Call to Win the World

Banks across the world - including the global giants, the rapidly growing ones from emerging economies as well as the nimble new age players with disruptive business models - are grappling with the challenges of globalization and strategizing to seize the opportunities it presents. In fact, Gartner suggests that global banks will use multi-country expansion as one of the key growth models for the future.

The centre of gravity of global finance is shifting to accommodate the growing wealth of emerging economies such as China, India, Latin America and the Middle Eastern states. Banks are fast making their way to these shores to increase revenues.

Strong global ambitions of players from the BRIC nations and other emerging economies are also reshaping the industry. Fuelled by rapid growth in these economies, a new set of banks with lean and disruptive business models are emerging and going global. The global foray of many Indian banks chasing the opportunity created by the vast overseas Indian community and rapidly globalizing Indian business is a case in point. Gartner predicts that this trend will continue because liquidity in emerging economies would be partly invested in fueling growth through expansion in western countries.

As banks gear up to increase their footprint across the globe, several of them are putting in place a strategy for global business expansion, often referred to as ‘multi-country transformation’.

The key drivers for banks to undertake multi-country transformation are varied.

The role of the technological drivers is pivotal and prominent. While pursuing their global ambitions, many banks have acquired local technology platforms to support their activities, most often as a result of merged operations. Since their processing has developed in a series of silos, they are often saddled with multiple systems which duplicate functions, leading to wasted time and resources.

Banks have little option but to overcome this challenge by consolidating their IT infrastructure, centralizing the back-office and standardizing operations across geographies.

Approach to Get IT Right for Multi-country Transformation

Consolidation of the back-office and standardization of products, processes and operations is the best bet for banks operating in a multi-country environment. The advantages include enhanced efficiencies, faster roll-out capability in target geographies, and significant lowering of Total Cost of Ownership (TCO).

We, at Finacle, believe that banks, to maximize ROI from their multi-country transformation, must streamline their approach towards:

• Consolidation
• Standardization
• Localization

Consolidation

One direct implication of optimized technology consolidation is that the infrastructure - both hardware and software - is unified into a single instance. This positively impacts fixed cost components and maintenance expenses, otherwise acknowledged as resource-drains typical of multiple implementations.

With consolidation leading to a single system, the operational advantages derived are many. For example, a consolidated system will enable the bank to take a global view of the customer, maintain global limits and support cross-country fund transfers, both instantaneously and at a lowered cost. The same single view can be extended, in terms of practicality, for a mobile customer who banks across operations and geographies, to improve the service experience, and possibly increase customer stickiness.

Consolidation also helps the bank meet the mandate for agility while responding to the evolving needs of the marketplace, complying with sweeping regulations and creating niche segment-specific products.

True consolidation also facilitates the delivery of a uniform customer experience globally. This is created by leveraging consolidated systems and standardized processes, irrespective of the geography. Apart from significantly increasing customer satisfaction, this also helps enlarge wallet share.

Consolidation, in all its maturity, can lead to a global outsourcing model, wherein IT infrastructure maintenance is outsourced to an able vendor. This, needless to say, is better facilitated when the technology infrastructure is consolidated at one single or a few locations depending on demands of customer data residence or any other regulatory aspect. The outsourcing model could help banks bring down IT costs, and significantly lower TCO for IT operations. According to leading analysts, BPO for banking is the fastest growing service line, growing increasingly attractive, especially due to cost pressures, created by the economic slowdown in the developed world.

As part of the consolidation agenda, the bank’s shared service (common back-office) can be moved to a low-cost region to optimize costs. This can be owned by the bank or outsourced as well. This ensures optimal utilization of resources, and helps maximize the usage of branches as sales points, as opposed to the service points they are at most banks, today.

However, regulations may sometimes come in the way of a centralized global back-office. In the United Kingdom, for example, laws prevent banking data from leaving the country in the interests of security. Thus, banks cannot situate data-processing computers offshore. In such a scenario, banks can have one back-office for the particular geography. This helps localize and consolidate back-office operations and allows banks to cut costs even without a global back-office.

