Banking on IT

IT has become a key enabler for the financial services sector as it strives to understand its customers better and create a range of products and delivery channels that appeal to the Middle East's increasingly fickle user base.

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By  Alicia Buller Published  August 1, 2004

|~|NBAD200.jpg|~|Srood Sherif, IT manager at National Bank Abu Dhabi (NBAD). |~|In spite of a global economic downturn, the region’s banking markets are faring well. Nearly all of the UAE’s banks have recorded growth in the past year, bolstered by low interest rates and steep oil prices linked to the conflict in Iraq. For instance, Dubai-based Mashreqbank has recently reported a 25% surge in first half profits to US$92million, with total assets up by 34% to US$8.1billion. This phenomenal growth is not only limited to the UAE — Lebanon-based Arab Bank and Qatar National Bank have reported half-year profits up by 28% and 41% respectively against the same period last year. But while the economic outlook may be healthy for many regional banks, it’s not time for the financial houses to rest on their laurels just yet: customers are becoming increasingly fickle and demanding more from banks than they have ever done before. “[Customers] want a bank that is focused on customer service and meeting their needs, whatever these may be: multi-channel touch points, 24/7 access or a variety of innovative products to satisfy their financial and business demands,” says Srood Sherif, IT manager at National Bank Abu Dhabi (NBAD). “They want a bank that takes a long-term view of the customer relationship,” he adds. Now that most large financial institutions are offering like-for-like in terms of interest rates and standard services, it will be the bank that considers its customer first and is able to offer tailored products and services that will survive into the future. While finance houses are sustaining profits at the moment, in the longer term, with 49 UAE banks chasing a population of around 3.4 million, it’s likely that some banks may be squeezed out. “[Customer service] will be the final differentiator. A bank can have state-of-the-art technology and offer good rates but, at the end of the day, people want a personable relationship with their bank and to be able to talk [to their bank] whenever they need it,” says Hani Kablawi, Bank of New York’s managing director & senior representative for the Middle East. It’s no surprise that a major enabler of quality customer service is IT, and no one knows this better than the local banks. Financial institutions in the region have been falling over themselves to implement the latest technology in their institutions: customer relationship management (CRM), data mining, business intelligence (BI) and multi-channel enablers being just some of the most popular tools. Figures from MENAFN Research show retail financial institutions in the GCC and Levant region are set to spend more on IT than ever before. 70% of the financial institutions surveyed by the company said they were raising their IT budgets, with one third specifying that this increase would be somewhere between five and 15%. “MENAFN Research attributes the increase in IT budgets by regional institutions to several factors that include the important role technology plays in the financial services sector and the fact that many regional banks increasingly view IT as a competitive differentiator… IT spending is set for more growth, which could eventually match the Western average within a three year period,” the report states. In an age where so many banks are fighting it out to keep and gain customers in the UAE alone, the emphasis is now on which bank can be the most agile and responsive to clients. The bank that thrives in the future will, first be able to discern its customer needs and then react to these needs rapidly with innovative and customised products and services. “Banks have to choose the most agile technology. Microsoft is working with financial institutions to develop easy-to-use tools. So when a bank wants to launch a new product it takes two weeks and not a whole year. A bank’s main concern is “How can I changes my products and services faster than the competition?” says Samir Benmskhlouf, business development manager at Microsoft Bahrain. Flexibility has become the central trait of any successful bank’s operations: having the agility to provide customised offerings on a whim, having an infrastructure that’s flexible enough to deliver to multiple customer platforms and agile enough to incorporate new and ever-advancing IT. “We have to add new products and services all the time, and the opportunity is there to find products the customers can benefit from. Though organic growth on existing business lines is fine, it is only through new business lines that we can really grow. Our goal is that over the next three years 20% of our income will come from brand new products and services,” says Abdul-Aziz Al Ghurair, chief executive officer of Mashreqbank. To deliver flexible products and services a bank first should first consider its core infrastructure and the middleware that will translate and feed data through to multiple channels. Local vendors, such as iFlex and IBM, are now offering banking-specific middleware that enables financial organisations to link their disparate databases with performance management, BI and CRM apps. Whereas banks used to develop software on legacy systems, which meant it was difficult to create new offerings, today’s customer demands mean banks are looking towards open infrastructures with universal coding and protocols. In particular, XML is proving popular and has been adopted by all the main IT banking solutions providers. XML allows different silos of information within the bank to communicate with one another, avoiding the headaches banks can face when dealing with legacy coding. If an IT manager has created his own code within the bank, for example, there will inevitably be problems when he leaves his position or is unavailable. “XML is simplifying integration across various systems in banks thereby effecting better banking and improving customer service. It allows banks to respond quickly and efficiently without having to drill down data from individual systems separately. They can design new products with access to data across various systems in a very flexible manner, for instance, [it could design] a new student loan with a specific time limit and interest rate with a flexible front end tool. This is because XML allowsdisparate bank components to talk to each other,” says Ivan Fernandes, CEO of Ducont. But still, XML is only a communications protocol and for technology to work it needs to be driven by the business. In order to integrate information and deliver flexible offerings to the customer, banks first need to know their customers. Banks, more than many institutions, hold vast amounts of data on their clients — every time a customer transacts, the bank gets information about where their money is being spent and where they’re getting it from. But according to Fernandes, this information isn’t being effectively utilised. “Around 75% of banks in the region still are using traditional accounting packages... not innovative banking systems that concentrate on the customer... Very few banks have a flexible infrastructure. In this part of the world, products are first tailored and then sold to the masses. Evidence shows that 80% of banking business is done through 20% of customers. Banks need to analyse the value of their customers through intelligent data mining and then deliver specialised services to reap better ROI,” he says. NBAD is one local bank that strives to incorporate the latest technology to benefit customers. In the last four years it has overhauled its core banking system with Polaris and introduced inhouse developed operational data stores for reporting and analysis of customer data, thus enabling it to gain a single view of the customer and focus on user needs. ||**|||~|IvanFernandes200.jpg|~|Ivan Fernandes, CEO of Ducont.