With 2012 well under way, the banking industry continues to be challenged by a number of factors, including regulatory changes, liquidity and debt exposures, revenue replacement and constant cost pressure. In addition to these challenges, IT professionals across financial services are also facing important choices in an ever changing business and technology environment, including the need for transformation in business models and technology, the impact of social media and "big" data, and how to deal with an aging legacy infrastructure while seeking increased technology efficiency.
In order to help guide IT executives with these challenges, IDC Financial Insights would like to share the following four key questions that we have been asked around these issues and our responses. We believe these questions will resonate with banks of all sizes and provide some perspective as business and IT professionals deal with these critical issues in 2012 and beyond.
Q1. Does my bank need to develop a new business model at this point in time?
Financial institutions have seen significant changes in demographics and technology. Formerly reliable sources of revenue are drying up, especially in the U.S. and many European nations. Therefore, financial institutions should be thinking more strategically around how to redefine their business models in this new era, including identifying new sources of revenue and cost containment. This can be done in three major ways:
- Changing the IT Operating Model -- drive cuts but also work across channels for more effective decision making around IT choices
- Technology Solutions -- in order to provide a single view of the customer through secure integrated channels and a consistent experience
- Business Information -- tracking customer sentiment, usage, and profitability through analytics.
Realistically, however, we believe most FIs will spend 2012 implementing relatively minor changes within existing business silos to manage short term profitability expectations. The unfortunate result will be a continued erosion of profitability under existing business models. However, for those FIs that are willing to take risks, this is a particularly good time to do so.
Q2. IT reliability is becoming a major risk factor – why is this happening and what can be done?
Back-end systems will continue to show their age as data processing throughput increases alongside the number of new requirements that need to be reflected in legacy technology environments -- new products, new channels, new risk management reporting mandates, and so on. Incidences/incidents of operational outages and failures have been well publicized in 2011 and will become even more frequent in 2012 as legacy core systems are taken to the point of breaking.
Another key aspect is the aging base of IT professionals who really understand these systems. Many times these systems have been cobbled together over many years across multiple mergers with little or missing documentation on how to support. This leaves the support knowledge in the heads of a small and shrinking group of IT professionals, and this knowledge gap is the real risk -- especially as these systems continue to perform well both on uptime and TCO (total cost of ownership).The challenge for the industry, then, is how to put programs in place to train the next generation of IT professionals to support these systems into the future. At the same time, it is important to start the migration to newer technology now, as the costs and risks will only go up with time. Nobody wants to risk their career when they can just kick the problem down the road for a few more years, but we are rapidly approaching the time when that strategy will no longer be possible.
Q3. There’s lots of discussion around social media – what models are you beginning to see?
Globalization and tech-savvy millennials are forcing banks to rethink how relevant current and future customers will find their firms. Essentially, banks need to think about what type of company they are trying to be in social media. Most start out by looking at collaboration internally (perhaps using tools such as Yammer), while being tactical or even defensive with the external community by mostly monitoring comments about their companies across social channels. Ultimately however, internal social and collaboration efforts are not enough, especially as younger employees look to share their external social lives with coworkers internally.
Some companies have established a steering committee to determine best practices and risk around social media. Putting forward a consistent message and including representatives from all relevant areas of the bank for the committee also appears to be a best practice. Other best practices include: Understand the types of information your institution wants to share both internally and externally, incorporate social media into your bank's employee policies and also establish social media expertise in your marketing and product groups.