FT Banker report moving tech with the times.pdf

December 2012 | The Banker | 1

2HowtomaketecHnologymovewitHtHe

timesStrong forces are at work reshaping thefinancial sector. If firms are to surviveand thrive in this dynamic environment,they need to take a long, hard look attheir IT andmodernise it to ensure itis fit for purpose.

4biggerisbetterThe truly enormous volumesof information available to

financial institutions today istransforming the way they do businessand helping them to provide a betterservice for their customers.

7managingcustomerexperience

acrosscHannelsCustomers are increasingly interactingwith their bank using differenttechnology platforms, including tablets,mobile phones and laptops. Whilecustomers are enthusiastically embracingnew technologies, the more traditionalbank branches are also being given anew lease of life.

10canyoutrustyourit?

If a bank does not command the trust ofits customers and the wider population,it is nothing. An essential foundationof that trust is a dependable and secureIT system.

contents

tEchnology | reporT

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in associationwith

Banks are placing more

emphasis on creating a

digital experience in

Branches that ‘connects

the dots’ with atms and

other digital devices

Eric Disend, director of digital,

EMC Consulting, Page 7

introduction

2 | The Banker | December 2012

reporT | technology

Banks, insurance companies, asset man-agers and other financial services firms arefacing a range of economic, market, regula-tory and technological changes like neverbefore. these forces are compelling firms toadjust their business and operating models,and to review, update and transform their Itstrategies, systems and software.

technological change,whether it is evolu-tionary or revolutionary, is not restricted to anorganisation’s It department, rather it is anenterprise-wide issue. the wholesale over-haul and modernisation of an organisation’sIt systems is something that has to take placein close co-operation with every part of theorganisation. It must meet the needs of thebusiness lines and the support functions, suchas finance, risk and human resources.

So what are the powerful external forcesaffecting financial services institutions today?First, you have to look at what is happening inthe macroeconomic environment. globalgrowth has slowed. the International Mone-tary Fund (IMF) in its october 2012 Worldeconomic outlook is forecasting growth of3.3% in 2012 and 3.6% in 2013, weaker thanin its July outlook.

“output is expected to remain sluggishin advanced economies,” says the IMF. Itpoints to two main difficulties: the sovereigndebt crisis and other financial and economicproblems afflicting the eurozone, and the

drastic automatic tax increases and spend-ing cutbacks (the ‘fiscal cliff ’) facing the USin January 2013. More encouragingly, theIMF believes economic output will remain“relatively solid” in developing economies.

regulaToryconcernsFinancial markets everywhere have a longway to go before they recover from the 2008economic crisis. the IMF’s latest globalFinancial Stability Report finds “increasedrisks to the global financial system, with theeuro area crisis the principal source of con-cern”. the report also examines whether reg-ulatory reforms are moving the financialsystem in the right direction, and notes that“progress has been limited”.

not surprisingly, financial institutionsthemselves are publicly expressing doubt attheir ability to ride the tidal wave of regula-tion: Basel III, the Dodd–Frank Act, the For-eign Account tax compliance Act, theMarkets in Financial Instruments DirectiveII, the european Market Infrastructure Reg-ulation, the Alternative Investment FundManagers Directive, to name a few. Firmsare worried in the short term about theirability to comply in time. And in the longterm, they are concerned about the negativeimpact that over-regulation will have ontheir business strategies, profitability andreturn on equity.

Alexis Kane, senior director, EMC Consulting

HowtomAKetecHnologymovewitHtHetimesIntroductionStrong forces are at work reshaping the financial sector. If firms are to survive andthrive in this dynamic environment, Alexis Kane and Shailen Salvi believe they needto take a long, hard look at their IT and modernise it to ensure it is fit for purpose.

shailen salvi, director, financial services, EMCConsulting

corporAteprofileEMC Corporation is a global leader in the delivery of ITinfrastructure,software and services,and is ranked 139 in the Fortune 500 ranking of the largest corporations in the US.EMC helpsclients store,manage,protect and analyse their data, increasingly through the power ofcloud computing.

EMC Consulting,the consulting arm,advises businesses on how to transform their ITdepartments so they can operate more efficiently, including as internal service providers tothe rest of the business – the concept of‘ITas a service’.EMC Consulting has grown 51%annually since 2004,and has business relationships with 73 of the Fortune 100, including the10 largest global banks.


TechnologicalchangesAs if that were not enough, financial servicespractitioners are having to cope with funda-mental shifts in the competitive market-place, changing customer attitudes andtechnological advances. Disruptive, non-tra-ditional competitors and discriminatingcustomers are squeezing banks’ profit mar-gins. Although emerging markets are beingtapped, those markets usually come withregulatory, reporting and operational com-plexities that are just as tough, if not tougher,than in advanced economies.

the rise of social computing, such as net-working sites Facebook and twitter, is pro-viding huge opportunities to improvecustomer intimacy and loyalty, but requiresmore sophisticated tools for analysing largeamounts of unstructured data. Meanwhile,the proliferation of mobile devices is chang-ing the ways employees and customers inter-act with financial firms, and creatingsignificant security risks and trust problems.

cloud computing – public, private andhybrid – offers the elastic computing plat-forms required to provide new products andservices, and to crunch the huge amounts ofdata associated with social networks. tomake the most of cloud technologies how-ever, new platforms and applications mustbe introduced, and legacy applications anddatabases migrated. these migrations mustbe managed carefully to avoid prohibitivecosts and business disruption.

