Listening to the Q3 results of banks, I was pleasantly surprised to see the cautionary tale around the revenue guidance for the coming quarters. Banks as a Industry group are one of the best performing on Wall Street but coming off historical lows. “U.S. banks entered 2013 with uninterrupted expense control, sound balance sheets, an uptick in mortgage activity and lesser credit loss provisions. Moreover, a favourable equity and asset market backdrop, falling unemployment, a progressive housing sector and a flexible monetary policy have been making the road to growth smoother. Yet top-line growth remains uncertain due to continued sluggishness in loan growth, pressure on net interest margins from the sustained low rate environment and less flexible business models owing to stringent risk-weighted capital requirements (Basel III standard). However, banks have been gradually easing their lending standards and trending toward higher fees to dodge the pressure on the top line. Read a summary of the state of the Industry.
That said Global, Regional and Local Banks have some significant opportunities to improve their bottom line through innovations in Operations and Technology (O&T). Let us look at a couple of technology enabled trends that are common across geographies:
Firstly the O&T is very different today wherein the distinctions between the front, middle and back office is changing. Let me explain what I mean. Growing up in the late 1980s you had this fixation around what constituted Front (customer facing), Middle (Middle ware and shared services) and Back office (such as end of day operations, postings into General Ledger and such). Now banks are shrinking this distinction by using technologies that enable them to do so. Customer walks into branch (this is a dying breed of die hards) uses a blue tooth enabled pen to fill a specially designed application form that automatically transmits the contents of what is being written (much like a key stroke can be transmitted) into an application that interfaces with the general ledger. Based on his Social Security or other unique identifier there is a preset credit limit which kicks in, a photograph is taken on the spot with his mobile device or the banks mobile device. Or picture him sitting in a lounge where much like an Apple store a tablet aided agent walks to him as he sips his free starbucks and the agent enters all details into his tablet which automatically talks to the backend and prints out his completed application after all checks are done including instant underwriting depending on how he has been scored in the Credit Engine. In this example everything is done on the spot and there is no wait time or a distinct between front, middle and back office. Assuming efficiencies like this are introduced in the future branch which is nothing more than a sound proof kiosk at Grand Central . The kiosk is fitted with a smart camera which is fitted with facial recognition technology (factor 1) which recognizes the customer (not the first time but from the next time on) and has a voice analytics engine that recognizes the customer and the customer enters his password or uses retina scanning or finger printing –we have used multiple factors that are able to identify the customer and based on the Analytics engine attached to the kiosk it is easy to cater to almost all needs of the customer with no manual intervention. These examples clearly indicate that technology is beginning to eliminate the need for a Segregation of front, middle and back and the obvious results are “on demand” fulfillment at a fraction of the cost. As some of these roll out into mainstream banks (on the basis of customer demand as the Millenials and Digital natives end us as the largest segment of consumer banking) we will see a further reduction in O&T costs.