Home' Trinidad and Tobago Guardian : May 21st 2015 Contents echnology innovations are
exposing the limitations of tra-
ditional banking business
models the world over. Retail
banks in particular are at risk
of being disrupted as smaller,
nimbler, tech-enabled alternatives compete
for customers and margins.
Customers across the Caribbean look long-
ingly at innovations in the US and other mar-
kets, such as full-service online and mobile
banking, marketplace lending facilities, and
merchant payment solutions. The open ques-
tion is if or when such facilities will be available
locally or regionally. The competitive landscape
in the Caribbean does not provide optimal
incentive for fast-paced, customer-centric,
banking services innovations. Instead, dreams
of Caribbean ecommerce initiatives and Inter-
net-based entrepreneurism are often dashed
at the doors of our traditional financial insti-
The financial services status quo often seems
at variance with calls for greater innovation
and economic diversion in the wider economy.
This is a major problem that must be
addressed. The challenge facing bank execu-
tives, and policy makers, is how to redefine
banking models to meet the challenges and
seize the opportunities of the digital age.
A 2014 report by Deloitte found that banks
are facing increasing competition from alter-
native lenders and technology providers. It
also found that they need to adapt how they
use IT themselves if they want to maintain
their position in the market.
The professional services firm said there
are "compelling cost advantages" for banks
that decide to upgrade their core banking sys-
tems despite the "significant" costs in doing
so and the fact it would be a "major endeavour"
that could be considered a " once in a lifetime
investment". However, short-termism, risk
aversion and a lack of suppliers are factors
behind banks reluctance to overhaul legacy
banking IT systems, Deloitte said.
Deloitte reports that many banks have cho-
sen to avoid huge overhauls to their core IT
systems because they view making small
changes to those legacy systems to be "the
path of least resistance". Further, many tra-
ditional banks face cost constraints that make
a large scale overhaul of their legacy IT infra-
Reluctance to change
"Given the compelling cost advantages of
modern, rather than legacy, core banking sys-
tems, what explains the reluctance of banks
to make the change?" the report said. "The
answer appears to be a combination of short-
termism, risk aversion and lack of suppliers."
Obviously leaping blindly into new systems
simply because technology is available is not
a practical option for banks.
The need to provide improved customer
services has to be balanced against security
and privacy risks that attend technology-based
systems. Banks have to consider the potential
for reputation damage or loss of customer
confidence if systems fail or are compromised.
These considerations have to be carefully
examined in any decision to introduce new
technology into their business.
"The central challenge is that banks have
designed their IT systems to support processes
that deliver products across multiple channels,"
Deloitte s Banking Disrupted report said. "Bank
systems are, therefore, arranged around prod-
ucts rather than around customers. Digital
transformation, on the other hand, demands
that customer data be leveraged to provide
services at the point of need."
"The rich customer data banks collect often
gets lost within product silos. Turning this
product-centred model on its head would
allow banks to serve not just customer needs
but also to capture their experience and address
their future expectations," it said.
The customer-centric approach to new
technology solutions design is exactly where
the opportunities lie. Recent Accenture research
shows customers still value the branch, which
remains the primary sales channel; nearly 60
per cent of traditional retail bank products are
sold via the branch.
Yet bank branches are becoming less relevant
for younger customers, who are more com-
fortable with digital technology and less con-
cerned with traditional markers of a bank s
trustworthiness. For example, while more than
80 per cent of customers consider it important
that their bank has a long track record of
financial performance, this factor is less impor-
tant for younger customers.
"These customers want a bank that is agile
and innovative, with the digital tools to connect
with them on a daily basis," according to the
Accenture Digital Disrupting in Banking report.
Innovative leadership required
This is why it is important that new
providers and new service options proliferate
in the financial services sector. There is certainly
a role for community banks, credit unions and
even entirely new social platforms, such as
the eSou-Sou idea floated at the recent
Caribbean Future Forum.
Such ventures have the best opportunity to
seed new, disruptive technology, based on
modern IT infrastructure and customer-first
approach to service delivery. But such ventures
also require fresh, forward-thing leadership
initiative if they are to become a sustainable
Convergence is happening, internationally
and it needs to also happen locally and region-
ally. On the global stage, we are already seeing
the marriage of traditional and emerging
finance, taking the best of both worlds, to
make finance better for consumers.
An example is the recent partnership
between Lending Club, a US-based online
credit marketplace and Citigroup, a global
financial services giant with over 200 million
customer accounts in more than 140 countries.
Citi will use Lending Club s platform to
supply up to US$150 million to underserved
borrowers and communities that its branch
network is unable to reach. There are similar
opportunities for traditional banks and inno-
vative financial services startups in the
Contending with disruption
Banks operating in the Caribbean must con-
tend with the same forces disrupting their
counterparts in other regions. As with most
technology revolutions, the disruption may
be uncomfortable and even expensive in the
short term. However, the spoils are there for
those with the foresight and courage to depart
from the status quo.
Competitive and regulatory pressure can
help speed the pace of systems upgrades and
modernisation projects and also helps deter-
mine the magnitude of investments. However,
in the absence of such competitive pressure,
or regulatory incentive, banks can literally
afford to sustain inefficiencies and defer service
Slow banking innovation, contrary to what
profitable annual reports may appear to convey,
is not good business. Inefficiencies in the
banking system have negative repercussions
across the entire economy. Technology is a
proven enabler of efficiencies. However, tech-
nology needs to be guided by human leader-
It remains to be seen whether our banking
institutions have the willingness and the lead-
ership resolve to embrace the technology rev-
olution sweeping across the sector globally,
or not. If they do, it could greatly benefit their
customers, their bottom line and the region
as a whole.
MAY 2015 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG15
Navigating the changing
the face of banking
Slow banking innovation,
contrary to what
profitable annual reports
may appear to convey, is
not good business.
Technology is a proven
enabler of efficiencies.
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