Good things come to those who don t wait Why banks need to transform their operations sooner rather than later
A proprietary system is, in a sense, obsolete the day it is built. Anthony Thomson, Chairman & Founder, Metro Bank 2
The longer you wait, the less chance you have of catching the frontrunners The never-ending proliferation of regulatory requirements in the banking sector, combined with the costs of maintaining legacy IT systems, is pushing up operating costs and driving down profit margins. To remain profitable, European banks need to review, update and transform their business models and supporting IT and network infrastructures. This goes beyond introducing innovative technologies. It involves making fundamental changes to the way they operate. And that relies on a strong willingness for strategic change and a robust change management programme. One major stumbling block is the lack of IT flexibility. But the retail banking industry can t afford to be held back because of hard-coded processes attached to aging legacy systems. Customers increasingly consider banking products as a commodity and will shop around for the best deals, putting more value on personalisation and service. Banks will succeed or fail based on the level of flexibility and capability at the heart of their operations. Differentiation will be driven by an ability to innovate. But while the need for a modern core banking systems architecture is widely understood and accepted, recent instability in the financial sector has seen most market participants move cautiously delaying the necessary core systems renovation. The gap between those who continued on their innovation journey and those who stopped is growing year after year, and many will pay the price of waiting. 3
A longer term investment Most European banks remain focused on immediate requirements, such as regulation and compliance, as well as quick wins aimed at driving down their costs base. But while regulation focuses on correcting the errors of the past and purchasing organisations work on optimising the costs of existing delivery models, very few banks are tackling the concerns of the future: operational inefficiencies, previously masked by strong growth (especially in the investment banking area), become more apparent as profit margins are increasingly squeezed new compliance projects being added every month means many financial institutions will not be able to run their business profitably without a significant change to their costs base. A recent report by IDC Financial Insights highlighted the two main issues facing retail banks today: 1. Changing business dynamics and increasing competitiveness. With customer service becoming a new differentiator, IDC anticipates that there will be four underlying themes (big data, mobility, cloud and social media) that will be key levers for retail banks and will drive business and technology investments. New business growth Big data Mobility Cloud Social media Channel proliferation Capital optimisation Infrastructure resilience Expense control Source: IDC Financial Insights, 2012 2. Transformation of core operations. Driven by increasing cost-efficiency requirements, the growing cost of regulation and compliance and, sometimes, mergers and acquisitions. 4
Meeting the new challenges and challengers The real danger comes from new entrants in the market. Because they aren t hampered by inflexible legacy systems, they are agile enough to compete effectively. This makes transformation projects spanning front-to-back operations more urgent for incumbent banks. While IT and network infrastructure should be enablers of change, too many banks find their systems and infrastructure, as well as their resources, have remained fixed in recent years. The result is that IT and network operations have become a limiting factor in terms of competitiveness, compliance requirements and supporting new business opportunities. Banks who want to thrive in a world where customers are changing their relationship with their bank, where technology is changing the way customers can approach their bank, and where regulation and compliance constraints are making it more and more difficult to operate, need to make a strategic change in the way they deliver their services to their customers. This means finding a trusted partner that can deliver not only the reliable, flexible network they need, but a whole set of collaboration tools which will enable the right people to access the right data through the most convenient and appropriate channel. Because a more flexible infrastructure supporting increased collaboration within the bank will result in a better overall customer experience. In order to renew with two-digit growth figures, European banks will have to save 40 billion Euros over the next four years, and could cut around 200,000 jobs in Europe. Roland Berger and Associates, July 2012 report 5
BT is at the heart of the transformation journey We ve been providing network-based services that are fundamental to the operation of the financial services sector globally for over 25 years. From the ATM in a bank s retail branch to the secure messaging services that allow central banks to settle transactions worth billions of dollars every day, BT underpins the full breadth and depth of the communications-related requirements of the financial services sector. With a global unit dedicated to the needs of the financial services industry we ve gained a better understanding of our customers businesses and can differentiate ourselves from our competitors, both in terms of the business value that our solutions deliver and the commercial success that BT itself achieves. By focusing on the needs of the world s largest financial institutions (that are already its customers), BT can develop and deliver services that increase their operational efficiency and competitiveness while helping them address their operational risks and regulatory compliance obligations. As a global leader in managed networked IT services, we ve developed an operational model that removes the network as an inhibitor to business growth. It helps create value and control costs through the standardisation of procedures, while being flexible enough to meet the different needs of the banking community. This model is backed by proven Transition and Transformation methodology that has been successfully deployed in several Tier-1 international banks. As well as reducing costs, these banks have gained additional competitiveness through the increased flexibility that the new operating model brings them. How BT helps its banking customers transform their operations Business efficiency, agility, competitiveness & customer experience Fragmented Sub optimal Complex High costs Lower complexity Reduce risks and costs Reduce suppliers Consolidate Transition Network IQ analysis Improve productivity Global support for mobile workers The proven transformation journey Global converged multi-channel-ready infrastructure Transform the infrastructure Reduce internal communication costs Disparate Consolidate Converge Extend Multiple SLAs and vendors Greater control Platform for true business agility Extended collaborative multi-channel platform Enabling improved collaboration internally and with customers Differentiated customer experience Virtual multimedia customer interaction (contact centres, online and branches) Drive customer responsiveness with instant people-to-people collaboration Multi-channels and collaboration 6