Powerful new tools are becoming availa-ble that combine and analyse data fromsocial networks, customer profiles, transac-tion repositories and third parties to createinsights into new product, service, customerand market opportunities, but those toolsonly work if they are used correctly and inte-grated into existing business processes.

iTTransformaTionrevisiTedAll thedevelopments outlined– the economictrends, the risks to the financial system, over-regulation, new competitive threats, morediscerning customers and technologicaladvances – require financial institutions totransform their It. to cope with the threatsand take advantage of the opportunities, theymust review every aspect of their It andupdate it to ensure it is fit for purpose.

the concept of It transformation is notnew. Firms have transformed their Itbefore. But as times change, technologymust change too. even though every bankor insurance company will have modern-ised its It in the past, it will eventually needto do so again if it is to move with the times.If you are a seasoned It professional, you

have probably already played a role in anoriginal transformation programme; younow need to get ready for the sequel.

It departments that do not step up tothese challenges risk being displaced by agrowing number of external service provid-ers, such as ‘software as a service’ models,business-led shadow It organisations andfull outsourced service providers. the firmoverall will suffer if the It department doesnot keep up. Failure to transform It willresult in lost business opportunities, fallingrevenue, declining profits and reducedshareholder value.

seTTingThegoalsWhat should be the goals of a successful Ittransformation programme? there aremany, including:■ A strong alignment of It with the needs ofthe business partners.■ the introduction of new technology to aidthe development of new business models,products and services.■ Increased agility, efficiency and the abilityto deliver solutions to the business faster.■ cost transparency.■ changing the operating model of the Itdepartment so it is more like a standalonebusiness than an internal cost centre.■ the evolution of It processes and the sup-porting infrastructure to allow automationand self-provisioning of It components.■ the modification of data warehouses toaccommodate the increased requirementsfor better data analytics, for both structuredand unstructured data.■ Better risk management.

the ultimate goals should be increasedcustomer satisfaction and loyalty, enhanced

technology | reporT

introduction

revenues, higher profits and increased share-holder value.

prioriTyareaseMc consulting has extensive experience ofrunning It strategy and transformation pro-grammes for banks and other financial ser-vices companies. We call it It as a Service(ItaaS). We combine innovative ideas with apragmatic approach to transformation,some of it delivered over the cloud, to helpfirms maximise their It effectiveness andcost efficiency. ItaaS is tailored to each cli-ent’s particular circumstances, all within thecontext of the client’s marketplace and thebroader economic environment.

We have identified three priority areasin financial services that require a transfor-mational approach to technology. you canread about them on the following pages.the first is big data, by which we mean, ofcourse, managing and analysing the hugeamounts of information available to firmstoday, made available through better andcheaper processing and storage. to graspthe opportunities and cope with the prob-lems big data presents, firms must invest ina new generation of platforms, tools, meth-odologies and skill sets.

the second priority is multichannelsales and service – delivering multipleproducts and services through branches,call centres, AtMs, the internet and mobilechannels. ensuring that all those channelsare properly integrated, so that customerdata originating in one channel can beaccessed in all the others, requires a trans-formational approach.

the third area of focus is trust in It.Banks, insurers and fund managers must beable to demonstrate that they can be trustedto look after customers’ money, and to pro-vide a reliable and good quality service.that is their fiduciary duty. they must beable to engender trust in staff, shareholdersand other stakeholders too. capable anddependable It systems are central to win-ning and maintaining trust.

these three priorities are interdepend-ent. there is no point embarking on atransformational project in just one or twoof them. you have to involve them all. And,as we said at the outset, radical change ini-tiated by the It department has to involvethe business lines and support functions aswell. only an enterprise-wide approachwill do.

Alexis Kane is senior director and ShailenSalvi is director, financial services consult-ing, EMCConsulting.

Cloud Computing –publiC, private and hybrid

– offers the elastiC

Computing platforms

required to provide new

produCts and serviCes,and to CrunCh the huge

amounts of data assoCiated

with soCial networks

Big data


banks have to decide what they want to keepand what they want to ditch. Even what theykeep is not that useful unless it is structured.Most data is unstructured, meaning that itdoes not have a predefined data model, itdoes not fit well into relational tables and isusually text heavy, and text is harder to struc-ture than numbers. But it is becoming easierto make sense of both structured andunstructured data.

MaxiMisingopporTuniTies“Without question, big data provides finan-cial institutionswith a greatmany opportuni-ties,” says Sharad Kumar, director of financialservices at IT specialists, EMCConsulting. “Itallows themtoget closer to their customers byunderstanding their behaviour, which can bederived from deeper analysis of data frommultiple sources and channels. One stepahead, it can help thempredict certain eventssuch as customer attrition or fraudulentbehaviour. Big data analytics help them iden-tify theirmore profitable products andmone-tisation of this data – selling the data and/oranalytics on the data – presents them withnew revenue opportunities. From an opera-tional perspective, it helps thembecomemoreefficient and provides themwith an ability tobettermanage risk,” he says.

“Online retailers such as Amazon areamong the best users of big data. They use itto find out an individual’s buying patternsand preferences, improve customer satisfac-tion, cross-sell and detect fraud. Banks,investmentmanagers and insurers have seenwhat the likes of Amazon are doing andapplying it in theirmarkets,” saysMrKumar.

Joe Dossantos, director of enterpriseinformation management at EMC Consult-ing, says financial institutions have to actquickly to grasp the big data opportunities,even if the initial up-front investment ishigh. “If you do not act because you are wor-ried about the costs, then someone else willstep in,” he says. “You will save money in theshort term, but in the long run the cost ofinaction will be that you allow your competi-tors tomove ahead.”

EMC Consulting advises financial firms,their IT experts and business executives onhow best to manage and make commercialuse of big data. IT departments want toknow about the practicalities of gathering,cleansing, analysing, storing and retrievingthe data. The business lines, on the otherhand, are less interested in the technicalitiesand more interested in how they can use thedata – especially the power of predictive ana-lytics – to understand customers and theirneeds, to develop new products and services,

‘Big data’ is one of the latest Buzzwords

in the lexicon of IT professionals, especiallyin financial services. Banks and other finan-cial institutions have always had to handlehigh volumes of data – concerning their cus-tomers and the products and services theyuse, and all the support functions. Theamount of data available to them today, how-ever, is trulymind-boggling.

