Banks spending to overhaul 'white elephant' IT

Banks are forking out more on tech following the global recession in 2008, and their priorities are to improve productivity while affecting a positive business impact to bolster customer trust and engagement.
Written by Kevin Kwang, Contributor

Singapore--Banks around the world have picked up their IT spending, and many are focusing their investment dollars on tools that would help keep costs low, boost productivity, and improve business operations to restore customers' confidence in them.

Speaking at the BankTech Executive Summit 2013 held here Thursday, Robert Feeney, co-head of financial institutions operations and technology practice in Asia-Pacific at McKinsey & Company, said financial institutions have been ramping up investments in their tech systems since 2009, following the global financial crisis the year before.

In Asia, the priorities in IT investments differ between developed and emerging markets, though. Feeney said that for the former, their emphasis would be on investments that would "change the bank" so as to better engage and retain customers. Those in emerging markets, on the other hand, are more focused on more basic tools to "run the bank," he said.

Citing an internal study, the executive said 71 percent of developed market banks indicated they were focusing on customer relationship management (CRM) and channel upgrades for their application spending. Automation and efficiency came in joint second with 57 percent respondents, together with regulatory compliance.

In contrast, banks in emerging markets indicated their top two focus areas for applications were in regulatory compliance and supporting new products, the McKinsey & Company executive pointed out.

Feeney added that when banks meet up with IT vendors today, it is to talk about ways of cutting costs and improving productivity--which has been the top priority for the past few years. The second priority used to be ensuring better service delivery, but this has since changed to business impact.

"The conversations between banks' IT and vendors are now regarding the business impact they can expect to see from the tech implementation," he said.

Regulatory scrutiny, competition spur innovations

Sunila Shivpuri, managing director and regional head of global technology for Asia-Pacific at Deutsche Bank, shed more light on how banks are prioritizing their IT budgets. Speaking in a separate panel session Thursday, she said "scrutiny from regulators" is forcing banks to spend more of their resources--whether it's time, money, or manpower--to ensure they remain compliant.

In the past, banks were also too "bureaucratic" and had built up IT systems to the point where these are now "white elephants," which has to change, Shivpuri added.

"It is with continuous innovation and a strict adherence to regulations that a new banking industry will emerge," she stated.

The executive added that for Deutsche Bank specifically, its macro-level IT strategy is to rely more on procuring packaged software from the market rather than build its own proprietary applications, given that this is more timely and less resource intensive.

David Backley, managing director of retail technology at DBS Bank, agreed that buying packaged software is effective to a limit. However, the Singapore bank, too, believes that to differentiate itself from the competition and "be the best," it would have to design its own applications to meet that goal, he said in the same panel discussion.

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