Rationalisation of the voice infrastructure In many large multinational companies, voice is often poorly understood and therefore not managed to its full potential. Purchasing departments may perform benchmarks to check per minute pricing competitiveness for different destinations. But in these all IP times, this seems a bit outdated. In addition, the infrastructure that manages those voice calls (PBX) is often partially out of the scope of CIOs, to the benefit of Facilities Management, generating a lot of maintenance costs. Very few CIOs in large multinational companies can present global voice usage statistics for their entire estate and the global cost that represents to their organisation because the information is scattered across all the business units and geographies. The banking and financial sector is no different. On one hand, we have Retail Banks, with potentially thousands of small PBXs, telephone lines and telephone handsets. Those lines are sometimes interconnected with contact centres which funnel incoming calls, but in most cases the architecture is so heterogeneous that customer information is lost during transfers. On the other hand, we have Corporate Investment Banks, for whom voice is critical and resilience a religion. For the bank at large, increasing regulatory constraints necessitate the recording of most conversations with customers, brokers or partners, storage of those recordings (for a duration that varies from one geography to another) and the possibility of accessing those stored recordings on demand at any time. Transformation projects can help generate material cost savings while abiding by regulatory compliance, enable flexibility, increase the ability to adapt to changes, bring new ways of working for employees and create a better experience for customer, by: taking a holistic view of the bank rather than by business silo rationalising voice infrastructures for all activities engaging an all-ip transformation for outgoing calls as well than incoming calls integrating a multimedia contact centre solution with the global voice architecture deploying collaboration solutions which unify voice, data and video. The hidden cost of a DIY approach It can be very tempting for banks to create their own infrastructure and manage their internal transformation; after all, it s only deploying IP phones, installing call managers and SBCs (Session Border Controllers) and negotiating a couple of voice contracts with local operators. But the reality is that these internal solutions have a very high Total Cost of Ownership (TCO) both for the build phase and the run phase extremely limited flexibility (when it comes to managing moves, acquisitions or divests), and are not as resilient as initially presented. We ve been beside our banking customers through every phase of their transformation journeys; helping them gather inventories and design the pertinent architecture that addresses their business needs, managing the progressive transition of legacy services and finally planning and managing the transformation of these services to the target architecture. With an international network covering more than 170 countries, and native, resilient and convergent data, voice and video solutions, BT is capable of providing all the service components of an integrated voice architecture at a far lower cost than a homemade solution. And it means customers benefit from technological advances without having to invest in their voice architecture again. 7
Rationalisation of monitoring, incident management and change management services There is often a strong segregation between the different lines of business for the management of IT and network infrastructures. But even within a business line, this segregation is enhanced because of the separation of different domains for monitoring, incident management and change management. One team may be dedicated to managing the LAN for Retail Banking, while another is responsible for managing the LAN for Private Banking. Similarly, there may be a dedicated Security team for the Investment Bank but they may not work for other lines of business. Bank CIOs are conscious of the fact that this silo-based way of working aggravates costs, but it usually takes more time to realise that segregation by activity is also generating extra operating costs. BT is a major global provider in the management of IT and large LAN, WAN, Voice, Security and Video infrastructures. Our experience in these areas helps customers better understand the transformation journey they have to adopt. It usually starts by building and documenting an exhaustive inventory of what is being done in the different service lines and the different activities, as well as how it is all managed. This is followed by the design of a transition and transformation trajectory, resulting in a business case that not only demonstrates the operational interest but also the long-term financial benefits that will be generated through such a transformation. Again, banks could be tempted to undertake these transformations themselves. But once all the resources, systems and tools that are required to manage the transformation and deliver the target operating model are taken into account, the TCO is sometimes even higher than the sum of the individual operational costs in each of the former silos. There are several major drawbacks to the full internalisation of such services: first of all, it doesn t allow the bank to gain the benefits of sharing with other customers. These could be financial (lower costs brought by economies of scale) or operational and technical (a diversified pool of customers allows sharing of best practices); second, it prevents the bank from thinking about different service models, where tasks which are considered as commodities, or those most repetitive and basic, could be transferred to lower-cost production units. Because of its experience with major banks worldwide, BT is able to propose different operational models, from transitioning the management of infrastructures while remaining within dedicated customers premises to full transformation onto BT shared services management platforms, as well as all intermediate models where roles and responsibilities are split between BT and the customer. In each of these models, monitoring, incident management and change management can be performed by BT s personnel. This could be fully delegated or in cooperation with the customer s personnel. It can also include the transfer and integration of the customer s personnel to BT s operations. Depending on the customer s choice, this could even take into account BT s off-shoring capabilities in different regions. Obviously the potential savings depend upon the choices that are made regarding governance and operational models, as well as any social and regulatory constraints that exist in each country. 8
