In an interview with Euromoney, David Hamilton, president of SunGard’s banks business, outlines the five major challenges he foresees for the banking industry in the near future and gives some background on why these challenges have arisen and how they might be dealt with.
The first challenge he foresees for the banks stems from the increasing demands that customers, both consumer and corporate, make of the industry. “There is a heightened degree of empowerment among customers, partially stemming from the growing use and availability of modern technology.”
He calls the second challenge the rise in influence of popular politics. “There has long been an asymmetry in favour of the banking lobby groups, who have had a great deal of influence over regulatory reform – but this asymmetry is beginning to change.” Hamilton attributes this to the growth in influence of, and increase in funding for, consumer advocacy groups.
The third challenge for banks is the structural change that is taking place in the marketplace: there are an increasing number of non-bank actors, such as hedge funds, involved in the market. He attributes this to the removal of barriers that have existed to the growth of non-bank actors: “Two main barriers to entry into the market have been access to capital and technology; non-bank actors are finding that these two barriers are beginning to lift, and access is becoming more ready.”
The fourth challenge that Hamilton identifies is the growing tension existing behind stakeholder groups, and the increasing intrusion of regulatory measures. “Banks are concerned about the growth of regulation. One of the first things I was told as a banker as that there is no money to be made in transparency. Obviously a degree of transparency is desirable, but there is a question of how much transparency the industry needs.”
Hamilton concedes that the regulatory challenges may be necessary: “The sense of urgency that surrounded the development of the regulations was absolutely appropriate. New regulations may indeed cost the banks a proportion of their profits, but if it makes the sector safer and more stable then it is a price worth paying”
The final, and overarching, challenge he outlines is the growing role that technology is playing. “The ubiquity of mobile phones is opening a wave of new opportunities for cross-platform banking. However, the new technology tends to rely on legacy software, which can have the effect of constraining development. Back and middle office systems need to be replaced, the aging technology is providing an artificial ceiling to development.”
Hamilton is conflicted as to how prepared the sector is to overcome this challenge: “There is awareness and consciousness of the problem among executives, but the readiness to deal with it is lacking.”
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