Better and faster processing and storageis the reason for this explosion of informa-tion. Every expert has something to say onthe scale of the growth, but a commonlyquoted estimate is that the amount of dataavailable to financial institutions is doublingevery 18 months. That is forcing banks toinvest in a new generation of platforms,tools, methodologies and skill sets.

The increasing level of information pre-sents banks with great opportunities. It pro-vides them with a deeper insight intocustomer behaviour and profitability. It facili-tates the creation of new products and ser-vices. It helps executive management controlthe finances, measure and manage risk, andmuchmore. But it presents problems too.

Old tools and technologies for storing,managing and analysing big data do not suf-fice. Creating new data governance andmanagement policies is a must. Implement-ing these policies is costly, because it is atransformational process. The volume ofdata is in many cases unmanageable and

bigger is betterBig dataThe truly enormous volumes of information available to financialinstitutions today is transforming the way they do business and helpingthem to provide a better service for their customers. Michael Imeson reports.

Online retailers such as

amazOn are amOng the

best users Of big data...banks, investment

managers and insurers

have seen what the likes

Of amazOn are dOing and

applying it in their

markets Sharad Kumar

reporT | TEChnOlOgY

Big data


and ultimately tomonetise the data.“We can help [financial firms] integrate

the analytics into their upfront business pro-cesses,” says Mr Kumar. “It used to be thecase that only the back office was interestedin predictive analytics. now they are used inthe front office too, to help with direct cus-tomer interactions, dealing with mortgageapplicants, underwriting insurance policiesand giving investment advice. Analytics candrive decision-making at the front end of thebusiness, as well as doing the numbercrunching in the background.”

EMC runs a big data advisory service(BDAS). “When new technology arrives, thenon-IT people are often unsure how to useit,” says Mr Dossantos. “So the BDASmatches the technological developments tothe business opportunities. Things such asApachehadoop – open-source software thatallows big data to be stored and processed ona large number of computers – and Apachehive – an open-source, big-data warehous-ing system than runs on hadoop – are tootechnical for most business people. Theyonly want to know how to use the technologyto meet their commercial needs, which iswhat our BDAS shows them.”

growThforecasTsgartner, a Connecticut-based IT researchfirm, predicts that IT spending across all sec-tors of the world economy will increase to$3700bn in 2013, up 3.8% on 2012 – and itis spending on big data that is creating themost excitement. “By 2015, 4.4 million ITjobs globally will be created to support bigdata, generating 1.9 million IT jobs in theUS,” says Peter Sondergaard, gartner’sglobal head of research. “In addition, everybig data-related role in the US will createemployment for three people outside of IT,so over the next four years a total of 6millionjobs in the US will be generated by the infor-mation economy.”

But there is a problem. There are cur-rently not enough skilled technology profes-sionals in the US to cater to the big datademand. Mr Sondergaard says the publicand private education systems cannot copeand, on current projections, only a third ofthose IT jobs will be filled. “Data experts willbe a scarce, valuable commodity. IT leaderswill need immediate focus on how theirorganisation develops and attracts the skillsrequired,” he says.

As for financial services firms, gartnerpublished a report recently noting thatbanks’ big data initiatives are in their infancy,and for them to mature, banks must rewritetheir data governance policies. “Many tradi-

tional data governance and data manage-ment practices are not capable of handlingthe deluge of big data,” according to thereport. These practices must be standard-ised, transformed and integrated.

coMMercialvalueAlan grogan, director of corporate analyticsand value optimisation in the product, salesand marketing division of Royal Bank ofScotland’s corporate and institutional bank-ing, is recognised as a leading expert on bigdata and its commercial uses.

“Since the dawn of technology, data hasalways been used by banks to better under-stand the key drivers of organisational valueand risk,” says Mr grogan. “Banking leadersincreasingly understand that big data ana-lytics – turning data into actionable knowl-edge and insight – should not be restricted tothe credit risk function, but that it presentsendless opportunities across all areas of abank. At RBS, we use analytics to free upstaff time, which they can then use to spendmore timewith clients.”

Mr grogan says the commercial aspectsof big data need to be front of mind. “Youcannot look at data across only the three vs:velocity, volume and variety. You have to givepriority to the fourth v: value.”

The amount of data available to organisa-tions has increased tremendously, but theinfrastructure and human capital required tocollect and manage it requires a significantinvestment. To control costs Mr grogan rec-ommends avoiding complexity, and reusingdata across different functions and platformsto create synergies. Banks should also ques-tion whether predictive analytics – applyingstatisticalmethodology and computing powerto data to predict what might happen in thefuture – is always necessary. Simple, cheaperhumananalysis of datamaybe adequate.

Ensuring that big data is properly man-aged and used is crucial. “The first buildingblock is to have a central analytics functionthat is allowed to join up and generate valueacross what is really a spider’s web of dataacross organisational units,” saysMrgrogan.

“Big data that is mishandled statisticallyor wrongly interpreted is a very dangerousthing. So its operating model is critical. Theleading analytically enabled businesses havebeen through their own learning curve andare now using analytics to drive a great dealof systems and process re-engineering cap-turing better data, refocusing staff time on avalue basis and increasing operational excel-lence and effectiveness,” he says.

Perhaps the biggest challenge of big dataanalytics is ensuring that the IT depart-

big data allOws us tO

knOw Our custOmers

well, hear them well

and service them well

David Gledhill

TEChnOlOgY | reporT


thing about big data is the positive impact itcan have on the customer experience. “Itallows us to know our customers well, hearthem well and service them well,” says Davidgledhill, managing director and head ofgroup technology and operations at the bank.

he cites the example of how big data hasbeen used to reduce the number of times thatATMs run out of cash. DBS used to have amanual process for determining when theyneeded topping up, but that process some-times got it wrong and machines dried up.Big data was the solution.

