risk management and compliance.
Retail institutions, too, are finding legacy systems an encumbrance to business development. Nationwide, a UK building society, has decided to embark on a wholesale system renewal using an off-the-shelf solution from software house SAP.
Darin Brumby, divisional director for business systems transformation at Nationwide, says shifting to a new platform will enable it to introduce new products – different kinds of account, for example, and a suite of mortgages – that the current system cannot support.
It will also allow improvements to front and back office organisation. It is tantamount to creating a new building society around the changed market and customer needs. Although it is costly, “we think there is a good first-mover advantage”, he says.
SAP and US rival Oracle believe a pre-integrated offering is the best solution. Over the past few years they have been positioning themselves for the colossal orders that are beginning to flow as financial institutions start replacing legacy systems.
Rajesh Hukku, senior vice-president of financial services at Oracle, reckons the company has spent $30bn buying best-of-breed suppliers and developing a pre-built application integration architecture.
This one-stop-shop purchase of a core banking architecture with the features of your choice that are all promised to work seamlessly has won some other big converts. Citibank, the world’s biggest with 350,000 staff, is among them, replacing 59 versions of its old corporate banking system with a single Oracle solution, in which, for example, a base in Singapore services 14 banking operations in Asia. It is, says Mr Hukku, the biggest legacy system replacement ever.
The idea is that each bit can access all the data, and off-the shelf packages of analytics, for example, will keep a bank compliant with Basel II regulations, credit risk, and liability management, while assuring the flexibility to add in regulatory changes without complicating or compromising performance. “Two plus two equals five, if not 11,” Mr Hukku says.
It sounds like nirvana. And today, maybe it is. But will it still be the best answer in 10, or even five years? “We know that things will change,” says Mr Hukku, “but the basic requirement will always be to look at core data in certain aggregations.”
David Hunt, head of technology consulting at Capgemini Financial Services, agrees on the importance of data, but cautions that the IT industry still does not necessarily deliver all the right answers. “What we are not good at, as technologists, is doing that low-cost, throw-away innovation,” he says.
Yet financial services firms need to experiment with products as consumer technology changes.
Today’s private bank customers “may be happy to come to the office and have a fat cigar, but their inheritors might want to bank on their X-box 360 or mobile phone,” says Mr Hunt.
Tomorrow’s systems won’t just need to be agile, he says. In consumer, as well as investment banking, they will need to support rapid innovation of products, and rapid industrialisation of those that succeed.
It is a far cry from the days when they wrote that program in pounds, shillings and pence. Financial businesses are learning that they cannot see far into the future. System designers must learn not even to try.
Jerry Norton, head of financial services at consulting and software group Logica, deserves the last word. A layered approach that separates fundamental systems from distribution channels can help. But fundamentally, it’s about philosophy, he says. “Most other things – consumer products, even buildings – have a design life-time.”
Sure, a general ledger doesn’t change much. But isn’t it time systems were sold with an end-of-use date warning?
Copyright The Financial Times Limited 2008
By Ross Tieman
Published: May 28 2008 01:25 | Last updated: May 28 2008 01:25
It sounds like an apocryphal story, but Nigel Woodward, London-based director of financial services at Intel, insists it is true.
“At one of the big UK clearing banks, the core accounting system still does calculations in pounds, shillings and pence,” he says. Decimalisation was introduced in the UK in 1971, 37 years ago.
The scale of the IT transformation needed in many areas of the financial industry is mind-boggling. Cobbled-together systems are still the bedrock of a hugely expanded sector accounting for an estimated 7 per cent of global gross domestic product.
While bad systems did not cause the present credit crisis, they probably contributed. “Some big banks failed to keep track of the risks as the volumes built up,” says Intel’s Mr Woodward.
He uses the example of sub-prime mortgages. When a bank bought a collateralised debt obligation (CDO), “was the transaction recorded and tracked back to a residential property in Texas,” he asks. “The bank might already have had a full exposure to property in Texas but didn’t know.”
Technology-enabled scale allowed traders to run ahead of banks’ ability to measure risk, he says. And when regulators and auditors started demanding answers about the scale of banks’ exposure, extracting the information from fragmented systems and databases was difficult and time-consuming. Hence revisions to banks’ profit warnings, as the scale of risk was progressively uncovered.
Jeremy Badman, partner in the strategic IT and operations practice focusing on investment banks at Oliver Wyman, highlights the problem that arose with credit default swaps, a mechanism used by banks to lay off risk that has turned into a market measured in trillions of dollars.
It started as a market where people fixed deals by phone, recorded them on a spreadsheet and faxed contracts. Back-office processing was manual. But as volumes increased, settlement remained manual, and three-month piles of unmatched contracts built up – alarming regulators over uncertain risk positions.
The lesson, says Mr Badman, is that technology has to support innovation, and processes must be “industrialised” quickly when a new product is successful. The trouble is that many financial institutions find this hard, because they rely on gummed-up legacy systems.
Rudy Puryear, global head of the IT practice at consultant Bain, explains: “Many of the IT solutions have been layered on over 15 or 20 years or more. In the 1990s everyone went out and wanted to buy a best-of-breed solution and then had to bolt that on to the legacy system. Then everybody wanted web access, plus companies have made acquisitions of companies using different systems.
