Banks pay high price for data movement in a complex business world

26 October 2010

At Sibos, Sterling Commerce, an IBM® company (NYSE:IBM), announced the results of a global study of data movement in the banking industry. The survey found that data movement costs are skyrocketing, due to the growing use of gateways inside and outside a bank’s enterprise, and increasing infrastructure complexity associated with each bank connecting to multiple communities across dynamic business networks.

Respondents to the survey, ‘No bank is an island. Vanson Bourne, October 2010’, represented 150 banks in Europe, North America and Asia Pacific with an average asset base of 7.14 billion, and included major industry participants like Sumitomo Mitsui Banking Corp, National Australia Bank and Chiba Bank in Asia Pacific; California Bank & Trust, CIT and National Bank of Canada in North America; and Société Générale, Barclays and HSH Nordbank in Europe.

Nearly all banks (99 percent) maintain data connection gateways internally to enable data-exchange across numerous branches and departments. More than eight out of ten banks maintain gateways for exchanging data outside their enterprise with corporate customers, external finance industry infrastructures, and non-branch corporate banking and personal banking channels. The survey found that:

The average number of data gateways maintained at the edge of the banking enterprise, including SWIFTNet connections, stands at 73 per bank, representing an increase of 13 percent over the past two years.

41 percent of companies expect a further increase of eight percent on average in the number of gateways they will be operating in the next two years.

The survey examined the perceived benefits of consolidating existing data movement gateways, bringing them within a shared infrastructure and a centrally managed environment, as a means to control the spiralling costs of data-exchange. According to the study:

More than 70 percent of respondents believe that they could reduce the number of gateways that they operate by 10 percent through gateway consolidations.

More than a third of the banks surveyed (34 percent) described the consolidation of external data movement as a process which would “significantly reduce the cost of [their] business operations.”

More than three-quarters of banks will be outsourcing services via gateways within three years, with the average number of services outsourced by each bank increasing to more than eight.

“As a result of increasing demand for ‘edge of the enterprise’ e-connectivity, banks are suffering from rising complexity and process duplication across their growing numbers of data movement gateways and payments interfaces,” said Jim Gahagan, global industry executive, Financial Services, at Sterling Commerce. “Complexity and costs could be much reduced by the consolidation of data movement through ‘intelligent’ data gateways and payments hubs.”

According to the survey, banks also attribute 63 percent of their gateway operating costs to handling data movement that is internal to the enterprise. This exchange of transaction data and business information across a network’s connecting branches, departments and centralised processes mainly consists of highly-routine customer service operations and standardised reporting, which could and should be automated much more comprehensively.

"The study shows that there is a clear opportunity for banks to realise very significant savings in operating costs at a time when operational cost reduction is again a top objective across the industry,” adds Gahagan. “This significant cost reduction opportunity appears to be difficult to realise, due to the pace of demand for connectivity to new external communities and services exceeding the capacity of enterprise IT groups to optimise these connections within efficiently consolidated frameworks.”

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