IBM Study On Banking

Customer-centric systems key to growth

Investments in IT must be focussed on improving responsiveness, resiliency and enterprise-wide collaboration, reveals an IBM study highlighting the key trends and innovations that will define the global banking industry in 2015. The study “Banking 2015: Defining the Future of Banking” forecasts trends in banking to produce a unique insight into the competitive forces that bankers will have to cope with in the next 10 years. The study explores the emerging business and technology innovations and societal trends that will propel and shape the industry’s transformation.

Worldwide financial services revenue is expected to experience a compounded annual growth of 7.1 percent between 2000 and 2015, from $2 trillion to $5.6 trillion. In the Asia-Pacific region, IBM predicts a growth rate of about 7.6 percent.

IBM found five key trends that will determine market success in 2015:

• Customers take control: Customers will be smart, informed and savvy users of financial services. They will be interested only in service providers that can meet their specific needs.
• Niche competitors: Market consolidation will continue making the mega banks bigger. But they will face swarms of nimble competitors including community banks, industry specialists and financial service providers that specialise in providing specific services. Partner-competitor relationships will arise.
• A new workforce: The need for productivity and efficiency will create new sources, labour and work practices. There will be intense competition to attract and retain talent.
• Regulated transparency: The need to comply with globally-enforced standards of transparency and accountability will force the adoption by banks of integrated, enterprise-wide systems and processes.
• Sharply-focussed technology: The enabler of this change will be technology that supports rapid, accurate decision-making, greater operational flexibility and efficiency. The successful specialists will be those who can track and analyse specific customer needs and speedily meet them with profitable and reliable products.
  

Sunny Banerjea, Global Banking Leader of the IBM Institute for Business Value, says that the study shows what banks must do now in order to stay competitive over the next 10 years. “By 2015, we will live in an intensely customer-centric market that will be dominated by global mega banks and populated by specialist financial services providers. Fierce competition, global regulation and technology will reshape bank and non-bank structures.

“Technology will drive fundamental changes in workforce disposition, which will have substantial follow-on effects for productivity, efficiency and profitability,” he adds. “These trends are evident but, as they become entrenched, there will be profound changes to the competitive drivers of global banking.”

Four strategies

According to IBM, these market changes pose great challenges for conventional banks. Four key strategic issues arise from these profound changes.

• Changing business models: These must be focussed on the value proposition offered to customers, who will want tools, information and options.
• Targeted growth: Banks must identify target business areas and play to them. It will be essential to maximise operational efficiency—and counter nimble, new market entrants by partnering with specialist providers.
• New workforce options: Financial services players will need to integrate into their operational structures low-cost, highly-flexible labour options such as offshoring. A key management task will be attracting—and retaining—talent.
• Nimble infrastructure: IT investments must be focussed on improving responsiveness, resiliency and enterprise-wide collaboration.

Mortgages and more

But how can banks choose which products and market innovations will be best for their business? The IBM study identifies a number of value-added options:

• Mortgages: These represent a big growth opportunity with automation stripping out costs and product innovation stoking numerous value chain improvements. IBM suggests that average mortgage loan origination costs will fall from $1,425 in 2003 to $400 by 2015.
• RFID (Radio Frequency Identification): This will become the market-leading payment technology. Banks will need a portfolio of payment innovations to remain competitive, but RFID cards are forecast to show strong growth in 2015, with compounded annual growth from 2005 of 30 percent.
• Service packaging: Innovation in product and service integration and bundling will spawn future growth by de-commoditising current offerings. For banks, this will produce increased cross-selling potential, higher customer borrowings, reduced account maintenance costs and reduced risk (because of more depth of information on each customer).
• Customer integration: All-in-one or integrated accounts unite all cash, savings, and short- and long-term borrowings. Integrated accounts will bundle savings, mortgage, and other borrowings.

According to Swarup Choudhury, Director, FSS, IBM, each bank must decide a strategy that fits its customers’ needs. “Banks will need special strategies to cater to a far more discerning—and controlling—customer. Innovative approach to business design, customer service, workforce management and IT will be critical to banks’ future success.”

He adds, “Banking customers will demand more advocacy, personal security and control in their banking relationships. Banks will source products and services from many specialised and best-in-class service providers, including independents and other banks providing white-label products and services. They will partner actively with providers to improve their own capabilities without locking up their own capital and improving dramatically their ability to address changing demand cycles.”

“Innovation in products, processes, relationships and business models will be the primary path to sustainable growth.”