Infrastructure

11:36 AM
Dani Golan, Kaminario
Dani Golan, Kaminario
Commentary
50%
50%

Big Banks Are Now Technology Laggards

Burdened by massive fixed costs, complicated legacy infrastructures and a changing revenue model, large banks are finding it challenging to move to newer technologies.

Dani Golan, Kaminario
Dani Golan, Kaminario

"Talk to IT at Goldman Sachs. They know what's up," said no one ... recently.

Five years ago, the IT departments of big banks such as UBS, Goldman Sachs and even Bear Stearns (before it went belly up) were regarded as true innovators. They were always early to the technology game, even using new advancements and systems to often drive business strategy. For the big banks, it was “keeping up with the Joneses of IT,” as the firms competed and continued to pour money into the latest and fastest technology available.

That's no longer true. In fact, big banks are now laggards when it comes to technology. Instead of looking to lead the market by investing in new systems, they now just settle for using tools that 'work' and keep things moving.

This complacency has also allowed mid-sized companies to gain significant ground on bigger entities. They have created more flexible, efficient and higher-performing businesses by implementing new IT strategies and systems. For some of these mid-size banks, they are already seeing top-line impact in the form of sustainable IT strategies, increased customer retention and more agile businesses. As data volumes become more complex, the demands for faster, more responsive system increase. And by using data to evolve the ideal customer experience, they're also in a stronger position to grow their organizations.

Why This Shift Has Taken Place

Since 2008, the mantra has been 'do more with less' -- cut costs and employees, reduce expenses and stretch what you have. In capital markets, where strict governmental regulations were set in place, customer retention concerns were high and revenue growth was top of mind. However, revenues dropped in many business lines (such as equities trading) and bloated IT budgets were often the first things to be slashed.

"Big banks are now laggards when it comes to technology. Instead of looking to lead the market by investing in new systems, they now just settle for using tools that 'work.'

Today, not much has changed. We've continued to see big banks hesitate to adopt new technologies. While companies have increasingly turned to hosted software and cloud computing to help reduce enterprise IT costs, they still largely refuse to invest to improve their core business systems and create new opportunities. This reluctance is at the root of many issues making headlines and plaguing organizations today.

Just last month, Goldman Sachs reported that revenues missed Wall Street's forecasts and were down 22 percent from the second quarter, 20 percent compared to a year ago. JPMorgan Chase, Wells Fargo and Citigroup have also recently reported mixed revenue results and outlooks -- a clear indication that five years after the financial crisis, they are still struggling to recover and to expand their businesses. It would be foolish to discount the role technology systems play in spurring financial performance and delivering customer value.

The Best Laid Plans Go Astray

We live in a world of instant gratification -- one where we can download the newest mobile app with one click, identify a song and the artist instantly, and even order a taxi that arrives to our doorstep within minutes. Consumers increasingly expect their banking partners to provide mobile deposit capture, person-to-person payments, mobile payments and other features that are consistent with a mobile-friendly, real-time world. They want to be able to interact anywhere, anytime, and with any device -- and those kinds of experiences just aren't possible without a modern core infrastructure.

The best laid plans for consumer-centric technologies are lost if you have an aging core database. Of course, if organizations have taken the time to invest in new technologies -- and instead decided to capitalize on uncertainty instead of cutting -- there's massive opportunity to forge ahead.

Big Challenges Call for Big Ideas -- and Execution

That's exactly what has happened with mid-market banking organizations. These companies have gained significant ground on bigger entities by continually building on small investments to adapt better infrastructure over time. 

For example, Thomaston Savings Bank, a $750 million-asset lender in Connecticut, introduced an iPhone app a year ago that has one third of its eligible online banking customers using the mobile app. (They will build on its success and introduce the iPad app in the near future.) Not only does the organization see their mobile offering as a way to retain customers, but they also say it helps to maintain a competitive footing.

