"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 PlaceSince 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 AstrayWe 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 ExecutionThat'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 UpWith 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.