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Building a better infr@structure
Growing consumer acceptance of remote banking via the Internet or telephone has serious, long-term consequences for competition within the financial services sector. On the demand side, electronic networks make comparison shopping easier, leading to increased account mobility, decreased customer loyalty, a deterioration in brand values and the inevitable commoditisation of many financial products. On the supply side, barriers to entry and costs are lowered, stimulating competition from smaller banks, niche institutions and new non-bank entrants.
In an effort to assess the risks related to technological progress, the Banking Supervision Committee of the European System of Central Banks recently undertook an investigation into banks strategic adaptation of IT systems and services. The subsequent report, "The Effects of Technology on the EU Banking Systems", was published by the European Central Bank in July. Consumer demands for convenience, real-time information and service, privacy and security is driving uptake of remote facilities, the report observed: "Banks should consider that the adoption of new technologies could be a prerequisite for keeping customers in the longer term, and the decision not to invest or to delay investment might endanger banks' current and especially future market position."
Investment in new channels alone is not enough. If banks are to counter the ease of customer mobility and fickleness which this abundance of choice encourages, they must seek to re-align their business systems and processes so that they may focus more effectively on individual customer relationships and needs.
Many banks are attempting to address this issue by implementing Customer Relationship Management (CRM) solutions. However, a recent poll of 100 banks in more than 24 countries conducted by consultancy Ernst & Young, highlighted a continuing problem. The results indicated that the majority of CRM initiatives are failing to demonstrate any measurable improvements in customer loyalty, cross-selling, profit or even service standards.
According to the pundits, it appears that many large banks are making the mistake of viewing CRM in isolation. The time has come for banks to re-access how best to deploy a technology architecture that places the customer at the epicentre of a bankÕs endeavours. The time has come to build a better IT infrastructure that can meet business strategies in the new age of banking, whilst utilising and protecting existing technology based systems.
This is a daunting challenge for the banking establishment. Many formerly product oriented, multi-line banks, are struggling under the legacy of more than two decades of ad hoc information technology purchasing. In the past, when banks decided they needed to upgrade or install new technology, they simply bought it. This was fine in simpler times, when the primacy of the branch network was undisputed and barriers to entry for potential competitors were correspondingly high.
The explosion of the Internet and real-time technology, coupled with consumer readiness to utilise these remote channels, has begun to out-pace the banking industry's delivery capabilities. For the first time ever, technological shortcomings are slowing banks' response times and costing them customers.
The failing is an important, and fundamental one: today's retail delivery infrastructure was not built to support a customer centric business model. Rather it grew out of an incrementalist response to changing business trends and emerging distribution channels. The gradualist approach has created a siloed set of delivery channels supported by a complex tangle of interfaces to multiple back office host systems. Each channel is largely independent of the others, with unique technologies, applications and systems.
Every time a new channel is bolted on, or a new set of functionality added to an existing channel, a separate complex set of interfaces must be plugged in to the core processing systems. Any modifications to products or business rules must be repeated from one channel to the next. Business rules embedded in one channel may be inconsistent with those in another. Worse still, user activity recorded in one channel all too often is not automatically reflected in another. This explains the often inconsistent account balances customers may get when moving from one channel access point to another.
As the Ernst & Young survey reveals: 30 per cent of companies have less than 20 per cent of their systems integrated to show and exchange related customer information across channels; 41 per cent believe that customers will not get a consistent answer across electronic delivery channels.
The high levels of redundancy in this set up creates serious problems for the customer-focussed bank. It slows response times, increases costs, reduces quality and fails to deliver a coherent, consistent picture of the bankÕs relationships with its customers. In building a better delivery infrastructure, companies must address how and where they can create value for their customers.
Institutions may be unable to effectively compete if they continue to selectively replace systems or develop interfaces on a piecemeal basis. Only by raising the level of technology and efficiency in all areas of a banking corporation can institutions achieve the desired level of customer intimacy. This implies a functionally integrated approach to transaction throughput across multiple channels. Customers should be able to access the system via the channel of their choosing and have a consistent brand and user experience at the interface.
The problem is: how to achieve this? A recent report by US analysts Meridien, identified a rapidly emerging solution class designed to drive consistency in customer-level interaction at all channel contact points. Such a solution enables all customer contact points to share and update information to provide a consistent view to the customer regardless of channel.
The 'new class' infrastructure referred to, should be built to support all of a bank's products and services, whilst enabling it to determine its own channel mix strategy. Unlike today's siloed architecture, the new approach views the delivery channels as part of a whole, related to one another and drawing on a common set of services and interfaces into the core banking systems. The new infrastructure being proposed must provide the flexibility required to accommodate new and modified products and services across existing and emerging channels. And finally, it must be able to respond appropriately to changes in consumer behaviour, the banking environment and technology.
It is against that this background which has led international banking software supplier,Kindle Banking Systems, to invest heavily in bringing B@nk.power to market this year. Applied as a stand-alone solution or integrated with Kindle's Bankmaster RS core retail banking system, B@nk.power operates as a central repository for the exchange and throughput of transactional information across different host systems. This operating framework is designed to ensure consistency of banking information across host systems and channel delivery systems. According to Harold Dempster, KindleÕs product director for B@nk.power; "Through B@nk.power, we offer banks the opportunity to take a more effective and less complex approach to building a retail banking infrastructure for the future."
The business rules and functionality applied to a particular transaction, whether that be a deposit at a bank branch or a withdrawal at an ATM, are redefined as event-driven metadata. By reusing common components and business logic across multiple applications and channels, the bank extracts maximum value from its programming efforts. And rather than testing and re-testing multiple connections to multiple hosts every time a change is made to a product, the integration achieved through B@nk.power ensures maximum efficiency. Harold Dempster commented further; "The transaction definition and handling capabilities of B@nk.power can be used to support the channel mix strategy employed by the bank." He added; "B@nk.power can define the customer presentation interface for each individual channel, incorporating the bank's preferred screen defini- tions / characteristics and ensuring a consistent brand experience."
Operating in a competitive, fast-moving business environment, institutions need to be able to respond quickly to changing circumstances. Under B@nk.power, applications written for one channel may be refined and reused across other channels, cutting into development times for new products and speeding time to market. At the same time, valuable legacy systems are preserved and the information they hold released for transactional, analytical and marketing purposes.
Future success in banking increasingly will be determined by the strength of the customer relationship and the ability to exploit customer data. Investment in a rational retail delivery infrastructure which is effective, responsive to change and capable of supporting all products across all channels should be a first priority. Realising this will take time, but those organisations which fail to take action soon will encounter major difficulties in the coming years.
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