Trends in Banking and their impact to IT service providers

As part of an IT service provider in financial services especially to banks, we are constantly reminded of  and surrounded by what’s happening in the midst of our customers. The changes are hard to miss. We ignore these trends at our own peril!

I see the following 3 key changes happening in banking that have huge impact to IT service providers.

#1. Banks are placing more importance on open banking standards and providing APIs (Application Programming Interfaces) either due to regulatory pressure or from a desire to stay relevant

#2. Banks are using data and AI in almost all services where possible to provide differentiation.

#3. Banks invest a lot in understanding and enhancing their end-customers' engagement with them. They want to make their customers' journey – as much STP (Straight Thru Processing) as possible whilstnot comrpromising on customer experience.

Where do the new customers, especially the millennials, shop for financial products? Where do they perform the analysis and comparison? The answer is in their own mobiles or hand-held devices.  In other words, a strong integrated data management that helps in analysing real-time structured or unstructured data to understand customer better and create a personalized experience is required. IT service providers who understand this and build solutions that can adapt will survive. Such an IT system should allow customers to engage in the channels of their choice at any time. The switching from one channel to another should provide a seamless experience.

Second, long winded vendor selection process (perhaps robbing of certain revenue for “Sourcing advisors”) with a view to reducing cost of the landscape is gone. This is because banks have started focusing more on enhancing experience than cost reduction. This, of course, doesn’t mean the latter is not important. It is just that it has taken a back seat to the former and has huge implications in terms of the type of skills a service provider needs to engage with the banks to develop suitable solutions. And the banks are not prepared to wait for 3 months or more in order to select a partner! Failing fast is the new norm.

The banks are willing to pick up customers at any point in their journey but want to provide a wholesome experience that lasts long and enhances the relationship. A customer may have come to avail a particular banking service, say housing loan, after using online comparison or aggregator tools. But it is in the bank’s interest to hold on to the customers by understanding their preferences and evolving a bouquet of services that are way better than what they are currently having. IT systems can no longer be built to do only one thing. Instead, they should be nimble, lean, have the ability to learn and grow very quickly and provide a means of differentiation to the organization.

Impact to IT service providers

All the above changes affect the Indian IT service providers (ISP) in many ways and in different dimensions.

• Capability: The skills, required for building or changing IT systems, are continuously changing. As a result, people who can adapt quickly are the need of the hour. How fast can a service provider deliver such skills? This has huge impact on reskilling, cross-skilling, recruitment etc. As service providers grow hugely, such changes take long time implement. They have to start exhibiting in pockets and spread them across the rest of the units. They can’t afford to wait for global roll-outs! 
• Skill mix: Major impact in the percentage of thinkers vs builders. As the IT systems of the bank move to providing more and more business value, the fundamental nature of the skills change. ISPs used to break down every piece of IT work and execute 80% or more of them at offshore. This ratio is becoming more skewed. Some of the new type of IT work demands more than 40% work be done close to the customer and falls into the "Thinking" category. As the release cycle reduces, very quick execution is required. This would place huge emphasis on collaboration tools to enhance the quality of work and provide a seamless experience to the banks.
• Location is the third aspect. As the banks expand into new markets and offer new services, there would be demands from ISPs to service them locally. For example, there is a growing market in Baltic region. Many banks are targeting customers in the region who are considered very tech-savvy. Such demands have to be met locally very close to customer. Traditional models of building capability in a monolithic way and transporting the people to the desired locations may not work. The lead time may not be advantageous to the ISPs. Many ISPs make use of centres in off-beat fancy locations. How many of them are known for certain capability other than being a low-cost location? The customers are paying increasing attention to the capability and people being developed in various delivery centres.

All the above will call for various measures, in a co-ordinated way, to be implemented by the ISPs. Guess what, implementing these will not only be simple but add to their growing costs. But the banks may not be willing to give you a long lead time nor absorb a temporary surge in their IT costs! Only those ISPs who are not afraid to experiment and who invest in understanding their customers' journey are more likely to succeed.