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| Tech upgrade needed for U.S. retail banks |
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Foreign competitors unhampered by aging legacy systems
Steven Reiter is a senior executive and banking technology lead at Accenture. Retail banks find themselves at a crossroads. Diminished customer loyalty, the entrance of foreign competitors, the emergence of direct-banking players, and increasing regulation will make finding the path to growth difficult, even when the economic cycle turns positive. Yet many banks have reached the limits of their ability to realize these goals because their operating models and technology systems are simply not up to the task. Aging legacy systems inhibit timely introductions of new products. And the silos within these systems make it extremely difficult for banks to have a single view of their customers, resulting in an inconsistent customer experience across channels and ineffective cross-selling and up-selling of products. Laying the proper technology framework to spur growth in the retail business has taken on new urgency in light of recent market trends. According to Accenture’s global customer satisfaction survey last year, more than one-quarter of bank customers said they had switched banks because of poor service—the second highest level of defections among the ten industry sectors surveyed. Only 38% of customers were very satisfied with the level of service. We expect technology trends, like the surge in online banking and mobile devices, to only increase customer service expectations. Competitive threats from abroad As Spanish, Canadian, Japanese and other foreign banks expand their U.S. footprints in the coming months, competition for both wallet share and market share will heat up considerably. Many of these foreign players have the advantage of core technologies that support extremely efficient operations. That in turn, generates savings that can be leveraged to price products more competitively—a critical factor in the battle for market share. Armed with a single view of the customer, the leading foreign banks are able to bundle a checking account, certificate of deposit and brokerage account together and price it accordingly. That gives them a competitive edge over many of their U.S. counterparts who, handcuffed by a product-centric view of the world, typically sell one product at a time. Direct-banks—non-traditional players with banking operations—are also knocking on customers’ doors. They are interested not only in grabbing deposits from traditional banks, but also in aggressively selling “no-frills” banking through simple, competitively priced products in an effort to increase market share. Revitalizing the underlying technology that supports deposit, payments, loan and teller transactions and other core functions is not just about driving down costs. It brings competitive advantages by ensuring more rewarding interactions with customers, such as by presenting them with truly appropriate products in the right combinations. Improving performance Several financial services companies have improved business performance by transforming their technology. Spain’s BBVA, for example, supported its expansion into new markets through a new technology platform which enabled it to standardize global operations, consolidate data and achieve efficiencies across multiple subsidiaries. These enhancements, in turn, allowed the bank to conduct more finely tuned cross-selling campaigns. Another international bank reduced the delivery time to market of new products by 75%—and saw top-line revenue grow by 5%—by enhancing its product configuration capabilities. Having analyzed fundamentals and trends among more than 150 financial institutions and surveyed bank executives worldwide, Accenture believes the ones that will outperform in the coming years will have a full view of their customers’ relationships with the institution across channels, the ability to sell products through all channels, and the capacity to deliver a consistently positive customer experience regardless of channel. Successful banks within the next few years will be those that embed new capabilities of all kinds into their operations—risk analytics, customer analytics, pricing optimization and industrialized management of nonperforming loans—to form a less vulnerable foundation for their businesses. We will also see far more segmentation of the customer base and more products being better tailored to those segments. The range of products will be simpler for the customer to understand and importantly, easier for relationship managers to sell. Traditional brick and mortar U.S. retail banks are facing new competitors that sport a “take no prisoners mentality.” Unencumbered by complex operating models, they offer a simple product set and a strong customer focus. Because their supporting technology mirrors their operating models, they can drive huge cost savings and economies of scale. They are without question poised to increase sales, wallet share and customer satisfaction in the U.S. market. That leaves retail banks with a choice. They can view the changing landscape as an opportunity to start developing the technology groundwork needed to achieve long-term profitability and growth. Or, they can ignore these new competitive forces and, ironically, find themselves in the greatest jeopardy as the market rebounds. [This article was posted on April 9, 2010, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2010 by the American Bankers Association.] |
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