Integration: Wholesale Banking's Holy Grail
Today’s corporations have broad wholesale banking needs – cash management, trade finance, foreign exchange, payments, commercial lending, and corporate trust and custody. Yet, according to TowerGroup Research, a leading research and advisory firm focused exclusively on the global financial services industry, for at least the past decade, banks have devoted on average only about 25 per cent of their annual technology budgets to wholesale banking. Instead, banks have generally preferred to invest their available dollars in areas such as retail, where the potential return on investment for technology initiatives has been more lucrative and less complicated.
As I noted in my May article, At the Crossroads: A Checklist for Success in Wholesale Banking, business and economic indicators are pointing to a rejuvenated wholesale banking market in 2004. And as banks are becoming more confident in the prospects for their wholesale banking divisions – and recognize the intense cost pressures, new regulatory requirements and higher customer expectations pushing them to invest – they are preparing to upgrade technology and its supporting infrastructure. Unfortunately, due to a number of cultural and technical characteristics unique to wholesale banking, the market is faced with a fragmented IT landscape of incompatible and non customer centric systems.
The standardization and integration of technology continues to be hampered because the major wholesale banking functions traditionally operate as autonomous business units. Each area has developed their technology platforms separately; each independently designed to service a particular niche, product or service. Examples include cash management information reporting, foreign exchange, wire systems, domestic payments and trade finance. Adding to the complexity, many institutions deploy separate support centers for individual business units based on the type of service or product. Though there is some consolidation being seen with the front line delivery in terms of sales and relationship personnel, the wholesale banking services largely remain a specialized world comprised of individual units, divisions, and sales and support people.
This specialization results in a very costly delivery infrastructure, with multiple organizations touching the customer and multiple electronic delivery systems to support the different business units. This costly infrastructure often results in lost profitability on certain products and with certain relationships. Wholesale banking units need to break down the barriers – both cultural and technical – that hinder their ability to meet customers’ needs and achieve their business goals. Wholesale banking functions need to operate as one, not many, to achieve consistency, reliability, and efficiency in the products and services they provide to corporate customers. System integration is the enabling technology for the benefit of the banks and the wholesale customers.
What must be defined are the steps – or building blocks – for financial institutions in order to integrate their wholesale practices.
As mentioned previously, the delivery side of wholesale banking revolves around a relationship-banking model comprised of individual units, divisions, and sales and support people. Within such a complicated infrastructure, ownership issues are constantly in play, as each group wants to direct its own technology projects rather than deliver its requirements to a central group. In the case of many large, global banks, there exists an additional level of specialization – separate domestic and international business units. For instance, a domestic group may have a different technology priority than its European counterpart; one group may have its own vendor relationships; and another group may want to build its own application.
An institution needs to find a way to organize itself from the holistic point of view and collaborate across channels and business units. According to TowerGroup, achieving successful integration across a wholesale banking unit’s IT infrastructure must start with a cultural revolution – one that abandons the traditional model of separate and autonomous business lines, and advances toward an integrated wholesale banking approach. Business units need to look at their segment, identify redundancies and overlaps, and think about how they can be successful together versus separately. Some banks have taken smaller steps to organize in this fashion, combining the international business cash management with the domestic unit, and enabling a segment to leverage a pre-existing software license, completed due diligence and deployment. The end goal is to have the wholesale banking groups functioning as a single unit – leveraging one vendor, one platform and one solution set.
A common characteristic of traditional wholesale banking practices at many banks is that technology decisions at the business unit level have often been made based on very targeted needs and customer segmentation apart from overall corporate goals and other lines of business objectives. With the wholesale banking unit functioning as a single group, it needs to identify and prioritize its business needs and objectives across the organization.
What are the priorities? Deploying images over self-service channels versus sending paper statements? Taking costs out of the processing center through check truncation and deposit automation? Having one call center rather than having multiple call centers? Having a common infrastructure for electronic channels? Once determined, a sequence of priorities and a strategy to approach them must be agreed upon.
