Imperatives

Regaining Consumer Trust
Trust in banking has taken a hit, with a nervous atmosphere endemic inside and outside banking institutions. Banks need to regain trust by going back to the basics of old-fashioned banking for some customers, while at the same time embracing the technology and convenience demanded by others. Customers will expect to see an increase in transparency related to costs and performance.

Banks must concentrate on increasing customer deposits, firstly to balance their books, but also because the costs of borrowing from other banks outweigh the interest rates paid to everyday depositors. The consumer will be more likely to pay more for safety and security of deposits as uncertainty grows and banks need to reassure these consumers that they are the right choice, through branding and streamlining of services.

Successful security implementations become key differentiators for marketing purposes. Publicly communicated, they will attract new clients of all levels based on their increased concerns for the safety of their deposits.

Fundamental Changes in the Business Model
Prior to the near collapse of the global banking system last September and October, the banking credit business accessed capital primarily through the wholesale market. Moving forward, banks must behave in a more conservative manner, gauging their ability to loan money on the deposits available to them.

Impending Regulation
New regulation is on the way that will, amongst other things, increase the importance of risk management and management information and the necessity for total transparency.

Banks will be hit with the associated costs of conformity and governments must act quickly. A new banking code may emerge, reconsidering issues such as the level of debt seen to be prudent for consumers. Banks will need to understand their customers more to allow them to make more realistic judgments on particular loan cases. Simply, they must reassess how much they are lending and to whom.

Ban king in Asia -Pacific
Chinese small- and medium-sized banks are vigorous in developing growth and have requirements for improving their management capability.

Moody’s Investor Service research gives a relatively stable rating and negative forecasting to the banks in Asia-Pacific. The banks which rely on the cross-border capital market and money market, such as banks in Korea, will bear the heaviest pressure in the short-term. Banks which rely on the local money market and capital market will also bear the pressure.

Banks in low-income countries will encounter greater difficulties to continue operating than those in higher-income countries in the Asia-Pacific region.

In the coming 12 to 18 months, Asia-Pacific banking gets more difficult with the global economic slowdown risk, but the competition from foreign banks will drop off. Opportunities of high-quality loans and better interest rate differentials will arise. Since the growth opportunity is still strong in Asia-Pacific, banks in this region will outperform other parts of the world to support their current rating.

Banks in Korea, whose deposit-loan ratio is from 130% to 300%, are worse in Asia-Pacific with their local deposit not enough to support their loans. Most of them have a negative rating.

Business trends

The culture of today’s banks must transform significantly to a serviceoriented rather than a profit-oriented culture. The focus must be on the consumer as banks strive to retain the deposits on which they must now rely. Banking must become more of a retail experience—enjoyable and friendly. This will also mean becoming less price-competitive.

Already the Co-operative is addressing this by linking its banking to its retail services by bringing banks into their retail stores. We can also expect other retailers who have a banking arm to do this in the future.

Banks may start to consider advisory and financial services offerings as well as interest rates, and regulations concerning impartiality may mean that banks need to liaise with independent advisors to add this service to their portfolios.

The incumbents must face the threat from new untarnished entrants moving into the retail banking space. These banks will be coming into the marketplace offering the consumer a banking culture focused on service and a more pleasant banking experience that many will be looking for.

The rise in Islamic banking is challenging the current Western banking models. It encompasses a completely different social model which is more equitable on paper. A model where the bank shares the risk with the consumer—a model that would be seen as more palatable to many in today’s climate.

Expect more consolidation for some time to come. Banks must reduce their efficiency ratio (expenses as a percentage of revenue) to improve their margins. Revitalization of back-office systems may provide some of this saving, and some banks are starting programs to do just this, whilst others are looking into savings that could be made by re-purposing staff to work multi-modally or through rethinking their existing property portfolio to maximize its effectiveness and value.

The focus for banks has traditionally been short term, with aggressive targets that bring quick rewards. Long-term investments, with a view over many years, are now needed to transform all of the financial markets. A refresh of systems will provide a more adaptable, flexible, integrated, and efficient banking system.

With new remote and automated systems entering the retail banking model, the biggest challenge for banks is maintaining the security of customer data and confirming the identify of customers outside of traditional face-to-face interaction in a branch.

With many banks going cap-in-hand to governments requesting a bail out with public money, they are now open to scrutiny from their new investors—both the politicians and the public. The ‘big bonus’ culture has been questioned extensively. These banks will be expected to show a true commitment to their saviors.