“We got all the transaction data on all ofour ATMs, 24/7 over a number of years andgave it to a business analytics company whodo high-end analysis work,” saysMrgledhill.“They put their best optimisation and fore-casting engineers on to it, working with us,to see how we could use technology to keepthe ATMs filled. It involved looking at thedynamics of the flow of cash at thousands ofaccess points to figure out how optimally toget notes to those machines. Even with allthePhD-qualified analytics experts deployedon the project, it took a long time to figureout how to do it. But we did figure it out andreduced ‘cash-outs’ by 80%.

“We also reduced the number of trips tofill up ATMs by 10% and optimised theamount of returned cash – howmuch comesback if the machines are not empty – by 60to 70%. The vans filling themachines are onglobal positioning systems, so the systemknows where they are and how soon thevans will get to a machine. Overall, it is anamazing use of data, involving reallyadvanced analytics.”

Itwas theUKeconomistEFSchumacherwho wrote the best-selling book Small isBeautiful in the 1970s, a critique of conven-tional Western economic thinking and itreceived much praise. Small may indeed bebeautiful, but not when it comes to data. Inthe eyes of today’s financial services practi-tioners whose job it is to collect, manage andanalyse data, and for whom information istheir lifeblood, essential for career and com-pany success, big is definitely better.

ment is able to facilitate the analytics unit’sneeds. “There is little point inhaving a teamofanalytics experts who are acting as importantconsultants to the business if you do not givethem the right tools or if you restrict themwith bureaucracy and ameaningless analyticsinfrastructure. That would be like hiring aFormula 1 driver and giving him a bicyclewith a puncture andno seat,” saysMrgrogan.

iMprovingcusToMerinsighTThe main beneficiaries of the big data trendare retailers, but banks are not far behind,according to Voranuch Dejakaisaya, head ofinformation technology at Krungsri Bank,one of Thailand’s top five banks. “All of thisdata improves our customer insight, allowingus to enhance service as well as offer the rightproducts at the right time,” she says. “It is alsouseful for credit risk analysis, fraud detectionand anti-money launderingmeasures.

The bank is in the early stages of tappinginto non-traditional data and accumulatingit at a high rate. Ms Dejakaisaya estimatesthat the year-on-year growth rate will reach800 to 1000%comparedwith about 30% fortraditional data. The bank has only juststarted using Facebook and has yet to moveinto social media or streaming data such asimages, voice and video.

“Once we tap into that terrain, we aretalking about petabytes of data rather thanterabytes,” she says. The most importantaspect of big data analytics is to ensure that itis properly aligned with the bank’s productand service offerings, so the data is used toimprove the customer experience and antici-pate customer needs.

“IT departments must be willing toinvest in talented personnel as well as thetechnologies if they want to get the most outof big data,” says Ms Dejakaisaya. “Thereshould be regular ‘road shows’ to relevantbusiness departments, telling them aboutany newly discovered insights that could betranslated into commercial opportunities. Insome cases business managers may makespecific requests for analytics that supporttheir objectives,” she says.

“Big data is huge in volume, comes in fastand iswidely varied.The challenge for organi-sations is to translate it into genuine insightsthat create business value. To do this theymust align people, process and technologies.high-performance analytical tools areneeded to create rapid results. A governanceframework is essential,” saysMsDejakaisaya.

cusToMerconvenienceFor IT executives at DBS Bank, Singapore’slargest bank by assets, the most important

reporT | TEChnOlOgY

Big data

if yOu dO nOt act because

yOu are wOrried abOut the

cOsts, then sOmeOne else

will step in Joe Dossantos

exploring “new avenues of thought, new tech-nologies and new strategies that could helpbanks to restore consumer confidence,develop new business models and achievegreater long-termefficiency andprofitability”.

Multichannel delivery is the council’scurrent preoccupation and the subject of itsseventh annual report, published in October2012. “New channels have arisen over recentyears but banks have to be wary of focusingon these at the expense of tried and testedapproaches that still have a role to playwithina multichannel environment,” warns thecouncil in its report.Now that banks are plac-ing evenmore emphasis on customer centric-ity, the management and personalisation ofthe customer experience across all channelsis becoming increasingly important.

Multichannel delivery has truly arrivedin the retail banking, private banking andwealth management sectors. Customers arespoilt for choice when interacting with theirfinancial services providers and the qualityof delivery – whether it be through branch,call centre, ATM, kiosk, internet or mobile –is improving all the time.

There is no shortage of expert opinion onthe topic. In Europe, the European FinancialManagement and Marketing Association(EFMA) keeps track of the latest develop-ments in retail banking, insurance and invest-ments, and disseminates ideas throughsurveys, reports and events. EFMA’s retailbanking advisory council, made up of seniorexecutives from a wide range of banks,describes itself as a leading “think tank”,

ManagingcustoMerexperienceacrosschannelsMultichannel sales and serviceCustomers are increasingly interacting with their bank using different technology platforms, includingtablets, mobile phones and laptops. While customers are enthusiastically embracing new technologies, asMichael Imeson finds out, the more traditional bank branches are also being given a new lease of life.

multichannel sales and service


TEChNOlOgy | reporT

And while technology – new and tradi-tional – is central to the success of a multi-channel strategy, “financial institutions needto use it wisely and invest in solutions thatare best for both the bank and its customers”,advises the council.

highsTreeTBranches“A multichannel strategy is not just aboutmultiple delivery channels – it is about deliv-eringmultiple products too,” saysMarkMau-riello, banking practice lead at EMCConsulting. “The two go together. It is aboutcustomers transacting in various ways, acrossthe bank’s product and business lines.”

