“If you want to make it in the years ahead, you have to stop ‘making it all’ today” according to a new report from Capco. Instead, industrialise non-core activity. Focus totally on product and service innovation. Maximise delivery efficiency.
Capco, a global business and technology consultancy dedicated solely to the financial services industry, today shared its vision of an industrialised path to increased ROE, uptake of surplus banking capacity and return to sustainably profitable banking business. Capco is part of FIS™ (NYSE:FIS), the world’s largest global provider dedicated to banking and payments technologies.
Rob Heyvaert, CEO and Founder of Capco and Corporate Executive Vice President of FIS says: “To return to the ROE levels of 15% historically required by investors, banks must now seize the chance to address deep structural issues. Growth opportunity and sustainable value creation demand fresh approaches.”
Stephen O’Sullivan, a Europe-based Partner with Capco, comments: “Banks can no longer do it all, if you want to make it in the years ahead, you have to stop ‘making it all’ today. Look long and hard at existing services and processes. Then identify areas that external expertise and technology can handle more efficiently.”
O’Sullivan adds: “Headcount reduction and tactical cost cutting are no longer sufficient to achieve healthy cost/income ratios. Nor will they enable the break-through innovation demanded to access the unbanked and emerging wealth – crucial to achieve uptake of the sector’s current excess capacity. It is estimated that one of the top eight global banks could be taken entirely out of the equation yet leave enough capacity to meet existing customer demand.”
However, Capco believes that financial institutions enjoy significant advantages, even as the threat of new mobile and social media entrants becomes a reality. While financial services lag behind other major industry sectors when it comes to streamlining processes and collaboration models with partners, the industry does have invaluable experience dealing with data and privacy protection, as well as the burden of ever-evolving regulation. Capco considers that by re-addressing fundamental operating models, institutions can develop more efficient platforms to compete with new entrants in tapping the huge unbanked and wealth in emerging markets opportunities.
What can banks do now? Capco’s vision of an industrialised bank is one that ‘does the right things in the right way’. Cost cutting will no longer be tactical and reactive, but rational and productive. Costs, earnings, capital and growth will be better aligned to create more sustainable business models. Straight-through processing will create a highly efficient environment, with low or no-touch day-to-day processing and predictable compliance. Transformation will come from addressing the front office and change functions, not restricting change to the back office and infrastructure. The resulting streamlined structures will deliver what a new generation of demanding customers want from financial services: personalised and responsive innovation.
How urgent is the task? “It’s very urgent”, says Ido Gileadi, a North America- based Partner, with Capco. “Financial Services is now a very attractive proposition for new competitors outside traditional industry boundaries. These newcomers don’t have the baggage of legacy structures and technologies. They are highly innovative. They come from areas such as retail, telecoms and digital media. They won’t just adopt and evolve conventional banking models. They have the innovative flexibility to reach the unbanked and the huge wealth in emerging markets.”
Now, some 150 years after it first impacted manufacturing, the industrialisation imperative is here to stay. The opportunity for transformation is real. Staying competitive will need new partners and capabilities offering true breadth of financial technology assets along with deep industry expertise.