Other companies have replaced core IT systems over time so their employees spends more time serving customers and less time accessing information. For example, introduced an iPhone app, a leading long-term savings and investments company headquartered in Edinburgh and operating internationally, implemented cloud-based services management platform ServiceNow to consolidate its systems and transform processes. Now, the company has a single system of record for key processes, and employees have a single entry point for all IT services. As a result, Standard Life’s IT group has seen a 25-percent improvement in meeting its SLAs for incident management.

Whether it's implementing more flexible, faster applications to replace slow on-premise counterparts, fundamentally re-architecting their IT stack, or enabling customers to take advantage of more mobile-friendly solutions, mid-market players have snuck ahead when it comes to utilizing new technologies to create business and client value. And as a result, they now have the ability to trade faster and smarter, understand market and customer trends in real time, and reduce unnecessary risks and early fraud detection. They are doing this as their larger competition is just coming around to thinking about implementing those technologies.

Talk to IT at [Any Mid-Sized Bank]. They Know What's Up

With the barrage of data that IT is tasked with managing and sorting through in real time, financial organizations need core infrastructure that can scale with these volumes and avoid handcuffing their organization. Enterprises double their data volumes each year and that factor will only increase exponentially. And IDC expects worldwide data growth to reach 40,000 exabytes by 2020.

It's clear that coming around to the possibility, according to a recent Celent report, the number of banks indicating they were somewhat or highly likely to replace or refresh core system over the next 3-5 years jumped from 17 percent in 2010 to 24 percent in 2013. While that stat is encouraging, it's not fast enough. If the State Bank of India (SBI), the largest and oldest bank in India, can successfully undergo replacing their core banking system and in doing so centralize computer processing, consolidate affiliate banks, offer new banking products and reverse a trend of customer attrition – so can every other bank in the United States.

To spur growth and grab market leadership, half measures and incremental changes just don't cut it. Big banks must look to the playbook of mid-market players for guidance on how to embrace innovation and transform operations accordingly. Organizations that have the tools and strategies in place will reap the benefits while the competition flounders.

About The Author: Dani Golan is founder and CEO of Kaminario, an all-flash storage array provider. Golan oversees strategy, go-to-market and overall company operations at Kaminario. Previously, he served as President and General Manager of Performix Technologies, acquired by NICE Systems in 2006. Prior to Performix, Golan was an executive responsible for leading new ventures at EMC. Golan holds a B.Sc. in Electrical Engineering (Summa Cum Laude) from the Technion Institute of Technology, and an MBA from the Kellogg School of Management, Northwestern University. Prior to his professional career, he served as a fighter pilot and an officer in the Israeli Air Force.

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Becca L
50%
50%
Becca L,
User Rank: Author
1/29/2014 | 9:39:28 PM
re: Big Banks Are Now Technology Laggards
Very true, but these days banks are really just technology companies that deal with money. And banks keep patting themselves on the back for breaking ground with innovative tech, but really, are they? At best they seem to just be buying up smaller companies that have already done the legwork. I agree with Golan that a lot of the big-bank innovative glory days are behind them.
babugb
50%
50%
babugb,
User Rank: Apprentice
1/29/2014 | 10:58:09 AM
re: Big Banks Are Now Technology Laggards
I agree, big banks are heavily affected by compliance &
regulatory related programs. Also, most of the big banks are still struggling
to come out from the crisis. Hence they have squeezed budget to invest
in new technology. They prefer to run GǣBusiness As UsualGǥ rather than changing or
transforming the business by investing in technology.
Jonathan_Camhi
50%
50%
Jonathan_Camhi,
User Rank: Author
1/28/2014 | 9:15:25 PM
re: Big Banks Are Now Technology Laggards
Also to be fair Amazon and these other retailers don't always have the legacy technology issues that banks do.
Becca L
50%
50%
Becca L,
User Rank: Author
1/28/2014 | 6:38:05 PM
re: Big Banks Are Now Technology Laggards
To be fair, Greg does come off as a home equity kind of guy! When you walk up to the check-in counter at airports they are able to pull up all sorts of information about the passenger's status, it's crazy that the tech isn't so seamless at top financial institutions
IvySchmerken
50%
50%
IvySchmerken,
User Rank: Author
1/27/2014 | 5:05:37 PM
re: Big Banks Are Now Technology Laggards
It seems that banks offer everyone a home equity loan indiscriminately. It's their favorite product. But since you already have one, they should know better. It's not a way to impress the customer.
Stormhaus
50%
50%
Stormhaus,
User Rank: Apprentice
1/27/2014 | 3:26:08 PM
re: Big Banks Are Now Technology Laggards
To clarify, I think the laggards are the insurance providers.
Retailers are trying, but they "miss" just as often as the banks - with higher frequency. I typed "hot water heater" in an Amazon page one time in 2011 and they still seem to think that a new hot water heater is in my future.
Isn't it interesting that the shelf-life of our big data is so short? WF needs to step up and know your situation and Amazon should know when to stop. Thanks for your feedback.
I hope for a better customer experience from them both this year.
Greg MacSweeney
50%
50%
Greg MacSweeney,
User Rank: Apprentice
1/27/2014 | 2:37:00 PM
re: Big Banks Are Now Technology Laggards
I'm fairly certain that retailers (think Gap, Amazon, LLBean) are not looking to banks for innovative ideas. Most retailers have done much more with big data and analytics than financial institutions. The FIs are just starting to crack the surface of analytics for customer service.