Eric Disend, director of digital at EMCConsulting, adds that each customer typi-cally uses several channels and that tech-

Access all areas: India’s largest private sector bank, ICICI, has opened 25 electronic branches (pictured), which are open 24 hours a day, seven days a week andoffer a range of banking services. ICICI is just one of the banks widening its range of IT-based services



ATMs to free up staff to provide advice. “Weare working harder at recognising custom-ers’ needs and their value to the bank whenthey walk into a branch,” says Ms Cromme-lin-Risch.

“Are they a new or an existing client? Dothey have an appointment or not? Do theyhave high-growth potential? Should wefocus on retaining them? Are they veryinteresting for the business?,” asks MsCrommelin-Risch. “They may be greeted bya host at the door who asks them what theyneed and can help, or sends them to anotherperson to provide advice. We are also exper-imenting with machines in busy brancheswhere clients can input their questions,take a ticket and wait to be served.”

INg’s branches, similar to those of mostbanks in Europe and other parts of theworld, are being transformed. The transac-tional and operational needs of customersare being met by machines, while theirmore complex needs – a mortgage applica-tion or investment advice, for instance – arebeing met by staff.

“We are using IT to facilitate that shiftand free up capacity for our branch peopleto offer advice. We are making the branchan intimacy-oriented channel,” says MsCrommelin-Risch. “For this to work the sta-bility, security and broad functionality ofour ATMs is vital.”

INg launched a mobile app a year ago,which now has 1 million users. Interest-ingly, the new mobile traffic has not been atthe expense of the branches. “It is addi-tional interaction. Clients still find a lot ofreasons to visit our branches.”

All of INg’s channels are, of course,linked. But there is a big difference betweenchannel interaction and channel integration.“We are improving channel interactionwith-out fully integrating all channels,” says MsCrommelin-Risch. “Staff can access datafrom call centres, branches and service cor-ners, but that data is kept in separate data-bases. We aim to have one general customerdatabase in which all channels keep their cli-ent data, but we are not there yet.”

serviceasanasseTUS-based bank Wells Fargo attaches moreimportance to service than sales, and seestechnology as a great facilitator. “More salesdo not always lead to better service, but bet-ter service always leads to more sales,” statesthe bank in its latest strategy document. “Putsimply, our product is service. We use tech-nology to personalise service, not to deper-sonalise it. Technology allows us to connectwith our customers in newways.”

■ The ability to open accounts through anychannel; many banks still require customersto visit a branch.■ Finding new ways of acquiring customersthrough different channels.■ getting the right mix of channels for eachgeographical market.■ Using new channels (such as social mediaandmobile phones) to establish a better dia-logue with customers.■Being able to move staff more easilybetween different channels, andmoremulti-tasking – that is, branch staff acting as callcentre operators when required.■ Exploring whether banks should offer thesame services at the same prices through allchannels or whether a more segmentedapproach can be taken.

BankingincornershopsINg Bank, one of the top three Dutchbanks, has 274 conventional branches inthe Netherlands and a further 400 agentsor ‘service corners’, in book shops, newsa-gents, supermarkets and other retail outletsin the country. These agents have been inplace for some time, in partnership with theDutch post office and cobranded as such.however, the joint venture has ended andthe bank is halfway through the process ofre-branding them all as 100% INg andmaking them almost fully automated.

Philippine Crommelin-Risch, managingdirector of the branch network for INgBank, says that clients can be served throughthese service corners at a lower cost thanthrough bank-owned branches, and itimproves the proximity of the bank to cus-tomers. “There are now only cash machinesin the service corners, where people canmake withdrawals and deposits,” she says.“however, if anyone needs help, shopemployees can provide assisted service.These employees have been trained by INgand are fully up to our standards.”

The bank’s branches are also becomingmore automated, with more kiosks and

nology enables their interconnectedness.“Banks are placing more emphasis on creat-ing a digital experience in branches that‘connects the dots’ with ATMs and other dig-ital devices such as tablets, mobile phonesand laptops,” he says. “Banks have investedheavily in digital challenges, so if a customerwalks into a branch and asks about a featureof the mobile channel, the tellers need tohave been briefed on what to say. Almost allthe banks I have worked with want theirbranches to be the Apple stores of banking.”

That is a fundamentally importantobservation. It is why bank branches, what-ever their detractors say, have a bright future.If Apple, the world’s most valuable and for-ward-thinking IT company for which thevirtual world is its oyster, believes it is impor-tant to expand its high street presence,which it is doing, then banks are right tothink along the same lines.

A multichannel strategy has to be ablended experience. “Most of our bankingclients talk about having, or aiming to have,a holistic, cross-channel collaborative expe-rience, but that is a difficult goal to achievebecause all of the channels have been devel-oped separately over different time peri-ods,” says Mr Mauriello. “Contact centresproviding a human interface are moreimportant than ever in the digital age.Remember that every digital channel needsa support component – someone they cancall,” he says.

EMC Consulting advises many banksaround the world on multichannel salesand service strategies. Banks must start byidentifying the needs of their customers,creating an integrated view of them andthen helping them use and traverse differ-ent channels. It is a transformative processin terms of IT because the technology has tobecome more responsive to the needs of thedigitally engaged client.

“IT transformation is essential,” saysMr Disend. “Banks must change their leg-acy systems if they are to implement a mul-tichannel strategy. These channels areexpensive, especially in large banks. EMChas done some work to virtualise thosechannel architectures, which makes themmore cost effective.”

MulTichannelsTraTegyIn EFMA’s report on multichannel strategymodels, EFMA director John Kirkbrightidentities a few central themes relating tomultichannel delivery in retail banking.They include:■ The need “for more personalisation ineach channel”.

