The Financial Services Industry and the global markets are in meltdown and forcing realignment through outsourcing, consolidation and technology.
The pressure on margins combined with the increased cost of technology will drive many Bank, Card and Insurance Companies to re-think their business models and focus on core strengths. The cost of building and running a competitive technology platform is becoming prohibitive, liquidity is tight and the market conditions challenging and corporate customers need to unlock working capital that is trapped in their supply chains. Margins in Transaction Banking are under severe pressure and the larger players will need to build scale and lower costs.
Key Themes for Transactional Services
- Banks and Insurance companies are looking to align practices and ultimately consolidate their back office operations
- Attracting and retaining customers in a relatively fixed market size is a top concern to remain competitive
- There is a need to compete on price, which drives the need for cost efficiency and productivity improvement via streamlined processes and automation
- Rigor of compliance with increasing regulatory requirements, contributes to higher administrative workload and cost to the organisations
- Organisational agility and operational scalability are key to respond to continued industry changes and competitive pressures
- A number of Global banks are rushing to create a transaction banking division
The payment industry is in a state of flux with the Global Banks' shaping to attract volumes for their newly constructed payment engines and the domestic players desperately trying to understand their cost base and identify just where they need to, or should, invest. All suppliers face unyielding pressure from competitors, customers and regulators to deliver value with regards to their payment proposition - challenges that makes cost efficiencies a must.
- Many providers do not understand how significant a role payments play in their revenue and cost structure
- Most continue to report and monitor revenue numbers only by business and rarely understand the aggregate value proposition of payments to the balance sheet
- Many continue to organise their payments business along purely product lines and fail to see the entirety of their payment proposition
- How SEPA evolves will have an enormous impact on the dynamics of Europe's banking system as it will deliver the capability to send and receive payments across national borders at a reduced cost
- Very few payments providers have looked at their entire payment activities in a strategic context, asking themselves 'Where do I want to be in five years time?'
The Bluerock Experience
Many banks have overcome the barriers to ‘next level performance' by creating commercially oriented and transaction banking profit centres out of their payments areas, displacing the typically distributed, utility-oriented and cost-centre-driven predecessors.
Infrastructure investment is notoriously difficult to unlock in complex organisations. Transactions systems often support many different internal organisational structures, and externally originated change makes timely business cases hard to construct and harder still to agree.
It is particularly difficult where transactions systems are run as a cost centre and the sponsorship of change needs to be collegiate. These factors often combine to result in underinvestment and scope curtailment.
By following the profit centre route and also the precedent set by the market leaders:
- Economic profit is easier to manage
- It is easier to have key strategic issues debated at board level
- Investment decisions are simplified
- Accountabilities are clarified
- Supply-side change can be better managed
Customer-facing business requirements are also more easily accommodated, and if these principles are applied, operational productivity and operating performance can both be improved.