Following the financial crisis, retail banks face the challenges of decreased demand, increased competition and the need to introduce more controls and greater transparency to meet new regulatory requirements. However, with over-engineered processes and unsuitable technology, few are proving agile enough to deal with the demands of this new world. As a result, they are finding it is almost impossible to meet new regulatory requirements profitably.
To move forward, retail banks need to create a business enterprise architecture that allows them to implement rapid change. New regulations present them with the perfect opportunity to simplify processes and organisation, and acquire the flexibility they will need to respond to future waves of regulatory or market change.
So, what steps must banks take to achieve the agility the future demands?
First, just as telecoms providers T-Mobile did when they faced similar challenges a decade ago, banks should consider splitting their operations into a front-end service provider focused on commercial, distribution and product management, and a back-end ‘production factory’ capable of servicing more than one front-end service provider and of partnering with the infra and service providers.
This splitting of the front and back ends is essential preparation for the partnerships between banks, telecoms and hardware and software companies that will become increasingly common in future.
Second, banks should re-engineer the organisation to focus on workflow and output and ensure their staffing, process and systems are fit for purpose. This means banks need to consider investing in front-end IT that will deliver better customer services rather than focusing on reducing IT costs. Rabobank recently did just this, implementing on of the world’s largest Siebel CRM systems as a result.
Next, banks must focus on building a brand that appeals to their customers. This is a huge challenge given the current poor image of the industry. But accepting the status quo and continuing to engage in price wars will not address the problem of declining profitability.
Some see greater transparency as a useful step here, while others favour alliances with third parties such as Facebook, as seen in the latest viral promotions of credit cards. In either case, a separate front end is more likely to create an environment in which banks can create/restore appealing brands. Virgin Money and, in the Netherlands, Rabo Mobile, both provide good examples of how banks have managed to build a profile for their brand beyond financial services.
The transition described here is significant and challenging but, once complete, it offers banks the opportunity to leverage their customer bases and expand their service offerings.
To find out how PA can help you respond to regulatory change in a way that creates an agile business, contact us now.