Standardization

The success of a multi-country transformation initiative can be measured through the extent of standardization achieved by the bank, through the exercise. Banks operate across geographies leveraging varying models. The one that serves the bank’s home country operations may not have much control over the bank’s subsidiaries in other geographies. In other instances, these subsidiaries could be totally controlled by the bank’s head office at the home country. Every bank would fit in somewhere in between these extremes. Whichever the case, banks need to achieve a significant measure of standardization to realize the true benefits of multi-country transformation. This entails:

• System standardization: Standard set of hardware and software serving the bank across geographies
• Solution standardization: Standard configuration and customization used and reused, with the same set of integration and surround application sets (like AML and DWH)
• Process standardization: Standard processes for implementation, resulting in predictability of pre-determined results

System Standardization

Solution Standardization

The solution could be standardized for:

• Configuration across geographies
• Product sets, with only minimal changes across geographies
• Customization across geographies
• Adoption of a master chart of account, with an appropriate subset in every geography, using the same numbering pattern as in the master
• Operational, MIS and audit reports

The drive must be to achieve as much of standardization as feasible, without endangering business differentiation to be achieved, by leveraging location specific imperatives. This ensures re-usability, easier maintainability and reduces deployment timelines. Upgrades to newer versions of technology would be streamlined and roll-out of subsequent upgrades, much easier.

This effort would also ensure that a ready standard base is available for the bank to leverage when entering new geographies (Greenfield transformation). With standardization, the implementation time-line can be minimized to as low as 30-45 days.

Process Standardization

Process standardization impacts both banking processes as well as the deployment and transformation processes, across geographies.

Banking process standardization would enable the bank to have a significant part of its back-office operations moved into the shared services model. This would also simplify the process of optimal resource utilization, facilitated by the ease of employee relocation across geographies, creating a larger pool of available resources across the globe. The customer, in turn, would benefit from a uniform service experience.

Standardizing the transformation process would entail homogenizing:

• Change management process and principles across implementations
• Localization processes
• Help desk processes for implementation (which can also operate in a shared service model during the course of the implementation)
• Customization management and delivery sign off

This will bring in ease of monitoring the transformation process and would significantly reduce transformation time, as a direct result of well-established processes. When the processes mature, it would be easier to achieve integration of different entities as well. This is typical of situations when the bank expands operations, or acquires a new entity in a target country. In such instances, using the standard deployment methodology, the bank can absorb the new entity into the existing system, smoothly and rapidly.

Localization

Localization brings in a critical local flavor to multi-country transformation, vital for the success of the larger revitalization program. Localization enables the bank to get the ‘territory buy-in’ as well as to meet local regulatory and compliance mandates.

Full-fledged localization can impact:

• Configuration
• Reports
• Customization
• Language

Configuration localization typically entails making minor changes to the basic product, to create regional flavors and thereby achieve differentiation. This ensures that local users do not feel forced to use a product alien to them. Optimal configuration localization ensures that the core of the product remains unchanged. This, in turn, results in shorter product implementation cycles and huge cost savings for the bank.

Report localization and customization aim at meeting local regulatory requirements, without changing the base product significantly. The validations and geo-specific checks, ideally, must be nothing more than a minor tweak to meet the regulatory requirements. However, the technology platform must be flexible to churn out regulatory reports for new geographies with minimal change to the underlying programs.

A technology architecture that promises multilingual support to generate reports and screens in the local language is a vital requirement.

The word of caution when balancing localization and standardization: The focus must be on absorbing best practices across different geographies. However, localization must only entail a bare minimum in geo-specific differences, driven by local regulatory norms or specific banking practices, impacted by the local culture.

Multi-country Transformation. Multiple Benefits.

In summary, banks cannot wish away the need to have a significant presence if not substantial penetration in different geographies. It is also imperative that they align their business vision with technological prowess. A clearly defined technology strategy driving their transformation program can help propel innovation, flexibility and growth, which in turn increase productivity and profitability.

Often at the heart of such a transformation program is a strategic re-examination of the future of the bank’s core banking systems. The choices are in terms of either extending the existing platform or selecting and deploying a new platform. However, for each of these options the check list is that of principally looking at capabilities to bring in the benefits of efficiencies and costs reduction with standardization. It is no longer a question of “if” but it is one of “when and how” to embark on such a program of technology-led multi-country transformation.