“Almost every organisation I have walked into has a huge amount of unnecessary complexity in IT. It drives up cost and it slows down response in terms of time-to-market. We want IT to be an enabler of change. Right now it is very often like a block of concrete, adding rigidity to organisations.”
His recommendations? “You have to recognise that you have a complexity problem and that it is bad. It is driving up cost and constraining the ability to respond to the market-place and it is using up more and more IT dollars.
“You have to start saying you are not going to introduce more complexity. You have to create a future-state view of where you want to migrate this to in, say, five years time. You need to push a lot of shared, common, off-the-shelf solutions. So, as you make incremental decisions, you can measure it against how it helps you towards your desired five-year target.”
One example of this kind of thinking in action is Oyster, a ticketing system for Transport for London, by which users pay fares with a smart card, which stores cash, and can be used to pay for travel and other services.
Jonathan Charley, head of banking, Europe, at EDS, which advised on Oyster’s creation, says it was built as a stand-alone solution because “to integrate it into an existing system would have been a huge challenge”. The system was built on an off-the-shelf package of services-oriented architecture, put together “like Lego bricks”.
Clipping on ready-made flexible units that can take over tasks fragmented across existing systems seems a promising way forward. Charles Marston, who previously worked in the interest rate derivatives operation of a bank, founded systems and software company Calypso in San Francisco in 1997 to develop a universal front and back office platform.
Today, Calypso offers an off-the-shelf system that can be used to trade a host of financial instruments, from spot foreign exchange via derivatives to equities and commodities, yet which also supports straight-through back office tasks such as settlement, and allows banks to capture the data they need for risk and capital management. About 80 institutions have bought the system, including HSBC, Dresdner and Calyon.
As Peter Van der Vorst, chief financial officer of Sybase, an integration, data management and platform company, points out, one of the biggest challenges for many financial firms is keeping pace with the need to process vast and booming volumes of information at appropriate speeds.
So Sybase has just launched a product called RAP, designed to handle algorithmic computer-based trading, service the data needs of the quantitative analysts who write the algo programmes, and deliver the data needed to monitor trades for risk management and compliance.
Retail institutions, too, are finding legacy systems an encumbrance to business development. Nationwide, a UK building society, has decided to embark on a wholesale system renewal using an off-the-shelf solution from software house SAP.
Darin Brumby, divisional director for business systems transformation at Nationwide, says shifting to a new platform will enable it to introduce new products – different kinds of account, for example, and a suite of mortgages – that the current system cannot support.
It will also allow improvements to front and back office organisation. It is tantamount to creating a new building society around the changed market and customer needs. Although it is costly, “we think there is a good first-mover advantage”, he says.
SAP and US rival Oracle believe a pre-integrated offering is the best solution. Over the past few years they have been positioning themselves for the colossal orders that are beginning to flow as financial institutions start replacing legacy systems.
Rajesh Hukku, senior vice-president of financial services at Oracle, reckons the company has spent $30bn buying best-of-breed suppliers and developing a pre-built application integration architecture.
This one-stop-shop purchase of a core banking architecture with the features of your choice that are all promised to work seamlessly has won some other big converts. Citibank, the world’s biggest with 350,000 staff, is among them, replacing 59 versions of its old corporate banking system with a single Oracle solution, in which, for example, a base in Singapore services 14 banking operations in Asia. It is, says Mr Hukku, the biggest legacy system replacement ever.
The idea is that each bit can access all the data, and off-the shelf packages of analytics, for example, will keep a bank compliant with Basel II regulations, credit risk, and liability management, while assuring the flexibility to add in regulatory changes without complicating or compromising performance. “Two plus two equals five, if not 11,” Mr Hukku says.
It sounds like nirvana. And today, maybe it is. But will it still be the best answer in 10, or even five years? “We know that things will change,” says Mr Hukku, “but the basic requirement will always be to look at core data in certain aggregations.”
David Hunt, head of technology consulting at Capgemini Financial Services, agrees on the importance of data, but cautions that the IT industry still does not necessarily deliver all the right answers. “What we are not good at, as technologists, is doing that low-cost, throw-away innovation,” he says.
Yet financial services firms need to experiment with products as consumer technology changes.
Today’s private bank customers “may be happy to come to the office and have a fat cigar, but their inheritors might want to bank on their X-box 360 or mobile phone,” says Mr Hunt.
Tomorrow’s systems won’t just need to be agile, he says. In consumer, as well as investment banking, they will need to support rapid innovation of products, and rapid industrialisation of those that succeed.
It is a far cry from the days when they wrote that program in pounds, shillings and pence. Financial businesses are learning that they cannot see far into the future. System designers must learn not even to try.
Jerry Norton, head of financial services at consulting and software group Logica, deserves the last word. A layered approach that separates fundamental systems from distribution channels can help. But fundamentally, it’s about philosophy, he says. “Most other things – consumer products, even buildings – have a design life-time.”
Sure, a general ledger doesn’t change much. But isn’t it time systems were sold with an end-of-use date warning?
Copyright The Financial Times Limited 2008
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