As the Arabian proverb says (Unity is power). And banks within Saudi Arabia are certainly hoping to achieve this; in 2018 alone, we saw several large financial institutions move to merge and acquire on an unprecedented scale.
And these mergers are set to continue as the Kingdom’s main sovereign wealth fund, which owns stakes in some of the biggest lenders, has highlighted that it is weighing which banks could be merged to increase scale. In addition, authorities are also likely to look favourably upon potential mergers among banks outside the state’s control.
The benefits are obvious and can include increased market share, a decrease in competition and, of course, a gain in greater synergy and operational efficiencies. However, these elements are not easy to achieve. For many banks, particularly those established a decade or more ago, technology has become a spaghetti of complex intertwined applications.
Maintaining these multiple, interconnecting systems means dedicated resources, lethargic processing and an increase in systems failures. Ultimately terrible operational inefficiencies are realised, damaging in themselves, but when you look at the lack of synergy that operating multiple systems from merging companies brings, it becomes quite frightening.
The digital challenge
We now live in a digital world. Neo bank or fully digital banks are the trend. For young customers, banking should be no different to interacting with those services that support their digital lives such as Amazon, Careem and Google etc. fail to offer an intuitive, similar banking experience and banks fail to meet the expectations of the new tech savvy Generation Z audience that are soon to be their main customers.
Post-merger, decent straight-through processing (STP) cannot be achieved with multiple systems operating within a single bank. Add in duplicate systems from two or more banks for each core function that is required (although often there are more per bank) and getting the systems to even talk to each other will be an achievement!
The data challenge
The amount of digital data being generated today is huge thanks to smart devices and the internet of Things. This data can (and should) be analysed to make intelligent decisions to support areas including cross-sales, customer acquisition and retention, financial crime mitigation, however, in today’s fast moving, digital world this data needs to be available in real-time.
Banks are realising this, in a recent survey we conducted with Ovum, Making the Business Case for Payment Transformation, 77 per cent of banks interviewed stated that ‘Meeting customer expectations around access to real-time information are a growing challenge for our business’. However post-merger, the data is often bound up in multiple systems with no conformity on semantic standards and when merging with additional systems this adds further complexity that makes real-time information an impossibility.
The innovation challenge
Post-merger, offering new products and services quickly and efficiently is essential to bank survival; banks must evolve with customers continuous demands. Products such as STC pay the wallet payments launched by STS for nationwide peer to peer transfer or Liv the new bank launched by Emirates NDB or Beehive for SME crowdfunding and Debt Invoicing, are demonstrating that disruptive services can significantly move customers away from traditional bank offerings.
When banks merge, introducing new products to show the very strength and benefit of the union are often expected fairly soon, however, the bank must have the infrastructure (or partner community) to bring these to market fast. Building products requires the selection of an agile, configurable core banking platform.
Empowering bank businesses to design and build their own products and services rather than outsource; it saves time, money and ensures full control throughout the product lifecycle. Some core platforms have flexible product builder capabilities, which by their very nature empower banks to be more innovative.
These should offer componentisation where banks can add functionality according to customer needs and parameter driven to enable easy changes. There should be no need for users to be IT experts or coders, so flexibility, business agility and productivity are boosted simultaneously.
Turning the merged system challenge to your advantage
Merging banking systems can mean far more than doubling inefficiencies. Many systems have nuances and features which have evolved over decades and it is near impossible to understand all these before undertaking merger projects.
Failure to consider (and address) every element can have a cascading effect on customers, as well as statutory and regulatory reporting leading to confusion and potentially irreparable damage to a bank’s reputation. Taking all these factors into consideration, moving to new core systems that can support digitisation, data analytics, and agile product offering leads to lower risks and, faster market impact of newly established bank.
Ultimately, merging banks means to create something that is bigger and better, something that enables a fresh start from a technology perspective. A new core platform should allow you to seamlessly connect with all other integral systems. It should address the data, digital and product development challenges listed and more.
But above all, it should support the customer. A completely integrated core system offers a seamless real-time omni-channel experience to both employees who directly use it and its end customers.
It should deliver on the market demands of any-channels, any-time, without complicated handoffs and different user experiences. Ultimately allowing banks to capitalise on understanding the customers user journey, and consequently follow up with knowledgebased services and product offerings. Focus on the customer by focusing on having a single version of the truth and together you will be stronger.