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If anyone needs help,shop employees can assIst.these employees have been

traIned by InG and are

fully up to our standards

Philippine Crommelin-Risch


The bank has identified six key areas ofopportunity, including retail banking, com-mercial banking, cards and residentialmort-gages. It is the US’s main mortgageoriginator, with $189bn of new mortgageswritten directly in the first nine months ofthis year, slightly higher than the sameperiod in 2011.

“Strong distribution channels are the keyto reaching customers,” saysMikeheid, headof home lending at Wells Fargo. “We have avery broad distribution network.We have theability to service customers when they cometo us for purchases and refinancing.”

The bank has two ways of looking atmortgage production. One is direct lending,through 11,695 homemortgage consultants,many of them operating from the bank’sstores. About half of the bank’s total mort-gage volume comes from them – roughly$189bn. The other half – $191bn in the firstnine months of 2012 – comes from what thebank calls its ‘correspondent’ or ‘aggregator’channel. Small to medium-sized mortgageorigination companies underwrite and closeloans, then sell them to Wells Fargo, whichin turn pools them and securitises them forsale on the secondary market.

The direct retail channel provides thegreatest benefits forWells Fargo, rather thanthe third-party originators. “It gives us fullcontrol of the customer experience, the bestopportunities for cross-selling, stronger cus-tomer retention, wider margins and bettercredit quality,” saysMrheid.

Chase, the US consumer and commer-cial banking division of JPMorgan Chase,provides a good example of retail channelinnovation. It has just created a Spanishlanguage version – chase.com/espanol – ofits online banking service. “We continue totailor products and services to meet theneeds of the hispanic community, which isa significant and growing customer seg-ment,” says Pablo Sanchez, national execu-tive for Chase consumer banking.

The Spanish language website has beenaround for several years, but up until now ithas provided information only, not transac-tion services. Spanish-speaking customerscan now use the website to manage theiraccounts, pay bills and do many otherthings, all in Spanish. Chase already pro-vided bilingual customer service throughcall centres, ATMs, bank statements andpromotional literature.

indian innovaTionICICI, India’s largest private sector bank,has just rolled out 25 electronic branches,open 24 hours a day, seven days a week. Cus-

tomers can use the electronic branches todeposit cheques and cash, withdraw cash,conduct online banking and carry out videoconferencing with customer care personnel.

‘Tab banking’ is another new initiativefrom ICICI. It allows new customers to openan account from their home or office using atablet computer with an internet or mobilephone connection. All the relevant docu-ments and the customer’s photograph arescanned and viewed on the tablet and thebank’s computer screens, without the cus-tomer needing to visit a branch. “Our con-tinuing adoption of innovative technologyreinforces our commitment to improvingand developing our relationship with ourcustomers,” says Chanda Kochhar, ICICI’schief executive.

Meanwhile, hDFC Bank, India’s secondlargest private sector bank, providing ser-vices to 25 million retail banking customersin hundreds of cities, as well as wholesalebanking and treasury services, believes itscompetitive strength lies in its use of tech-nology and its ability “to deliver world-classservice with rapid response time”.

Although it already has 2564 branches,more than 10,000 ATMs, and extensivephone, mobile and internet banking ser-vices, that is not enough. That is why inOctober it tied up with Indian Oil Corpora-tion (IOCl) to provide banking servicesthrough the company’s KSK petrol stations.The objective is to reach more people livingin semi-urban and rural parts of the countrywho cannot get to a branch.

“This initiative in partnershipwith IOClis yet another step towards taking banking toenterprising Indians in the hinterlands,” saysMichael Andrade, head of agribusiness athDFC. The target is to have 1000 petrol sta-tions in the network, each serving about1500 customers with savings accounts,loans, insurance and investments.

The bank switched on its 10,001st ATMin September in Kovalam, a beach town nearThiruvananthapuram, the capital of Kerala.“The launch of the ATM at Kovalam reflectsthe fact that customer centricity is at the coreof the bank’s impetus of offering a wide arrayof electronic channels,” says hari Velloor,zonal head in Kerala forhDFC.

For all banks, innovation is key to reach-ing and serving customers. If you can have abankbranch in a petrol station in rural India,you can probably have one anywhere.

With banks today having to place moreemphasis on customer centricity, managingand personalising the customer experienceacross as many channels as possible is theonly way forward.

TEChNOlOgy | reporT


banks are placInG more

emphasIs on creatInG a

dIGItal experIence In

branches that ‘connects

the dots’ wIth atms and

other dIGItal devIces such

as tablets, mobIle phones

and laptops Eric Disend

IT SECURITY


‘RestoRing tRust’ was the title of theBritish Bankers’ Association’s annual inter-national banking conference this year, andappropriately so. Banks in the UK, Europeand the US are still struggling to regain pub-lic confidence in the wake of the 2008 globalfinancial crisis. They are hindered in theirefforts by the sovereign debt crisis and reces-sion in the eurozone, mis-selling scandals,the manipulation of Libor, Iranian sanctionsbusting, breaching anti-money launderingregulations, rogue trading, internet securitybreaches andmore.

Because of the inter-connectedness ofthe global financial system, even banks incountries that have not suffered any of theseproblems are afraid of being tarred with thesame brush and so must work hard to main-tain the trust of customers, shareholders,governments andwider society.

There aremany facets to this trust: trust-ing a bank to safeguard customers’ funds; toprovide a secure and reliable service; to treatcustomers fairly; to support the economythrough targeted and responsible lending,efficient payments processing and otheressential financial services; and to be a good‘corporate citizen’.

IT is central to everything a bank doesthese days. Trust in IT is therefore vital.Banks must be able to demonstrate to cus-tomers and shareholders that they can betrusted to look after their money and theirinvestments, and to provide a good service.Capable and dependable IT systems are cen-tral to winning andmaintaining that trust.

