Retail Banking

Retail customer demand

Customer demand at the basic level remains constant and it is the ability to undertake a transaction using an instrument of choice, in a channel of choice and at the time of choice. At the more advanced level, this means the ability to self-serve, transparency of key terms and information throughout the process. It also means being serviced in new channels and with new technologies such as mobile telephony or contactless payment cards.

The key to success is having a great customer interface and experience, especially something that:

  • Recognises the need to offer people/individuals something they want to be identified with
  • Fits in with their own brand choices
  • Gives them a sense of control
  • Is easy for them to use at the time that they want to use it

The Environment

Many UK banks are struggling to maintain legacy retail banking systems, which have been developed over 30 years and are now increasingly difficult to maintain.

The original purpose of these systems was to support the branch working day - a 1970s
environment that the modern retail banker would barely recognise. Processes and
systems were designed to support the movement, tallying and reconciliation of a flood of
paper vouchers that moved between branches and banks.

The systems were invariably mainframe-based and were typically heavily bespoke, with limited documentation and a restricted knowledge base. Additional functionality was added over the years with the advent of radical changes to the retail business model. Predominant among these was the provision of cash management systems to the corporate world, which inevitably created a demand for real-time account data from corporate treasurers; meanwhile, the banks realised they had a similar need for real-time data to support an automated authorisation capability for ATM and point-of-sale transactions.

Another major driver was the arrival of new delivery channels such as telephone and
internet banking and the associated customer demand for extended availability to
support these new channels. In both cases, the banks shied away from re-engineering their core systems and instead responded with tactical solutions that satisfied the immediate demand, but which added to their systems' complexity and which reduced stability.

Today, continued changes to the business model, along with changes in regulatory and reporting requirements and industry initiatives such as faster payments have stretched many legacy systems to their limits. It is progressively more difficult to make system changes and the systems themselves can increasingly become a bottleneck in developing new customer products and service offerings. Many major banks are seeking to address the challenges posed by their ageing core banking systems. However, while the challenges are consistent, the approach taken to move forward differs significantly.

The approaches that banks take can be broadly categorised by:

  • at one extreme, legacy systems continue to be patched and updated
  • while at the opposite extreme, IT is outsourced wholesale
  • In-between, there are many intermediate options, including the use of multifunction third-party vendor application and third party application hosting.

There is no single ‘right' answer. The appropriate model will depend in part on individual organisations' history. But the emergence of ambitious business and operating strategies is likely to play an increasing role.

The Bluerock Experience

Our experience indicates that there are a number of important considerations when selecting a single (or in reality, primary) vendor strategy:

  • The capability of vendors must be thoroughly assessed, both in regard to current capability and commitment to development and innovation going forward, which will allow the bank to develop its own products and service offerings further, in future
  • The need to establish efficient integration with the existing organisation and technical infrastructure early in the process
  • Contracts should be structured specifically to allow for change and growth in services
  • The impact of technology change on staff and customers needs to be planned for and understood
  • Robust business and benefit cases need to be established with the benefits/costs being tracked and addressed

For many, the crunch point for legacy systems is fast approaching. Many UK banks, particularly in the mid-tier and below, have concluded that continuing to support legacy systems presents a greater technical risk than to replace them. For several, the crunch point was the Faster Payments initiative, which stretched the older legacy systems and resulted in several postponements to the launch. For several UK banks, it was one tactical solution too far - and some in particular still have the scars to prove it!!

It is evident that the outlook has now moved beyond the debating phase. Several UK banks are now publicly committed to strategic banking systems replacement projects using vendor products at the core. While these are mainly at the mid-tier, we have seen at least one global player departing from its historic in-sourcing approach to consider a vendor approach for part of its product set. Others are keeping silent for the moment - but tellingly, perhaps, no-one
is admitting to seriously considering the option of a full out-sourced replacement
of core systems.

Retail Banking Challenges

In these truly extraordinary times the challenges in the Retail Banking market remain broadly a ‘top ten' of must dos for all:

  • Secure funds to lend - increase liquidity
  • Manage regulatory change and compliance
  • Management of credit risk
  • Develop arrears management strategy
  • Striking the right risk/reward trade-off, margin versus market share
  • Optimising operational performance
  • Use the e-channels to revolutionise the consumer finance proposition
  • Develop a ‘real' loyalty strategy
  • Customer communication and clarity of ownership
  • Differentiate their offering:
    - niche markets
    - look beyond price
    - more flexible products

The true challenge however remains one of implementation/delivery and this is where Bluerock has significant ‘hands on' experience - let's talk!