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HSBC: Banking on the Network

HSBC are
pretty transparent these days about their strategies, as can be seen from their
investor relations webcasts and presentation downloads.

Also,
as mentioned last week, I had a visit to a firm using video technologies who sent me a webcast of Ken Harvey, Chief Technology and Services Officer (CTSO)
discussing the bank as a network in a presentation earlier this month.

Here is a summary of what he said, for those
who don’t have half an hour to spare to watch the video:

We spend $6 billion a year
on technology, and recently embarked on a multi-billion dollar, multi-year project to become an IP Bank.  We are now three years into
this five year project, and the aim of the project is to generate more capital.  In fact, we
are making money out of this implementation, creating more capital than we are
consuming.

To illustrate this, HSBC has 300,000 employees, a third of which
work in HSBC Tech and Services (HTS) supporting 9,500 offices across 85
countries. Our aim is to reduce IT costs by at least 10% per year and, in 2007,
we achieved a 14% reduction with the extra 4% then used to invest in innovation.
We spend around a third of our IT budget on innovation.

We also have to
compete harder as a global bank. For example, I have 5 offices in the radius of
this conference location, whilst my American competitors have 26 or more. As a result, I have to use the network to leverage against
them.

We can do this because we just add another office onto the network.

The result is that we can move into a new country with credit cards with an
investment of $1-$2 million, mainly on marketing, because we don’t have to build
all that infrastructure.

We can move into a country with full service banking
for under $10 million, which is a fraction of our competitors.

We just open a
building and sell, because everything is delivered through the network. We just
need local compliance.

There are no local data centres or servers, just
access to the HSBC network.

That leverages our global distribution cross-border
and cross-country and our cost-efficiency improves as a result.

For
example, five years ago, we ran 130 data centres because we had acquired 50
companies up to 2003. Today, we have 20 data centres, and in two years we will
have 6 worldwide.

They are all brought together through the network and this
gives us more resilience, because we can come into a country from different
network points. If an earthquake or bombing blows one part of the network, we
can support that country or city from another part of the network.

This is why
we run our own network – the largest, privately owned network in the world.

We lease lines, but the rest we own and run.

We run
email, video conferencing, music and telephony, through the same network lines
as a stock trade or FX trade or financial transaction, although the latter
always gets priority.

Every laptop and PC is loaded from the network too.
It took two years to build all that and we’re now putting applications on the
network on top of that.

This reduces barriers to entry and improves the
customer experience and cost efficiency, as well as carbon offsets.

Every
application is written as though you were using it for the internet, although
everyone wants it to be different.

They claim that branch, ATM or customer
applications are not the same as internet applications.

Resisting all of
that pressure to be different is a challenge but you see considerable savings by
doing so.

For example, it used to take us two days to train someone how
to open an investment account for a customer in a branch. Now customers open the
accounts themselves in three minutes, and staff training has gone down
massively.

The internet and intranet become one.

There is no
difference between the customer and staff network user, and everything must be
developed that way.

Every application and transaction has been rewritten
that way over the last three years, and now 80% of our applications work this
way, the high volume applications, with 90% by the end of next
year.

In every market IP telephony pays in 12-18 months because costs
have come down for IP so much.

By way of illustration, the average branch has
two fax lines, a 56kbps modem and five telephone lines. They all get blended
down to one line through IP and eight telephone lines become one, running over the
same network as our financial transactions, our email, our videos and our music.

This does
even better in emerging markets where telco’s are less competitive. So this pays
for itself on just the IT operations alone, and the cost savings
therein.

Then you can look for things that help customers too and it gets
even better.

I could not justify that area to our board – the customer
benefits – but the operational savings give me that investment, and then you see
the payback is in spades, because it gives you savings and customer experience
improvements too.

For example, we did digital signage.

Signage in a branch from marketing, putting out paper placards, taking old ones
down and putting new ones up … all that has a cost. So we put a digital placard
there, and that can immediately match what we are doing on the internet, on TV
and across all media. We can do that marketing change simultaneously, and change signage in every branch globally in real-time immediately.

We went a bit too
far with that one by the way, when we placed passive RFID chips in customer’s
charge cards. When they walked past branches they’d get a tailored advertisement
in the branch window in their language.

For example, in Tokyo it’d change from
Japanese to English if an American tourist was walking by, and the customer would go “how does it do
that?” 

It freaked customers out for a bit, as they spent more time trying to work out
how it worked than buying into the ad.

But it does mean that for people who are travelling, they get everything in their own language.

You call and get routed
to the right language speaker. Your internet access automatically comes up in
your language. And as you walk into a branch, all the signs change to your
language.

This move take-up rates and sales from signage up from 1% to 4% or even 5% as a result. You
also get to know what works, as they see the sign and buy the product there and
then.  It’s all tied together.

Our new branches therefore have less
people because of this.

Another example of the power of our network is
HSBC Premier.

The HSBC Premier account gives customers transparent access
to their global accounts in multiple currencies. That’s the power of the
network. We launched that in 2007, and got as many customers in the first half of 2008 as the
whole of 2007.

The coolest feature here is that you can make cross-border
transfers for no fee in real time. No-one else can do that, as other banks have
to make a wire transfer with a 24 hour delay and a $50 fee.

It gets even
better for the corporate customer, because we allow corporate treasurers to
manage their global currencies in a single book.

The old world would
mean taking a hedge overnight on fund transfer changes, but HSBCNet gives 40,000
large corporates – names you would all know – the ability to transfer funds five minutes before
the close of day, moving money around in real-time between accounts. No phone
calls and no three days for taking positions – just do the whole thing in screen
shots.

That’s the power of the network, because this product is the
network giving real-time treasury, real-time payments with real-time
information.

We were awarded equal first ratings for online banking by Greenwich Associates because of this. Greenwich is like Nielsen for banking, and
five years ago we didn’t even figure in their survey.

That's the power of the bank as a network.

Last but not least,
we get environmental impacts.

We have cut down huge numbers of machines
through virtualisation, and power usage represents 6% of my total IT costs, up
from 1.5% five years ago, so this is important.

By 2010, our carbon dioxide will be down 5%,
electricity usage down 7%, water consumption by 7%, and waste down 8% compared
to 2005.

That's a major environmental impact.

We also have video in all of our major hubs – Dubai, NY, HK,
London – and this reduces corporate wear and tear because I’m now at home 12
days per month. I can see and interact with my staff and clients any
time.

Now I have to get up at 3:00 in the morning for a meeting, but it
saves me three days getting to and from HK for that meeting and if your meetings
are on a Monday morning you miss a lot of weekends so our executives are all in
there using it.

The senior core team – the twelve managers who run the
bank – now run three-quarters of their monthly budget planning meetings through
video. All were in person before. The travel cost savings alone pay for the
rooms and the implementation, but the quality of life factor is also key. For
example, we will see a 15% reduction in travel next year, so there’s another
technology that pays for itself.

Similarly, 80% of staff now do their
training by iPod, rather than at their desks. They download from our servers
whilst in branches and learn whilst commuting. This means they are doing it on
their time, and going to work whilst working.

All in all, by being the
bank on the network, our customers describe us as “forward thinking”, “hi tech”
and “visionary” … words that weren’t ever being used before, so this has
transformed the bank.

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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