The ongoing European financial crisis and overall economic downturn have driven banks to reprioritize their technology investments and raised a renewed sense of urgency around optimizing operations. For large banks that have staff, customers, vendors and operations spread across the globe, that means moving in unison across multiple markets to operate more efficiently on a global scale while still enabling flexibility that powers innovative, valuable products for local customers.
According to Judd Holroyde, SVP and head of global product management and delivery at San Francisco-based Wells Fargo, the key to becoming a successful global bank depends on evolving your overall operating model, and a big part of that is taking a proactive approach to identifying and implementing technology while exploring the best ways to standardize, outsource and maintain a consistent customer experience. "I don't think any banks are completely there today," he says. "But do I think they are heading there quickly? Yes."
Although one clear path to globalization does not exist, financial industry experts agree on a few areas where banks should focus their attention in order to optimize global opportunities and achieve world-class distinction.
1. Strive for Standardization With (Not too Much) Flexibility
In the new global environment, it's not feasible for financial institutions to support very complex, siloed operations and platforms, according to Likhit Wagle, GBS banking leader at Armonk, N.Y.-based IBM. "That sort of complexity makes it very difficult to manage the business and bring new products to the market, and it's more expensive," he explains. A more streamlined approach across the globe enables banks to take advantage of economies of scale, drive down overall cost-to-income ratios and increase speed to market.
That's where industrialization -- simplifying a bank's operating model through the standardization of products, processes and technology across markets -- comes in, says Fiaz Sindu, an executive with New York-based Accenture's core banking services group. Key to industrialization is "ensuring that the manufacturing, fulfillment and servicing that go with a bank's products are centralized across multiple segments," he explains. "Whether it's retail banking or wholesale banking, there needs to be a common engine underneath that supports those segments."
IBM's Wagle points to Madrid-based BBVA, a financial institution with more than US$785 billion in total assets and about 7,600 branches in more than 30 countries, as one global bank that is benefiting from this standardized approach. "The cost-income ratio for banks like BBVA is in the mid 40s," he indicates. "They're able to respond very quickly to market changes, and it seems like almost weekly they're bringing out a new product."
Adds Jose Olalla, technology and operations director at BBVA, "This strategy has yielded good results, and we are now taking further steps to integrate, taking full advantage of our global scale." He notes that the bank has expanded the scope of its strategies to focus on regions and continents rather than individual countries.
Part of this standardized approach is automation, something Olalla says BBVA has achieved on various levels. "Our processes are automated and we have a paperless global workflow," he reports. "We have real-time posting and validation processes and have implemented a compliance/fraud-prevention proactive and reactive system."
Achieving success on a global scale through standardization, the experts agree, also is dependent on maintaining enough flexibility to deal with inherent inconsistencies across markets in areas such as compliance, payments and deposits, not to mention cultural differences. But Wells Fargo's ($1.3 trillion in assets) Holroyde warns that there's a very fine line between a flexible variable in a tool and too much customization.
"One product that works more places consistently but gives up a little nuance in other global markets is better in the end," he insists. "You need to remain flexible without going down the rabbit hole of mass customization. If you do that, you'll start to lose track of variables, spend too much time reacting and fixing things, and then you'll lose sight of real effort."
Banks can even decide on certain variables that they will fundamentally standardize based on customer and market behavior, according to Holroyde. "When you think about the customer side of globalization, clients need a partner that can be flexible enough to adapt with them as they change," he explains. "You have to be able to take a step back and anticipate a client's needs, but do it in a way that's more simplified, by anticipating and identifying variables that can be turned on or off."
Banks also need to recognize that customers are facing the same challenges that banks face in terms of market uncertainty, and that they expect visibility and control, Holroyde adds. "We need to be able to identify triggers and react to them before they can even touch clients," he says, noting that this can be achieved with a centrally monitored, highly automated auditing process.
2. Tackle the Customer Experience From the Top Down
Regardless of what is happening in IT and operations on the back end, a successful global bank should strive for consistency in the client interface so that customers know they can depend on the brand and have the same experience everywhere, stresses Accenture's Sindu. "There's a client-facing distribution function that services a specific segment of the market," he says of the ideal global bank operation. "There's a wholesale banking line of business, there's a retail banking line of business, and it's fully integrated in terms of all the products that they're trying to sell to their client base because it's built around the clients and not around the products."
