Think global and simple to ‘change the banks’
One of the consequences of the banking slowdown since 2008 is that there has been relatively limited investment in “change the bank” technology projects. This reduced spend has had the effect of leaving banks (particularly the larger ones) with an almost frozen and potentially dated systems landscape. For banks that have been through restructuring and acquisitions, the problem can be compounded with some banks managing a large and complex portfolio of systems applications that often perform similar or even duplicate functions and are linked by a myriad of internal and external interfaces.
This problem is compounded by the historic tendency to buy or build best of breed solutions for each banking business line (e.g. FX, Cash Equities, Derivatives etc.) and then further stretched by the perceived need to deploy system instances across multiple regions and/or countries. Integrating solutions and interfacing with external services can often result in out-scaled and highly complex environments.
The globalisation and simplification operating principle dictates that the systems landscape for a banking operations function should be as simple as possible with complexity eradicated (or minimised). This simplification is measured by the number of systems applications in use, the number of interfaces they use, and the dependency (or concentration) on critical systems components. Put most simply, the fewer of these you have, the lower the complexity of your environment, and the more cost-effective it is likely to be to operate and maintain.
The challenge is that wholesale decommissioning of systems to achieve a low complexity target systems environment at a global level requires a high level of discretionary investment and a firm commitment to follow through over time. Most banks are struggling to get buy-in to this scale of multi-year investment and are missing out on the significant results that can follow.
These would ultimately be a reduced operational headcount which should mean less supervision, fewer buildings, less computers and less overall infrastructure.
For this though to become a reality the globalisation and simplification of processes and technology requires focus and considerable investment. Most operations functions like the way processing is performed today and influential stakeholders often have a favourite or best breed of software platforms that they sponsor and protect. A major decommissioning strategy challenges the world of favourites and requires operations heads to think globally and in terms of multi-asset class solutions and work practices.
These are unlikely to support any one product line to a level of excellence. From a regulatory viewpoint, challenges around data residency and data protection are often cited when assessing the viability of simplified global solutions.
However, these can often be addressed with careful data architecture design and should not be considered immediate barriers to achieving the greater goal of transforming the banks.
This blog appeared on Finextra. Click here to see the entry on the Finextra website