A Perfect Storm of Challenges and Unique Opportunities for Financial Institutions

Photo: Reuters

The global financial environment remains delicate with financial services institutions in the US and the Asia Pacific taking slow steps toward recovery. Europe continues to be mired by uncertainty. Now more than ever, banks and FIs can leverage the services of a managed services provider to support efficiency, fuel growth, and develop innovative products. A partner with capabilities in consulting, technology and business process outsourcing can add value in simplification of application and process complexity, regulatory compliance and risk management, social media listening and engagement, analytics, and mobility.

The two sides of the Atlantic present ‘a tale of two distinct financial ideologies’. Driven by new regulatory measures and a stalling top line, banks and financial institutions (FIs) in the US are focusing on consolidation through mergers and acquisitions. Their European counterparts are disintegrating their investment and retail banking arms to create manageable and meaningful clusters. However, irrespective of the regions they operate in, priorities remain the same.

Banks and FIs are looking to find ways to contain operating costs, while keeping products competitive. The primary challenges they face are: 1.    Technology redesign: FIs are replacing their disparate systems with integrated systems to perform functions across business lines. While doing so, banks and FIs are looking at complete visibility on ROI, speed and future-proofing of technologies.

2.    Product redesign: A result of regulatory and compliance changes have been the rethink of design and features of most financial products on the lines of customer, compliance and capital.

3.    Regulatory compliance: Basel III accords would triple banks’ capital requirement and reduce the ROE of an average bank by 3 percent and 4 percent in the US and in Europe respectively.

4.    Customer Segmentation and Proactive Engagement: Re-evaluating how customer segments align with capital and funding requirements along with innovative and proactive ways to engage them has emerged as a priority in the financial industry.

Opportunities through Strategic Partnerships
Strategic partners can help banks and FIs achieve their core business goals; these partnerships can assist in cost containment, providing tactical operational excellence, and allowing banks and FIs to focus on strategic business objectives.

Targeted solutions provided by strategic partners provide solutions to primary challenges faced by banks and FIs.

1.    Technology Redesign

Solution: Simplify Application and Process Complexity

The drive to replace legacy and disparate platforms spanning core banking and enterprise functions provides the perfect opportunity to engage a strategic partner and bring a comprehensive product, implement it and run it as platform + operations.
The key themes are straight through processing, simplification of processes and procedures, and customer/employee self-service.

2.    Product Redesign

Solution: Analytics

The move to online sales and analytics-driven customer/employee acquisition/retention strategies has challenged existing business norms. Transaction history can be used to develop products/services that matter to the client.
With customer analytics solutions from partners, banks can transform into customer-centric organisations by improving their ability to anticipate changing markets conditions and customer preferences.

3.    Regulatory Compliance

Solution: Regulatory Compliance and Risk Management

An effective mechanism to succeed in the new regulatory environment is to create a shared services centre that monitors regulatory changes constantly and addresses reporting needs in a managed service model through enhanced systems leveraging big data technologies. This fulfills the transparency and real time reporting requirements arising from Dodd Frank and Basel III accords.

4.    Customer Segmentation and Proactive Engagement

Solution: Social media listening, Customer Engagement and Mobility

Social media has emerged as the most successful avenue of engaging with customers; banks and FIs can set up a ‘social media command centre’ through a partner. This centre can monitor and engage customers in real time, resolving queries and complaints, and solicit feedback. The command centre can also work towards intelligent customer segmentation and risk profiling, providing credible and dependable insights into prospective customer behavior.
Partners can help banks respond to growing demand for mobile and online banking through digital payment windows like mobile wallet and electronic payment platforms.

What to Look For in a Service Provider

If you are considering a strategic partnership that delivers on the four areas outlined in this perspective, here is a checklist that will help you in your evaluation:

• Proven ability of delivering variable operating models for highly specialised service lines
• Investments in building end-to-end offerings with enterprise-wide business technology platforms
• Proprietary tools or acquired IP to address service gaps in your institution
• Willingness to collaborate and explore innovative commercial and delivery models
• Investments in industry recognised learning and development programmes

To meet the changing demands, you need a partner who offers flexible, cost-effective solutions. There should be no compromise on the partner’s core process capabilities and ability to provide analytical insights that improve decision-making. The least explicit but perhaps most important is a history in fostering a culture of long-term, collaborative growth with clients.

By Kapil Jain, Vice President and Head - Strategic Business Units, Infosys BPO (‘A Perfect Storm of Challenges and Unique Opportunities for Financial Institutions (FIs)

The thoughts and opinions shared here are of the author.