Wells Fargo has an ever-growing number of customers that have interests overseas, as well as clients in other countries that have interests in the U.S., according to the bank's Holroyde. In order to provide consistent products and customer experience in all markets, he says, the bank has taken a top-down approach to product distribution across all customer-facing channels. "The reason we've gone that way is because the consistency for the customer starts and stops at the front end, the interface," he explains. "Whether someone is in Europe, New York or California, they're going into the same front-end tool. It's the same product -- what's different are the pieces of infrastructure and technology."
Holroyde says his team "preserves and protects" the customer-facing front end, as well as the higher-risk back end. Instead of making any major changes in those layers, he relates, the group tries to make as many changes as possible in a shared services layer, what he describes as "a handling layer that acts as a buffer between the complex processing technologies and the customer experience or product channels." This approach ensures smooth integration and hopefully causes little or no disruption to the customer experience.
Analytics also come into play when striving to provide global consistency, says IBM's Wagle. In order to ensure that customers are getting the same products and experiences across channels and markets, banks need access to a single source of information and a single view of their customers, he insists. Adds Accenture's Sindu, "Customer-centric banks should be able to see the full client relationship and use that visibility to drive the customer experience."
3. Move Beyond Traditional IT Outsourcing
Outsourcing can seem like a hackneyed topic in the financial industry. But it still is a major part of the global financial scene, according Bill Huber, partner at Stamford, Conn.-based Information Services Group (ISG), an independent sourcing data and advisory firm. "We continue to see companies looking for ways to restructure for long-term competitiveness, especially in finding ways to reduce their cost structure while retaining core capabilities," he says.
At the beginning of 2012, ISG released the 2Q11 Global TPI Index, which measures commercial outsourcing contracts around the world valued at $25 million or more. Overall, the index reveals that 2011 was the busiest year ever in terms of outsourcing contracts. It also indicates that the financial services sector signed more large outsourcing deals in 2011 than ever before. Yet, Huber contends, "Talented leadership that can lead and manage transformational outsourcing arrangements remains a relatively rare commodity."
It's that type of transformational outsourcing -- building strategies that go beyond cutting costs and into business outcomes -- that can give banks a competitive advantage, says IBM's Wagle. In some cases, he notes, successful global banks are taking advantage of outsourcing to develop their own in-house talent. "Banks are realizing that it's impossible for them to be world-class from a customer service and process perspective if they don't have a world-class in-house team," he says. "So banks are now looking at contracts that will infuse talent into banks."
This approach is different from traditional outsourcing or even consulting because it's geared toward improving in-house capabilities over a relatively short period of time. For example, "IBM personnel take leadership roles on various projects and programs at an institution for a two- to three-year period," explains Wagle. Over time, the IBM staff transfers knowledge, techniques and processes to the bank's staff, he says. "By the end of that period the responsibility shifts to the client, and the client is completely self-sustainable."
Citing similar reasoning, Wells Fargo's Holroyde says traditional outsourcing is "not fundamental" to the bank's global strategy. Although he acknowledges that banks must rely on third-party vendors when they're bringing in something new, he says they should not look at the process as offloading work, but as an integrated effort to bring in something new that adds value for the customer.
"I think of us as doing integrated delivery with partners that we determine help us advance delivery to the client," Holroyde comments. "We recognize a leader in a market and spend an effort integrating with them so that clients can get a consistent experience while we add value behind the scenes."
Holroyde also cautions that heavy BPO can interfere with customer experience. In terms of IT outsourcing, he notes, Wells Fargo has a "build" rather than "buy" attitude. "We really try to build talent there instead of relying on other talent. We get high-caliber IT folks and invest in them," he says. "Otherwise, IT operations can become too separate from business operations."
BBVA's Olalla says he still views business process or operations outsourcing as "one of the tools that help us compete on a global level." However, the bank is careful about the approach, focusing its outsourcing efforts on one layer of the bank's horizontal model that's based on activities instead of business products.
"The top layer helps the model evolve, the middle manages the processes and the bottom, which we have outsourced, executes the operations," Olalla explains. "Our goal is to keep the most valuable activities in-house, like the top layer that is focused on evolving the model. The combination brings BBVA speed and flexibility in addition to cost savings."