There's a theme that keeps cropping up at most conferences I attend around the remodelling
It came up again today in a discussion about data leverage
at the Asian Banker Summit, and it occurred to me again recently, when I chaired the future focused day at IPS 2013.
The theme is how do you turn a vertically integrated
business that owns the customer process end-to-end and organises itself around
products and channels, into a horizontally structured business that wants to
provide functionality to the customer at their point of need and organises
themselves around the customer’s data.
That’s a long sentence and, for those who get this, it will
make perfect sense.
This is why I wouldn’t bother writing anything further, except
that this is so fundamental to the dialogue we’re having that I feel the need
to break it down step-by-step.
First, banks were created to look after all the financial
needs of people and businesses.
They were licenced to live in their own segregated world of operation,
and completely owned that piece of turf.
Everything from taking deposits to giving loans was the
banks domain, and they were organised to do just that.
As a result, most banks created operations based around products:
money transmissions, mortgages, cards, loans, insurances, etc.
These were delivered through one channel: the branch.
Over time, another channel appears: the direct sales
representative. The sales folks resided
in branches and were served by the branch systems.
Then a new channel popped up: the call centre.
The call centre was like one massive remote branch, and
required a new structure to operate. But
the underlying data could be delivered through the branch-based systems, so the
new structure was primarily designed to sit on top of those systems, offering
scripts into the various products the bank offered.
The call centre people struggled with this – sometimes operating
six or more windows of screens at any one time to get a competitive picture of the
customer’s needs – but they lived with it.
Then another channel popped up: the internet.
At first, banks thought this could lead to branch closures
and started to invest heavily in moving from branch to internet services. However, the underlying data was still held
in product silos and the internet was not responsive to customer’s views of the
world. Broadband was yet to appear, and customers
were reluctant to lose their branch connection.
So the banks left the internet as another layer on top of
the branch-based systems, alongside the call centre spaghetti.
Banks had become locked into vertically integrated
processes, structured around product silo’s and that were ill-suited to the multichannel
world they now served.
But it was ok. Using
middleware, fudge, smoke and mirrors, it did the job.
Then this perfect storm of mobile, cloud and big data appeared, augmented by customers tweeting and socialising 24*7, and most banks
Source: Shenzhen Stuff
Now here’s the challenge.
The bank cannot leverage data: it’s locked in product silos.
It cannot serve the customers' need: banks layered channels
over products, now they need to leverage data over mobile.
And banks lost the end-to-end process as customers moved to
apps, and pieces of process and functionality as needed.
Now there’s a need to organise the bank around the customer’s
data and then leverage that data through the cloud to mobile devices as apps.
There is a way.
The way is to completely rip out the old systems and replace
them with new core banking that can service the bank, and therefore the customers,
in the way that is needed for the 21st century.
How do you do that?
Changing core systems is like changing the engines on an aircraft
at 15,000 metres … you just don’t do it.
Well more and more banks are doing just that.
Some are having problems,
but this is why banks are changing core systems.
You cannot restructure a bank around customer data if you have
that data locked into heritage systems that are product silo’s and channel
‘Nuff said, more later.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.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...