Focus turns to IT as tool for growth Long-term imperative: banks need to use the latest trends in technology to retain customer attention The aftermath of the financial crisis has left banks and financial services companies facing the challenge of re-inventing themselves in an industry being reshaped by mergers, regulatory change, cost cutting and persistent security threats. In this era of rapid change, commoditisation and consumerisation have thrust the financial services industry into the centre of what research firm Gartner calls a nexus of converging forces - these can be defined as social networks, mobile devices, cloud-based resources and the sheer amount of information, so-called big data. IN The Connected Business 2012 But this also presents an opportunity for forward-looking financial services firms to investments in their IT and use the technology now at their disposal to drive innovation and create financial growth. Jean Lassignardie, chief sales and marketing officer of Capgemini Global Financial Services, says: "For years, financial institutions have had to focus on cost cutting, operational improvements and process efficiencies to stay competitive and improve margins. Technology was on the back burner as IT budgets shrank and firms continued to rely on legacy systems. But customer demands have grown increasingly sophisticated and today technology is seen as a key enabler for the financial services industry. Technology not only drives change and innovation but also helps companies adapt to meeting customer demands while meeting complex regulatory requirements and reducing operational costs. Although the financial services industry encompasses a wide range of institutions, from commercial banks and insurance companies to investment banks, trust firms and brokerages, many of the issues they face are the same. As Tom Durkin, Bank of America's global head of integrated channels, says: "Banks are challenged with regulatory and information security demands and we are getting pressure across the board. But how we keep on top of that presents an opportunity to use investment to upgrade technology, leverage it and better position the organisation for long-term growth, not just holding on to what you have today. Like many others, Bank of America, has also looked to IT systems, and enterprise resource planning software from provider SAP in particular, to address the growing complexity of its IT systems after a string of mergers and acquisitions. Don Trotta, global head of banking industry development at SAP, says: "The main challenges banks discuss with us almost always fall into three areas - risk and regulatory compliance, reducing cost and complexity in their legacy environments, and finding new paths to growth - largely through transforming to a more customer centric model in the mobile, multi-channel world we live in. "IT can be the difference maker on all three fronts," he says. Banks do recognise these challenges as reflected by the fact that bank IT spending is predicted to grow incrementally over the coming years. But the key is to shift the mix from spending much of it on maintenance to more of it on innovation. Unfortunately, this is not happening fast enough. Banks need to fundamentally change their traditional legacy IT approach of proprietary homegrown banking systems to accelerate this transformation. Some financial services firms have begun this process. For example, Toronto-based Home Trust, which provides deposits, mortgage and credit card services to clients whose needs are not addressed by larger, traditional financial institutions, is using SAP's Bank Analyzer and HANA in-memory computing technology to speed up report generation and help manage risk and make faster decisions. Martin Reid, Home Trust's president, says: "The key is to have information, not data, in front of you as quickly as possible so that you can identify changes in trends and certain variables, understand the risks within your portfolio and manage that. The sooner we can get the information the better, and the more granular [that information is], the more that we can deal with that information, the better. Indeed, as global management consultant Accenture noted in a recent report: "To achieve and sustain high performance in the future, traditional commercial banks across the world will need to master two fundamental changes: the transformation of their product offerings, channels and customer service to reflect the demands of the "changing consumer" (connected, impatient, empowered, and demanding of services that meet their individual and social needs) and the reshaping and reinvention of their core banking operations to enable a more competitive, customer-centric, efficient and sustainable business model." The report's authors warned that: "A failure to achieve either of these imperatives will expose banks to disintermediation by nimble, low-cost online and mobile providers of personal financial management and payments services - resulting in loss of relevance to customers and, therefore, their prominence in the financial services value chain." An awareness of these risks is driving IT investment in many large financial services firms and banks. For example, Wells Fargo is undertaking a technology upgrade focused on expanding the bank's corporate data and analytics capabilities. Jim Smith, Wells Fargo's chief information officer, says: "What we're trying to do is pull together what had been a very distributed network of data environments and analytics teams into a more centrally and strategically managed data group. "We are investing in what we're calling "foundational data" or what other people might refer to as "master data," so that we have a common view, understanding and definition of customers and products. We want to have one version of the truth. That will enable us to have more consistency in the tools we use, the approaches we're taking and how we manage risk. He says big data and new analytics software can give businesses insights into what customers want and enable the bank's business units to make better decisions. "A 360-degree view of a customer becomes much more important when you're focusing your time on cross-selling to a customer," he says. Then you really need to know as much about them as your systems can tell you, first to understand your risk, and so you can get a complete view of a client in terms of their business. But unfortunately, as Capgemini's Mr Lassignardie, says: "The focus on regulatory compliance can challenge banks" capacity to undertake customer centric innovation. For example, partly as a result of the eurozone debt crisis, European banks are complying faster than originally expected with the Basel III objectives, but as a result they have less capacity to focus on innovation. Customer-centric innovation, which has been successfully undertaken [in other sectors], is key to remaining competitive. Mr Lassignardie believes the sector needs to invest in flexible payment infrastructures. "With the growth of electronic and mobile payments accelerating faster than many predicted, the imperative now is to drive innovation," he says.