Transformation in action Major banking and finance companies choose BT to help them transform their operations and create a more flexible and agile networked business platform. Case study 1 Major European Retail Bank Challenges bespoke, non-standard and non-flexible voice architecture heterogeneous software platforms requiring re-load on a weekly basis due to several bugs different outsourced data centre management service models many security and vulnerability risks due to inefficient asset management and lack of change control Aims rationalisation of technologies in LAN, WAN, Voice and IT a long-term partner to manage all the transitions and commit on the service delivery over the years full end-to-end solution with improved Service Levels BT solution service delivery and service level improvements standardised technology delivered to 3,300 branch sites and head offices and to 55,000 IP users flexible bandwidth model extensive security infrastructure consolidation, rationalisation and transition to BT management transition of three major data centres infrastructure management to BT service management migration of external outsourced helpdesk to BT helpdesk, including TUPE. Case study 2 Major Life Insurance and Financial Services Company Challenges a very large PBX estate spread across all sites with very heavy maintenance costs a voice architecture that was completely dependent on the organisation structure, with private links transporting voice between the main sites very heavy costs of telephone lines and communications Aims a full IP solution based on AVAYA migration towards SIP trunking technology maximize the savings on fixed telephone lines and communications complete IP convergence that enables the deployment of future collaboration technologies 9
BT solution migration from a scattered TDM architecture to a resilient SIP infrastructure set-up of a Business Continuity Plan cancellation of around 1,000 fixed telephone lines from different operators, including BT consolidation and portability of 3,650 existing DDI numbers and creation of 2,000 new additional numbers full independence between the Dial Plan and the geographic location of employees, allowing greater organisational flexibility substantial savings generated by the end of PBX maintenance contracts, the decrease in the number of fixed telephone lines and the consolidation of all outbound calls. Case study 3 Major European Global Bank Challenges lagging behind in the league tables three separate businesses (from past M&A) one bank, but four lines of business (IB, PB, AM and Retail) DIY approach to everything, with internal teams and external contractors Aims commoditisation of technology convergence: IP to enable communication and collaboration technologies fixed/mobile convergence and wireless everywhere business processes and functions shifting to low-cost locations globally competitive advantage in securities trading with Low Latency/High Availability quicker access to new security technologies for rapid adoption of new channels to market virtualisation consumerisation BYOD (bring your own device), UOT (use your own technology) an any time any place network to minimise disruption, whether social, technical, environmental or political BT solution a seven-year outsourcing contract including 200+ staff transfer and a broad scope of services: Fixed Voice, Trader Voice, LAN, MAN, WAN, Internet, Mobility, Call Centres, Security Continuity, DRP financial improvement of about 400M over seven years consolidation of 400 separate telecom contracts with over 250 suppliers into a single end-to-end agreement with comprehensive SLAs, financial penalties, formal governance and greater leverage due to consolidated spend commitment to innovation through the creation of a joint innovation fund enhanced career opportunities for bank employees transferred to world class networked IT company. The combined team (BT and us) has had a major planning success in correctly identifying the level of risks involved in the different parts of our transformation project. The accurate assessment, the responsible reporting and the mitigation planning of this risk were key to the project s success. Gerard H., Programme Manager 10
Summary 1 2 3 4 5 European banks face unprecedented challenges in terms of regulation and customer expectations Legacy IT systems are expensive to run, time-consuming to manage and restrict business growth Banks need to begin transforming their IT and network infrastructures now waiting may leave them stranded A secure, agile, on-demand network and IT infrastructure will help reduce costs, improve productivity and enhance the customer experience Finding a trusted technology partner will make the transformation easier, more cost-effective and more flexible in the long term Acknowledgements This paper is based on contributions from a range of BT and non-bt sources, coupled with insight and opinion from the Customer Innovation Team. Confidentiality Statement All information contained in this document is provided in confidence, and shall not be published or disclosed wholly or in part to any other party without BT s prior permission in writing, and shall be held in safe custody. These obligations shall not apply to information that is published or becomes known legitimately from some source other than BT. The services described in this publication are subject to availability and may be modified from time to time. Services and equipment are provided subject to British Telecommunications plc s respective standard conditions of contract. Nothing in this publication forms any part of any contract. 11
Visit www.bt.com/gbfm for more information on BT for Financial Services Offices worldwide The telecommunications services described in this publication are subject to availability and may be modified from time to time. Services and equipment are provided subject to British Telecommunications plc s respective standard conditions of contract. Nothing in this publication forms any part of any contract. British Telecommunications plc 2013 Registered office: 81 Newgate Street, London EC1A 7AJ Registered in England No: 1800000 Designed by Westhill.co.uk Printed in England PHME 66676