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Technology strategy is the bank strategy

In banks today, technology strategy is the essence of business strategy. 

In
capital markets, where algorithmic trading analytics can make the
difference between success and failure, technology is critical to
competitiveness.  If you cannot compete with another bank’s new
derivatives capabilities, which are driven by technical excellence, you
might as well give up the ghost.  If you lose a millisecond of speed in
the investment markets, you are dead.  That is why low latency is at
the core of capital markets today and technology strategy is at the
core of latency. 

This is why an exchange said to me, “If it
takes more than 500 milliseconds to process then it is of no value
because it is out-of-date”.  Technology strategy is the core focal
point for the exchange. 

This is why an investment firm said
to me, “We moved servers to Moscow because it takes 60 milliseconds to
route a trade from London to Tokyo via Moscow compared to 240
milliseconds if we process the trade via New York”.  Technology
strategy is the core focal point for the bank. 

This is why
investment firms are co-locating their servers within exchanges.  It is
also why we are seeing market blips occurring on a regular basis,
because markets move in real-time.

In capital markets, technology strategy is at the core of business strategy. 

This is also true in commercial banking.

For
the commercial banker, faster payments are all about real-time
payments.  SEPA is all about replacements of technology
infrastructures.  And the supply chain for the corporate client is all
about straight through processing.   

In corporations,
especially manufacturers, you can now transport goods as cheaply from
Guangzhou to Grantham as you can from Gillingham to Grantham.  How
come?  Because mass container shipping has made the transport of
skyscraper-sized boats full of goods a reality.  Hence, the cost of
shipping a box of shoes from Guangzhou is now as cheap as shipping a
factory full of shoes. 

This is due to standards.  And the standard is a container box

In
the financial support of that supply chain, there are no standards.
Therefore, banks are scrambling to work with SWIFT on SCORE, MA-CUGs
and TSU’s; with ISO on ISO20022; and with TWIST on implementing
einvoicing standards, bank services billing standards, and other
standardised processes for straight through processing.

All of
this is about making the bank easy to do business with, which means
plug-and-play connectivity, real-time reporting, and value-adding
information services for the corporate client.  In other words,
technology strategy is at the core of business strategy. 

This is also true in retail banking.

Many of us believe that retail banking is all about branches.   

Rubbish. 

Branches
are just sales stores today, as transaction services have moved out of
the branch to the ATM and the internet.  In other words, retail bank
customers serve themselves online through automated systems, and in
real-time. 

This self-service culture is going to be even more
pervasive as retail banks offer more services across electronic mobile
channels, as well as introducing new payments channels using chip
technologies.  New payment channels are critical to the war on paper:
cash and cheques.  Yet, paper is the only reason customers go into
branches these days, purely because they cannot process paper, cash and
cheques, electronically so they cannot serve themselves. 

The result is that retail banks purely have electronic connections with their customers.  In other words, technology strategy is at the core of
business strategy.   

So, technology is at the core of the
strategy deployed in retail, commercial and investment banking.  It is
the foundation of banking in the 21st century.  You cannot reduce and
downgrade the import of getting technology right or wrong.

Now the challenge.   

Bearing
in mind that technology is fundamental to client relationships, is
obsolete the day you buy it, is disruptive and changing at a speed that
is hard to keep up with, then the bank has to place technology as the
cornerstone of their business strategy.

It is the most important aspect of the bank’s business strategy. 

Put it in the context of a bank being like a human body.

The brain of the bank is the executive management, who set strategy. 

The heart of the bank is the people, the organisation structure, the front line staff.

The skeleton of the bank is the buildings, bricks and mortar. 

And technology is the nerves, veins, muscles, tissues and blood for the bank.  It keeps the bank body connected.

The brain is the IQ of the bank, with some being more intelligent than others. 

The heart sets the culture of the bank, and it is hard to copy a culture.

The skeleton is rarely broken but has to be on occasion, as branches are moved and new markets opened. 

But
if the nerves, blood and veins of the bank are clogged, blocked or
hardened, then the bank will die.  It is not the brain that stops
thinking; it is the blood to the brain.  It is not the heart that stops
beating; it is the blood flowing through the heart.  Bones do not
disappear; it is the blood and tissue.

A bank’s blood flow is its’ technology, as that’s the only thing that connects all of the disparate pieces of the bank together. 

This is why technology strategy is the bank strategy in today’s world. 

About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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  • Welland

    One more thing, a human body naturally comes with something called a “blood-brain barrier”, which prevents blood flowing from other parts of the body to the brain, thereby effectively shielding the brain from what’s happening outside. I am sure it must be there for a purpose !