I am also a Wells Fargo customer and while their services are good, their personalization is pretty poor. I'm getting emails daily to refinance my mortgage, even though I refinanced in the past year and the rate that I have now is better than the one Wells is offering. You'd think they would know that, being they are my bank and all.

And when I went into a Wells branch (the first time in a branch in about a year) to buy some gift cards around the holidays, the teller asked if I wanted to open up a home equity line of credit. Umm, I already have one.
Stormhaus
50%
50%
Stormhaus,
User Rank: Apprentice
1/27/2014 | 1:53:37 PM
re: Big Banks Are Now Technology Laggards
The customer has already seen technology advancements from the big banks and it will only get stronger in the coming year. Advancements in voice biometrics for fraud and authentication, the complete use of advanced features of smart devices, and "the small things" personalization based on big data insights are the things keeping me with Wells Fargo and I have no plans to change. Compliance may be top of mind, but to label big banks laggards is a fallacious interpretation. I wish my insurance provider or favorite retailer had a fraction of their technology. Banks are getting closer to their customers and will see fruit in 2014.
IvySchmerken
50%
50%
IvySchmerken,
User Rank: Author
1/26/2014 | 6:42:28 PM
re: Big Banks Are Now Technology Laggards
Big banks are struggling to reinvent their competitive advantage. They've been stymied by compliance projects and capital requirements and derivatives reforms. It doesn't mean they are not innovating internally and incrementally. They all have mobile applications for research and trading. But are they taking advantage of cloud? It's an opportunity for midsize banks and hedge funds who have less baggage from legacy technology to leapfrog the larger players.
More Commentary
The Future of the CIO
Todays chief information officers are no longer hardcore technologists. And they arent pure business leaders either. They need to have excellent business and technology acumen to succeed.
HFT's Death by a Thousand Cuts
It took a while for regulators to catch up with high-frequency traders. Unfortunately for the HFT players, the regulators found their footing in September.
100 Years: Charles Dow to Quants to Predictive Analytics for Everyone
High-frequency trading and quantitative financial analysis left most investors in the dust. Today modern advanced data analytics tools are giving all investors access to unique information.
6 Security Strategies for Mobile Employees
Six mobility rules for employees moving between offices, meeting customers offsite, and traveling to business functions.
Behavior Biometrics a Popular Defense Against Cyberthreats
Banks are capturing behavioral data like swipes, typing cadence, and mouse patterns to identify fraudulent account activity.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8, October 2014
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
Video
7 Unusual Behaviors That Indicate Security Breaches
7 Unusual Behaviors That Indicate Security Breaches
Breaches create outliers. Identifying anomalous activity can help keep firms in compliance and out of the headlines.