WHILE technology is changing every aspect of banking operations, 77 per cent of participants in a recent survey said the greatest impact will be on customer satisfaction and regulatory compliance.
Some regulators, however, believed banks are moving too slowly in this direction. As such, they have called for increased technology acquisition to aid modern day banking.
Going by a study tagged: “The Benefits of Innovative Information Technology in the Banking Industry” conducted by the Frankfurt School of Finance and Management, New York University’s Stern School of Business and Management, the University of Applied Sciences and Arts North-Western Switzerland, the Business Transformation Academy (Basel, Switzerland) and SAP, it uncovered various trends in banking, most notably a large disconnect between regulators’ expectations and the ability of banks to meet compliance and reporting requirements.
However, many banks have plans to increase their budget for IT to invest in the necessary banking solutions to meet these changing requirements.
The study included extensive desk research, in-depth interviews with C-level representatives from banks and regulatory authorities and a quantitative survey. It also provided detailed insights into the technology areas considered as most important for the industry.
More than six out of 10 participants (65 per cent) said mobile is the most important trend for the future, followed by in-memory computing (48 per cent) and cloud (47 per cent).
A senior executive from a large U.S. bank who was interviewed for the report noted that 25 per cent of mobile phone users access financial services content on their phone, yielding a significant market opportunity for banks in mobile banking application development.
Mobile banking is following a similar usage curve to online banking, with China, India and the United Arab Emirates leading in adoption. In emerging markets, mobile devices provide access to financial services to previously under-banked populations.
Until recent years, income variability and heavy transaction costs prevented many people in African countries from accessing formal banking services. Additionally, start-up costs associated with establishing new banking offerings are considerable, due to infrastructure investments and the build-up of new distribution channels.
Thus, financial services provided through the mobile channel have emerged as a needed solution. The study found that four key mobile banking functionalities are key in African economies. These include that
mobile phones can serve as a virtual bank card; mobile phones can be used to duplicate the functionalities of point of sale terminals; mobiles phones can be used as a substitute for automatic teller machines and that mobile devices can be used as an Internet banking terminal
Respondents also recognised the opportunity in Big Data and analytics in banking and placed a much greater emphasis on the overall comprehensiveness of information.
The top two priorities in platform features noted included completeness of aggregation (84 per cent) and the availability of real-time information (62 per cent).
Throughout the study, banks expressed six key expectations for Big Data in process innovation. Big Data solutions are expected to enable banks to tailor their offerings to the needs of individual customers;
improve the banks’ trading strategies; provide better insights into market dynamics and improve market research; improve banks’ ability to react to internal and external issues; speed up high-quality decision-making processes and identify possibilities for revenue enhancement and cost reduction
According to the study, in order to implement customer-centric banking offerings to deliver better services, institutions will need to enhance their back office support systems to ensure customers experience the same quality standard through traditional or new communication channels.
By synchronising traditional and new banking channels, successful banks can retrieve all existing relevant information at every customer touch point. Banks will be forced to deliver better online services, including offering online chat in place of telephone services. They will also need to address data security and privacy issues in a competent and diligent manner to maintain trust amongst their customer base.
Throughout the study, a clear consensus prevailed that regulatory requirements are the primary driver of business model changes. Regulators agree that required levels of risk reporting in banks cannot be met given existing IT infrastructure. As one regulator noted, “IT budgets have to significantly increase to meet the current and future requirements.” Indeed, 61 percent of survey participants expect an increase in their IT budget of at least 25 percent in the next three years.
Regulators ranked new provisions that are regarded as the main cost drivers for the future IT infrastructure for banks.
According to the study, the top cost driver is the Basel Committee’s guideline on principles for effective risk data aggregation and risk reporting (BCBS 239), followed by Basel III, Dodd-Frank, the recommendations set forth in the Liikanen Report, Markets in Financial Instruments Directive and Markets in Financial Investments Regulation, European Market Infrastructure Regulation and multi-curve valuations.
SOURCE: The Guardian
Apr 23, 2010 26
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