Transaction services 2015: The technology dilemma

Solomon Teague
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The dilemma has never been more vexing. Banks and corporates are under ever more pressure to cut costs and streamline their operations, making it increasingly difficult to justify extravagant technology investment. Yet the risk of getting left behind has never been greater.

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Much of what is spent on technology is swallowed up by compliance – a cost that increases for banks operating across many jurisdictions. As a result, they are under pressure to ensure what is left over is spent wisely, to ensure the investment delivers the maximum bang for their buck.Banks and the corporates they serve have always been keen to invest in technology. But the speed of regulatory change in the finance industry has become a key driver for their technology investments. 

Banks’ increasing cost of capital has also encouraged investment to be directed at technology that helps them manage their assets and liabilities more efficiently. Regulation has encouraged banks to spend more on systems that increase transparency and accessibility in reporting, something many banks did not do to any great extent in the past.

"The introduction of Basel III has created a strong business case for banks to improve their liquidity management, by investing in systems," says Uppili Srinivasan, COO at iGTB, a provider of transaction banking technology systems for banks.

Banks are committed to maintaining significant budgets for technology investment. Deutsche Bank, for example, plans to invest more than a cumulative €1 billion by 2020. But there are always choices to be made as they look to prioritise.

"Banks have limited resources to spend on technology so there needs to be a clear business case," says Srinivasan. "And there is quite a strong correlation between the level of investment and the clarity around the business case and ability to measure the benefits."

According to Stephen Greer and Jean-Marie Ubigau, banking analysts at Celent: "Core banking migration has historically been a high-risk proposition. For many, this has stalled any large IT investments and platform migrations." Many feel the cost/benefit analysis of migration is not yet compelling enough to convince many CIOs that the time is right. "Market demands can still largely be supported, despite legacy cores," they say.

In consumer technology, company behaviour is often driven by the desire to keep pace with competition. For banks it is a little different. "If one bank modernises its payments system you probably wouldn’t see the same scramble of others doing the same," says Srinivasan. "But in the digital space they do watch the competition because a modern digital offering directly impacts end customer experience and brand perception."

Rick Striano, head of platforms and investments for trade finance and cash management corporates at Deutsche Bank, says the key drivers influencing banks’ technology policy are what the clients want, what the regulators want and what shareholders want. "Finding the right balance is critical to sustainability, and sometimes the importance of the last group is overlooked," he says.

"When a bank decides to invest in technology it considers what competitors are doing in the context of products and solutions, but when it comes to technology investments in infrastructure it’s all about addressing one’s specific needs based on their unique architecture, in the context of generating an appropriate return for shareholders. The investment needs to make financial sense."


Technology should integrate the client further into the bank. Building self-service capabilities such as the ability to access real-time information or research transactions reduces the need for staff and therefore cuts costs. That end-to-end automation increases client satisfaction

Cindy Murray,
Bank of America Merrill Lynch

Srinivasan breaks the business case for banks investing in technology into five categories: revenue generation, the attraction of new customers and businesses; revenue protection, the retention of market share; risk avoidance, which includes considerations such as the risk of regulatory noncompliance; risk reduction, about better understanding of risk and taking measures to reduce likelihood of or exposure to the same; and cost reduction, by replacing old infrastructure or consolidating systems.

Corporates face the same pressures and must decide how to allocate finite budgets. "Technology is important to corporates because they want efficiency and automation, that improves their business," says Cindy Murray, head of global treasury product platforms and e-channels at Bank of America Merrill Lynch (BAML).

That kind of efficiency and automation can make an institution that has invested wisely much nimbler. "In the past a lot of technology was hard coded into the system, so if you wanted to make any changes you had to go back to the code base, which was time consuming and very costly," says Striano.

"Today’s technology offers much greater flexibility through configuration, so you can make a lot of changes at the front end, without rewriting the code, which reduces the maintenance costs and allows for greater flexibility."

It can also reduce the gap between the bank and the corporate so it is increasingly difficult to define where one ends and the other starts. "Technology should integrate the client further into the bank," says Murray. "Building self-service capabilities such as the ability to access real-time information or research transactions reduces the need for staff and therefore cuts costs. That end-to-end automation increases client satisfaction."