VirTualThreaTsHSBC suffered a severe ‘denial-of-service’cyber attack in October 2012. Its web-basedservices around the world crashed, leavingmillions of customers without access to theiraccounts for many hours. It could have beendisastrous for customer trust. But the bankwas quick to acknowledge the problem,apologise to customers, work with the rele-vant authorities and tell the press what washappening. Customer data was not compro-mised and the bank was able to restore nor-mal service in a day.

No banking platform is safe from cyberattackers – even US defence agencies canbe hacked into – but the best banks willdeploy the latest security measures, limitany damage caused by breaches and ensure

high levels of business continuity.Keith Andrzejewski, practice lead for

risk, compliance and regulatory response atEMC Consulting, says a bank needs a first-rate IT department to ensure consistentservice availability, business continuitywhen disasters strike or things go wrong,robust security, regulatory compliance,effective risk management, integrity andgood corporate governance.

“As customers do more of their bankingon mobile devices and over the internet it isimportant that, in this virtual world, theyhave confidence in their banks’ IT systemsand that there is trust in who they are doingbusiness with at the other end of the device,”says Mr Andrzejewski. “But they must havethe right degree of business continuity andIT security. There has to be a balance. Abank’s business continuity capabilitiesshould not be over-engineered, because noteverything needs to have 100% availability,or uptime.”

MiniMisingriskWhen working on uptime assurance forfinancial institutions, Mr Andrzejewskialways starts with the legal and regulatoryrequirements. The aspects of a banking ser-vice that regulators regard as the mostimportant must take precedence when plan-ning service availability. “The next step isrisk assessment,” he says. “That starts withclassifying assets, and deciding on the pro-tection and support that ought to be assignedto each. Separating assets into those wheresome downtime is acceptable and those thatare not is a delicate business, but the keyconsideration is that they are separate.

“The risks posed by potential equipmentfailure, and by malicious agents inside andoutside your organisation are relatively easyto quantify. Harder to account for is humancarelessness, though it should always be fac-tored in to any risk assessment. A huge andcostly denial-of-service attack that cost awell-known organisation a great deal ofmoney was only made possible because atechnician plugged a USB stick into a server.That organisation’s risk assessment was oth-erwise solid,” saysMr Andrzejewski.

“Uptime in the IT infrastructure, and therisk assessment that goes with it, is merely apart of the wider business risk assessmentprocess. It is still very common to see senior

Canyoutrustyour It?IT securityIf a bank does notcommand the trust of itscustomers and the widerpopulation, it is nothing.An essential foundation ofthat trust is a dependableand secure IT system.Michael Imeson reports.

An importAnt driver

behind trAnsformAtion is

derisking. You cAn never

get to zero risk in An itenvironment, but whAt You

cAn do is be obsessed About

where You see potentiAl

risks And then mitigAte

them David Gledhill

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IT SECURITY


executives in the financial services sector sig-nificantly underestimate the risks that theirbusiness faces, in IT or elsewhere. It is verycommon to see short-term business impera-tives take precedence over risk control, andthat is fundamentally flawed as a long-termstrategy. Sometimes those responsible forrisk assessment have to tell their bossesthings they do not want to hear,” he says.

Effective means of preventing, detectingand mitigating fraud is essential for main-taining customer trust. Banks in advancedcountries are good at this, those in emergingmarkets less so.

“Banking fraud in China is rampant,”says Mr Andrzejewski. “Banks there knowhow to stop it, but are reluctant to improvecounter-measures for fear of making it moredifficult for people to open accounts. Manybankers believe that if they require six piecesof information from an applicant for anaccount, and another bank requires onlyfive, then the applicant will be more likely tochoose the second bank – so the first lowersits requirement to five as well.”

WeaTheringThesTorMThe destruction wrought by HurricaneSandy on the US north-east coast in October2012 caused immense problems for banksand really put their disaster recovery plans –and customer trust – to the test. Most bankscoped well. For example, although the stormseverely disrupted Citibank’s network,within a few days service was restored tonearly 90% of the bank’s branches andATMs, including all six branches on StatenIsland, one of the worst affected areas.

In a move that showed it understoodcustomers’ problems, the bank offered sig-nificant relief to those in the disaster zone. Itallowed mortgage customers more time tomake repayments, waived late paymentcharges for 90 days and suspended foreclo-sure sales. For other customers it providedoverdraft protection, wired emergency fundsto them and said it would refund fees for theuse of ATMs outside its network. To cap it all,the bank donated $1m to the American RedCross’s relief and recovery efforts.

“Our Hurricane Sandy relief pro-grammes are intended to alleviate some ofthe financial hardships facing our customersso they can focus on themost pressing issuesin front of them,” said Citi CEOMichael Cor-bat. “Citi is committed to helping our cus-tomers recover and rebuild bybeing sensitiveand accommodating their needs.”

Another issue for the bank was the factthat its investment banking operations inNew york city were situated at the heart of

As customers do more of

their bAnking on mobile

devices And over the

internet, it is importAnt

thAt, in this virtuAl world,theY hAve confidence in

their bAnks’ it sYstems

Keith Andrzejewski

TECHNOLOgy | reporT

the hurricane evacuation zone. To minimisedisruption to these services, Citi used itsback-up locations to ensure continuity ofoperations until staff were able to return totheir lowerManhattan offices.

eliMinaTing inconVenienceDavid gledhill, managing director and headof group technology and operations for DBS,Singapore’s biggest bank by assets, says reli-ability, resilience, security and performanceall play a part in the customer’s mind. “It isone thing to build a back-end internet resil-ience solution, so if the internet bankinggoes down there is an immediate alternative,but if the user feels that the performance ofthat alternative is not up to standard, then itis not a good solution,” he says. “Frommy riskmanagement point of view it may be alright,but it may not meet the customer’s expecta-tions of reliability and dependability.”

DBS uses a number of tools to constantlymonitor the availability of its digital channels.It also monitors what its competitors aredoing. Planned downtime for maintenancehas been reduced significantly as this wasidentified as an inconvenience for customers.