|~|The bank’s newly launched Doctor’s banking solution is a recent example of a package that is unique and targeted at a specialised group. The offering aims to assist doctors in setting up their own practices and consists of a range of loan benefits, including longer payback options and low interest levels. “For doctors to open and operate their own private clinics, special financial resources are required. NBAD is taking the role to support the UAE health professionals by tailoring for them a unique and doctor’s package that will fit and suit their needs,” says Khalid Al Deemas, head of retail banking at NBAD. In addition, the bank has recently consolidated its disparate contact centres and overhauled its customer-centric technology with Altitude Software’s uCI suite and HP consultancy. The facility offers support for both inbound and outbound voice, interactive voice response (IVR), e-mail, web collaboration and chat. It allows NBAD’s service agents to handle telephone interactions as well as requests made via e-mail. “Clients can be handled according to their individual needs, depending on their profile with the bank. Once a client’s needs are identified, he or she can be routed to the best available customer service representative without frustrating transfers or long waits in queues,” says Jehad Masoud, project manager at NBAD. As well as customising their offerings, local banks are waking up to the idea that it’s imperative to have one data source to feed multiple channels. At the core of any effective personalisation strategy is a data warehouse that stores all customer information, regardless of how a client approaches a bank, and builds a portrait of the customer. Middleware-based solutions, such as the iFlex solution deployed by NBAD, allow a bank to enable data sharing between different channels, providing one window on the customer. In addition, banks are employing BI and data mining solutions to extract information on customer needs, predict the future value of individual clients and offer them suitable products and services. “Employing an integrated data warehouse and data mining solution is so important. Piles of data are useless without being read properly. Banks need to know what information they want to extract to modify it and create new offerings that suit their customers and cross-sell,” says Fernandes. Dubai-based Standard Chartered Bank has recently employed Business Objects BW Universe Builder technology, where all its corporate information is housed in one expansive database. Extraction tools (ETLs) then allow IT staff to gather data from multiple data silos to feed the ‘universe’, which creates a single view of the customer. In turn, this leads to quick and consistent service. “We offer a virtual enterprise view of the customer, or ‘one window on the customer’... For instance, a dashboard for a senior manager would offer different information to that of a teller — the dashboard selectively presents the relevant information to the bank user, whether it’s predictive trending or costs and profits, or simply a consolidated view of a customer’s accounts,” says Trevor Caddy, Middle East director of Business Objects. “Customer service performance improvements come when you can call up the relevant information in seconds via search fields. Anything else will lead to slow and inefficient service,” he adds. Along with the personalisation offered by CRM and BI solutions, the customer is also demanding that their tailored offerings are delivered to them where and when they want. “Customers want to access tailored services 24/7 across a multitude of platforms: SMS, e-mail, wireless, ATM banking, phone and face-to-face. This requires one robust infrastructure that can reliably deliver a consistent customer experience across all channels,” advises Bashar Kilani, software group manager for IBM in the Middle East East, Egypt, Pakistan & North Africa. Doha Bank recently signed a multi-million dollar agreement with HP and its local partner, Mannai. The solution includes a multi-tier HP Unix clustered environment, virtual storage, plus the implementation of blade technology for web applications and enterprise management Open View operations for performance management. When live, it will help the bank create an integrated enterprise architecture that can work across its customer access channels. “We have reengineered the architecture of our core technology to enhance reliability, scalability and manageability. This means Doha Bank will be able to provide high availability customer access channels to support banking anytime, anywhere. This will also support quick deployment of new products and services,” says R. Seetharaman, acting general manager of Doha Bank. However, one issue with financial technology, at least for the smaller banks, is that it doesn’t come cheap. That’s why the uptake of financial services outsourcing increased by 40% last year, according to MENAFN Research. Through the outsourcing model smaller banks can access cutting-edge technology at a fraction of the price. One outsourcing company, China Systems, offers trade financing solutions at a flat fee of US$1 – 2 per transaction, which means banks can save on costs as there doesn’t need to be any prior investment or costly IT maintenance for straight through processing (STP) services. “It used to be that bigger banks got better value for money because they’ve got more customers, even though they paid the same for IT as smaller banks because they had the buying power. Now small banks can get a slice of the big boy’s action through outsourcing for a smaller price,” says Digby Bennett, regional sales director at China Systems. Outsourcing can helps banks to reduce their fixed costs and make their costs variable and more in line with the number of transactions they receive. As the competition heats up, banking transaction volumes could well fall but fixed costs will remain the same. “Clearance, settlement and custody solutions can be offered on a per-unit transaction fee basis. This can improve customer service for smaller banks, while cutting costs,” says Kablawi. In the future, banks that succeed will certainly be the ones that offer premium customer service. Though technology will be a major enabler, it will all come down to how intelligently a bank uses its data. The switched-on banks will glean money from high-value customers by knowing who they are and what they spend, while also using the same data to offer customised offerings and rapid response. This lucrative double-edged sword is the key to successful banking. ||**||

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