Wholesale banking groups need to identify the gaps in their offering. Some institutions may not offer foreign exchange, trade finance, structured finance, or payroll services, all of which present revenue-generating opportunities for the bank. If they do offer a full set of services, are they being offered up and down market to create cross-sell opportunities with the existing wholesale customer base? If an institution has a set of foreign exchange customers, are those same customers using trade? Can the trade customers also be loan customers or cash management customers? Banks need to determine what products and services they want to offer, how these products and services will be delivered, and whether they will develop these products and services internally or opt for a third party vendor.
Regardless of the business unit, there are common components for creating products in wholesale banking. Whether an institution is creating a loan, extending cash management services, or making a payment to India versus making a payment to a local business – whether it’s B2B, B2C or C2C – the business processes are the same. What differs is the scale and some of the business rules. Where an institution needs to have services that scale up for a large Fortune 500, they need to have more work flow and adapt some policies and procedures. But the underlying processes and procedures – opening an account, providing a range or prices depending on what the product is, fulfilling the product, servicing the product, advising the customers – are fairly generic and common across the various whole banking service offerings. Institutions need to identify these common processes that are leveraged across the institution, regardless of the specific line of business. They need to document them and put them in a central repository so they can be re-used, maintained and called up.
All effective technology strategies ultimately need to have a well-integrated technology infrastructure as a foundation. The traditional way of integrating systems has been the point-to-point method. Typically, the integration has been made-to-order, and any software component used cannot be leveraged for the next integration. Even if an integration package has been used, little can be re-used from one integration exercise to another. Complexity increases with each integration. Over time, the integrations are more difficult and costly to support and, in the end, can inhibit system interoperability rather than support it, making it difficult for organizations to profit from the economies of scale that new technologies can provide. Banks need to define the underlying architecture that is going to support all these shared elements and collaboration – an architecture that will support long-term growth and future initiatives.
The proliferation of products, services and channels in the financial services industry has made multi-channel integration a critical requirement for connecting delivery channels and customer touch points. A single, integrated platform on which all customer-facing and employee applications reside can cost-effectively and efficiently address the following key business issues:
Business process integration: the ability to create, extend, reuse and deploy their unique business process across multiple applications and channels, ensuring consistent customer experience across all touch points, leading to greater customer loyalty and increased revenue.
Data integration: the ability to integrate data more effectively and consistently to receive a single up to date view of the customer across all channels, providing consistent customer experience and the personalization of content, products and service.
True multi-channel application integration: the ability to leverage a pre-integrated set of front-office enterprise solutions on an open, flexible and scalable platform based on J2EE ensuring optimum, consistent implementations and reusability across all channels.
Once an underlying architecture is in place, integration becomes an execution exercise. An institution needs to review priorities and begin integration projects sponsored by the new collaborative organization. These priorities could be the development of an application, business process reengineering, or creating a shared call center support team for all products and services. Integration initiatives require both a tactical and strategic business case(s) with a long-term vision. For example, the prioritization may take the form of infrastructure first with considerations of common services such as authentication, communication and business processes; followed by replacing those product and services that are built on older unsupported or un-scaleable technology products; then augmented with newer applications or module additions to existing products. Whatever way the bank goes, it must be a program that is supported and agreed to across the lines of business. The line of business focus, however, cannot be watered down. Otherwise that product, segment or delivery channel expertise becomes ineffective. We cannot be all things to all people with single applications, but those applications can re-use a multitude of components and services across channels.
By integrating front-office applications, banks can achieve a single, comprehensive view of their wholesale banking clients. Achieving a single view of users can result in new revenue generating opportunities, enhanced cross-sell ratios, and improved customer service. From knowledge-based cross selling to delivery channel optimization, achieving a single view of wholesale customers can enable banks to realize exponential returns.