A recent study by Accenture talks about the future state of banking in US by 2020. Thankfully, the study reports, US banks have emerged from the travails of a battered economy. Two important findings from the study stand out.
1. Banks face increased competition in coming years
2. Emergence of a core group of full service banks that will be the backbone of US Banking system.
While we can debate the findings, the current activity stream at banks does indicate that there may be truth to this and that we may be already seeing the contours of US Banks by 2020.
Interactions with bank executives have definitely made one thing clear. There is immense buzz around this future landscape and almost every major bank has already undertaken or is seeking an internal assessment to review their preparedness for change. Branch banking is one area that is likely to see intense competition; many of the big players are already investing in redesigning the branch of the future;
The other 800 pound gorilla in the room is of course Analytics. Banks are very keen to step up their capabilities - technical as well as talent pool and are building structures similar to Center of Excellence for Analytics. COE for Analytics appears to be the widely accepted route to instill an analytics driven decision culture. Backed by a war chest and executive / board mandates, massive efforts are on to upgrade their capabilities. Truth be told, many bank have discovered that they are woefully under-prepared.
Many banks are even toying with rebuilding their existing data-warehouse to incorporate a fuller and deeper digital understanding of their customers – euphemistically referred to as the 360o view.
New regulatory standards like Basel III, Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST), Fraud detection, Anti-Money Laundering (AML), Know Your Customer (KYC) etc. have spawned their own set of internal reviews and investments. However, Analytical capability improvement is at the heart of all these initiatives.
Upgrading analytical tools and platforms is also top on the shopping list. Focus appears to be on investing in emerging technology – e.g automation of predictive analytics modeling, real time offer engines for customer acquisition, transaction (big) data analytics, real time personalization of customer experience etc. Many banks are building Center of Excellence (COE) for analytics.
Internal competitive pressure on executives is intense at banks; many executives are building their own analytics back office groups to have an edge over their peers. This could be counter-productive by building redundancy and generate dueling analytical capabilities and decreased sharing and openness. This is not a healthy development in the long run.
Some Banks are adopting a short term perspective in preparing for the 2020 scenario. For example some banks are recruiting Data Scientists who they think will solve all their quests for insights. However, they do not have a plan to resolve bottlenecks in data flow - all the way from the data-store to the analytical layer. In other words absent the required analytical data infrastructure, their plans are a non-starter and investments wasted.
This brings us to another dimension to the catch up scenario. The analytics maturity or preparedness for using analytics varies vastly in banks. Size and deep pockets have not necessarily translated into competitive advantage. Banks that have sound data infrastructure and a clear 360o view of their customers – in other words one vision of truth across the enterprise - have a head start and will maintain their tremendous advantage and will end up being the winners. These banks will benefit by deploying latest technologies and analytical platforms and guide business decisions as never before. They will emerge leaders of the pack. As for the rest, they have to do a lot of clean up and then catch up.
While banks are in a hurry to catch up and not miss the bus, they need external help for a successful transformation. They would need expert advice so that they do not have the re-invent the wheel. They need external help to carve a broader picture and pick the best practices or solution set that will be most appropriate for their bank.
Most US Banks – small and big are on board this transformational journey. These initiatives involve great investments and outcomes are keenly tracked. Many careers are at stake. But those that succeed will form the backbone of US Banks 2020. This obviously will result in intense competition and change the banking landscape in the US forever.
As scores of banks embark on this exciting journey, the IT majors are closely watching the opportunities that this is creating. Unfortunately, the fact is that it does not automatically translate into revenues for them. Many are still clueless on how to cash in. They have to do their homework and come up with crystal clear vision to help banks in this challenge.