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Although companies, large and small, were affected by the global recession, financial institution failures bore the publicity brunt of the recession, especially considering some spectacular closures such as Fannie Mae and Freddie Mac, the United States’ government property lenders to the poor, which led to the current sub-prime mortgage crisis.

The situation cannot be reversed, but banks and finance houses have learnt some hard lessons and are adapting their operating procedures.

This includes the way their information and communication infrastructure (ICT) will evolve in the future.

Zensar Technologies’ global head for Banking and Capital Markets, Jitendra Bane, says the recession has presented its challenges, but there have been some positive outcomes as well.

“If we look at the past three to four years, South African banks were not entirely unaffected and experienced limited growth in portfolios during the recession. Statistics from 2006 to 2009 also state that the damage to the economic growth in South Africa is significant. One advantage for the consumer, however, is that the number of new products being introduced in the market over the past few years has increased. With the economy slowly recovering, financial

institutions are now interested in increasing their revenues and improving their margins.”

GLOBAL BUSINESS PRIORITIES

Bane says that while in South Africa, there may be low exposure to what is happening elsewhere in the world, we need to take into consideration the percentage of impaired assets in bank portfolios, which remain high.

“Banks face new challenges today with changing market dynamics. We are seeing global priorities for businesses around the world moving towards introducing new and innovative products, repositioning existing products, reducing overhead costs, gaining competitive advantage and increasing market share– essentially gearing themselves for tomorrow.” Bane believes the global technology priority has two distinct elements: cloud computing and virtualisation.

“Cloud is evolving and companies around the world are offering cloud services that are tailored specifically to financial institutions. The same applies to virtualisation. It is only a matter of time and very soon many top-level banks will have taken advantage of both cloud and virtualisation.”

Bane says a large number of the bigger banks have restructured to adapt to today’s and tomorrow’s needs, redesigning their banks and reorganising their ICT to take advantage of new technologies to provide greater efficiencies and cost savings and both cloud and virtualisation are at the heart of this. He cautions, however, that it is unlikely at this point in time that all financial institutions are going to take their core banking systems and business-critical applications

INTO THE CLOUD.

Since security is a primary concern for banks, they will monitor how cloud offerings evolve and mature, and will then look at achieving greater efficiencies in terms of their assets.

Zensar South Africa BFSI evangelist Prasad Sathe agrees:“South African financial institutions are looking for a global footprint and technology would be the key enabler to make this happen. With the recession still being felt and weak spending by consumers as inflation figures indicate, capex won’t be easy for growth, which will push enablers like IT to embrace newer technologies like cloud, SaaS and hosted services to make this a success.

“People used in shared service model has been an old IT industry trend and we feel cloud and SaaS are extensions of this to take applications, infrastructure and other services to share across organisations without the knowledge of location and time zone.” Having said that, skepticism around information security, reliability, bandwidth and success rate still concern many customers. The approach would be to target non-critical but line of business applications to be serviced in cloud but overall one needs to give two to three years to measure the success.”

“This is where our role, as a leading global outsourcing vendor Forbes Magazine named among the top 10 global outsourcing providers, comes to play,” continues Bane.“It is our responsibility to guide and direct our clients to everage the opportunities both cloud and virtualisation present.”

Sathe adds: “As strategic IT partners, customer look at our global experiences in this transformation and help enable it to achieve this shift so as to time it in right areas of operations. Our Global Delivery Model, partnerships in infrastructure and testing in cloud offering would assist in picking the right areas for our customers.”

MANAGE BAD ASSET CASES

Bane describes this role as also encompassing enabling financial institutions to achieve significant business benefits from cloud services. Lending is one such business area where cloud services can have a significant impact. Managing non-performing assets (specific to lending) and areas such as collections, collateral management and workflow management has always been a challenge for financial institutions.

“They are extremely good candidates to be taken to cloud. This will not only offer optimal cost solutions to banks, but will also directly benefit their business.”

 

TRENDS IN OUTSOURCING

According to Bane, the trend to outsource in order to achieve efficiencies has already started in the developed parts of the world and is gaining momentum.

“Previously, most companies would keep the core functions inhouse

and only outsource the non-core or peripheral functions. However, of late, we observe clients becoming comfortable outsourcing core activities as well,” he says.

He continues: “We have just won a new client in the UK - a private bank, where we are now maintaining a core banking product entirely offshore. This is a good example of confidence in outsourcing and what we offer in terms of the entire core banking solution.

“Europe, the UK and the US represent the bigger percentage of applied outsourcing. Outsourcing is now also picking up in developing countries such as China, India and South Africa.”

Sathe adds: “South Africa has taken a cautious route to outsourcing for various reasons, including demographics, intelligence retention and protecting local interest. However, with the global delivery platform and a strong cosourcing model, it has enabled clients to approach the outsourcing

in a different way. More and more clients are now looking for a Opti shore model so that core business applications can be managed and maintained in close proximity of business.”

Sathe sees “other trends that will emerge will be for African countries to piggy-back and use services already developed in South Africa.

IN FOCUS: RISK MANAGEMENT

The recent financial crisis has served as an eye-opener for most banks with respect to risk management. With increasing regulatory pressures risk management has become a vital function for all financial institutions.

However, a big challenge lies with respect to data management. Today, either the type of data required for prudent risk management is not available, or the data is of a very poor quality. Financial institutions need help in both creating a central data mart which will be “one version of the truth” for risk management and also using business intelligence to extract the right analytics and metrics required for determining consolidated risk exposures.

“Initially, BI was applied in limited areas in banking and was primarily used for MIS and reporting. Now with increased focus on risk management, banks are realising the benefits of Data Warehousing and Business Intelligence.

“Rating models really should change to suit each type of asset class, making it enormously important to hold quality data. You cannot have a good risk management system in place unless you have good data warehousing and business intelligence infrastructure.”

SOCIAL TRANSFORMATION

He says globally, companies are directing their energies and increasing their focus towards using cheaper, faster and more effective delivery channels. With clients becoming global, the need for mobile and agile applications has increased.

“Today, banks offer services through multiple channels and they need to incorporate these as part of their marketing strategies, in order to stay ahead,” says Bane. “Among the top present-day influencers is social media. We are entering a new era of social transformation and identities of customers, and market segments are changing. Financial institutions need to manage this by embarking on the road to meet mobility needs. This is one of  the drivers of cloud computing, which will become a major phenomenon and will become the cornerstone of the new-era bank.”