The rise of mobile banking will occur over the next three to five years and will pose new challenges for banks, especially in terms of security and authentication. On top of this, the EU SEPA (Single Euro Payments Area) initiative, intended to simplify payment procedures, now means that the barriers to entry for processing payments have been brought down, effectively ending the banks’ monopoly.

As banking technology improves, banks will need customers not only to gain more trust in the banks themselves, but also in the new machinebased
banking systems. Maintaining an increasing focus on reducing fraud and increasing security will be required.

With a rise in ‘any product, anywhere, anytime’ banking services, the insistence of banks that customers must have residency in the same country may become obsolete. European initiatives such as SEPA and MiFID are driving down the complexity of cross-border transactions, and combined with likely international merger activity spurred by the credit crunch are set to further increase the need for transnational banking platforms.

As a result of the recent crisis, customers will be looking for more control over their financial assets. Many will be looking to spread their savings over a number of financial institutions to take advantage of government guarantees. They will be looking for easy access along with transparency. In today’s climate, savers are king.

Banks will work more and more closely with Websites, brokers and telecoms operators to provide flexible and convenient service, such as a mobile banking service to clients.

Smaller banks are likely to benefit from customers spreading their savings, but when mergers take place, the new bank is likely to see an out-flux of deposits as savers who were customers of both the original banks look to reduce their savings back down to the guaranteed level. The diversification effect is very real.

Due to the current financial crisis, banks should increase and reinforce their collection capabilities.

There is rising awareness and implementation of international principles and conventions concerning social responsibility within banks.

The four largest banks in China all suffered a loss on their overseas investment in the financial crisis, with some of the loss serious. The crisis and losses won’t influence the fundamental since there is a huge amount of deposit in China, but the expansion of these banks will be slowed down by at least one or two years.

IT planning for small- and medium-sized APAC banks needs to become more prevalent. The deployment of core-banking and other systems in small- and medium-sized banks lack the guidance of IT planning, resulting in sub-optimal implementations.

Impact technologies

Recent Chip-and-PIN home readers have entered the market as a stopgap security solution, while banks assess the roll-out of biometric security solutions. The net value of this online security approach must outweigh the current costs of the high-street ‘people and paper documents’ model for it to be successful. It must also be easier to use to prevent confused customers moving elsewhere.

Lean and Six Sigma, with inter-operability strategies, will help efficiency whilst reducing costs.

Integrated Core Banking Solutions will enable back-office consolidation, with a focus on shared services. The benefits of a Shared-Service Center (SSC) are well recognized by all banks and the requirement of SSC deployment or transformation will continue growing.

Outsourcing jobs abroad could help to reduce costs, but banks at the same time need to show a commitment to helping the UK through the economic downturn.

Business Process Management and Business Rules Engines will allow banks to reduce costs through automation of processes. This will also bring transparency to both processes and rules.

Some aspects of regulatory compliance requirements will benefit from Enterprise Content Management, ensuring the right information is accessible to the right people at the right time.

Brought together with Legacy Management, Service-Oriented Architecture (SOA) could advance the wealth of diverse legacy systems to a more flexible, agile, and accessible solution that enables alliances and consolidation.

Mobile applications will improve in-the-field data capture. This, coupled with Business Intelligence in the form of predictive and customer analytics and dashboards, will help to improve customer retention and provide improved cross-selling opportunities.

Social software can help reach consumers, in particular those of Generation Y, and could facilitate the engagement of customers through direct distribution channels. This would also enhance customer service by allowing the customer’s voice to be heard. The mobile is another medium that is becoming increasingly important for reaching consumers.

Web 2.0 enables greater knowledge transfer and collaboration, both internally and externally. However, some new Web 2.0 channels in the form of online marketplaces and micro-banking pose threats to retail banks’ established models.

Pre-payment cards and mobile payments using Near-Field Communications (NFC) will offer banks the opportunity to service new customer segments and build brand loyalty. Within the banks we may start to see some use of wireless networks.

Requirements for increasing security and addressing fraud can be met through Identity and Access Management using role management and information risk dashboards. Biometrics will have a part to play in customer identification.

Within the data-center, Grid Computing can provide agility and help to reduce costs, along with the need to manage energy more efficiently. There is also a very large and ever growing amount of data that needs to be archived securely.

Cultural and linguistic issues have helped delay acceptance of online banking in low-level English speaking capability APAC countries. Software development for non-English speaking markets enables focus on regionspecific cultural approaches to encourage higher take up.

Security technology becomes more and more important for clients choosing a bank, particularly through mobile and Internet delivery methods. There will also be focus on non-English language technologies, particularly in Chinese and Korean markets.