“Historically, banks have regardedplanned downtime as OK, because the ideawas that all you do is inform customers andthey should accept it,” says Mr gledhill. “Butinforming customers in advance is not goodenough these days. The principle we appliedis that planned downtime is almost as bad asunplanned downtime, so the aim has been toget planned downtime to as close to zero aspossible. In the past few years we havestriven to reduce it and have done so by 95%.

“At the back-end this has required amas-sive amount of re-engineering on the mainframe. We have had to re-architect the mainframe and put in place all sorts of parallelprocessing. On the internet front-end, wehave completely revamped it to provide par-allel environments. I can now take down oneonline banking site to upgrade it and flip tothe other. This is all invisible to customers,”saysMrgledhill.

iTTransforMaTionMr gledhill says this re-engineering is aprime example of IT transformation. In thepast three to four yearsDBS has almost com-pletely transformed much of its IT infra-structure and many of its applications tomake banking easy for customers. It hasbeen a long journey, focused on what reallydelivers value to customers.

“An important driver behind transfor-mation is derisking. you can never get to zerorisk in an IT environment, but what you


the country’s academic ability in all fields ofcyber security. Its research will ultimatelymake it easier for businesses, individuals andgovernments to protect their computer net-works and the data they contain.

Professor Angela Sasse, director of theinstitute and professor of human-centredtechnology in the department of computerscience at UCL, is looking for businesses,including financial institutions, to getinvolved with the research the institute willcarry out to assess the costs and benefits ofsecurity measures for all stakeholders. Shebelieves that banks take cyber security seri-ously. They are well aware that fraudsters tar-get online banking because that is where themoney is. But controls are not always effec-tive, as evidenced by the fact that there havebeen a number of examples of banks losingcustomer data and countless more examplesevery year of customers being defrauded.

“Regulators may require a firm to have asecurity policy, but do not specify how strongthe policy has to be andwhether it is workingin practice,” says Ms Sasse. “For instance, abank may require that employees havestrong passwords, but if employees re-usethe same password on external services orsites, to make it more memorable, it maybecome compromised. Compliance withregulation often deteriorates into a tick-boxexercise and the ‘best-practice’ approach,which should really be called ‘common prac-tice’ as they are only doing what others aredoing rather thanwhat is ‘best’.”

proTecTingnuMBeroneAnotherproblemis thatbanks tend to focusonprotecting themselves more than their cus-tomers, who are wide open to phishing andmalware attacks. “There have been someefforts toprotect themwith two-factor authen-tication devices, such as Barclays’ PINsentry,and anti-phishing software such as Solid, butcustomers are still vulnerable,” saysMsSasse.

“This is particularly the case wherebanks still have bad habits such as phoningup customers to ask for their credentials,when the customer has no way of verifyingthat the caller is actually from the bank andnot an attacker,” she says.

So, there is no denying that bankers, reg-ulators, politicians and academics share thesame view – that it is a bank’s fiduciary dutyto safeguard customers’ money from loss orfraud, as well as provide a reliable servicethat works even when disaster strikes. Justas importantly, everyone also agrees that fora bank to fulfil that duty it must have adependable, secure, high-performance ITinfrastructure. Trust in IT is everything.

can do is be obsessed about where you seepotential risks and then mitigate them. Wehave an availability strategy that allows us todecide what capacity we need to build tocope with a crisis,” saysMrgledhill.

“Some of the systems when I first arrivedhere had a disaster recovery capacity that wasless than 100% of the total need. Imagine ascenario where you lose a data centre. Manymore customers than usual will log onto theironline account to check their balance. So youwill need even more capacity in a disasterthan in a normal situation,” he says.

“But you shouldn’t have too much capac-ity. If a data centre goes down youmight havea 200% to 300% surge of customers in thefirst couple of hours of them hearing thenews, then it trails off. So you probably don’twant to build 200% to 300% of emergencycapacity. What else can you do that is betterthan putting up a ‘service not available’ mes-sage, which for customers would be the worstpossible time for them to see such amessage?We have therefore invested in ‘overflow tech-nology’ from third-party vendors, so that insuch situations we can gracefully overflow,with a reassuring message saying that due tohigh traffic they may experience a delay, socould they try again later,” saysMrgledhill.

acTionByTheauThoriTiesAlthoughbanking fraud is endemic inChina,Hong Kong is a different matter. Hong Kongbanks are in the process of adopting chip-based technology to strengthen ATM secu-rity even more, assisted by the Hong KongMonetary Authority (HKMA), which has setthe technical and security standards banksmust implement. All ATMs must complywith the new standards by the end of Febru-ary 2013 and existing cardsmust be replacedby new chip cards by 2015.

“Although ATM fraud is not a significantfraud inHongKong, it is important forHongKong to stay at the forefront of the technol-ogy and be in line with international trends,”says Arthur yuen, HKMA’s deputy chiefexecutive. Anita Fung, chairwoman of theHong Kong Association of Banks, says thatbanks set up a taskforce on ATM fraudmorethan two years ago to work with the HKMAon developing the new securitymeasures.

An indication of how seriously politicianstreat IT security is provided by the UK gov-ernment, which in 2011 launched a cybersecurity strategy.Aspart of that initiative it setup a research institute in the science of cybersecurity in October, funded by the govern-ment intelligence agency gCHQ and otherofficial bodies, and hosted by University Col-lege London (UCL). Its purpose is to increase

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IT SECURITY

compliAnce with

regulAtion often

deteriorAtes into A

tick-box exercise And the

‘best-prActice’ ApproAch,which should reAllY be

cAlled ‘common prActice’As theY Are onlY doing

whAt others Are doing

Angela Sasse

FT Banker report moving tech with the times.pdf

Technology

Transcript of FT Banker report moving tech with the times.pdf