With Banks gaining progressive evolvement in Operation and Technology, there is the need to acknowledge the more tremendous value that can be ascertained in the industry.
The role of banks in providing appropriate financial channels and services for businesses and consumers is in the midst of nothing less than a fundamental transformation. At a time when banks are looking to significantly improve returns, it can sometimes seem that everything that can be done, has been done, particularly on the operations and technology side. But there are a lot more banks can do. The opportunities may be more complex, but they could drive the next step-change in productivity and efficiency.
Notable among wholesale banks worldwide is a significant progress in transforming operations and technology over the last few years. A general move to agile, and technology teams have been upskilled, and platforms rationalized. There is a record of witnessing improvement in operation teams in their partnership with the business; much clearer exception drivers; and a scale-up growth in the use of new technologies, such as robotic process automation and natural language processing. The results have been significant. For example, in capital markets, trade volumes rose by an average of ten percent a year from 2014 to 2017, while industry-wide cost levels declined. Overall, banks have now broadly settled on a global operating model across trading hubs, and on their nearshore and offshore locations.
However, the search for new opportunities for most operation and technology functions to achieve greater delivery speed and outcomes, increase efficiency, and ensure regulatory and compliance deadlines are met is never-ending. This reflects an urgent need for firms suffering from critical scale deficiency in the wholesale business, and are struggling to make the investments required to continue to increase automation levels, consolidate platforms, and transform to a more modern environment. In reality, some firms spend more than 25 percent of revenues on operations and technology, making profitability a challenge.
Other forms of downsides that almost always emerge from the discussion of wholesale banking are: the “golden source” of data; an absence of holistic financial resources; limited access to real-time pre-trade insights (such as compliance checks); Platform fragmentation across asset classes and geographies and; Lengthy, inefficient and cumbersome client onboarding/updating processes (for example, 90 percent of time spent collecting documents and only 10 percent analyzing data).
In Ghana, several reforms and emerging trends seen in the banking sector over the last couple of years, specifically; the capital requirement directive; the full implementation of the minimum capital directive; and issues relating to digitization have had the most impact on the banking business. The central Bank of Ghana (BoG) stated that these decisions were taken to “further develop, strengthen and modernize the financial sector to support the Government’s economic vision and transformational agenda”.
The subject of an increased minimum stated capital issued on 11th September 2017 from GHS120 million to GHS400 million, set off a rather charged conversation in bank boardrooms, the regulator’s and shareholders’ offices, bank Executive Committee meetings, bank personnel huddles, key customers and depositors’ homes. The conversation has carried on for a while on traditional media and social media platforms as well. Among the myriad of questions asked is; what are firms doing to get the most out of their spending and improve efficiency?
Gaining a holistic understanding of wholesale banks across the globe, Ghana inclusive, five thematic approaches to effective banking operations and technology remain manifest.
Capitalizing on Focus-Based Investments
This means making at-scale investments in the next generation of re-platforming, and automation in one or two product processes. Some firms have invested at-scale in multi-year trade-finance re-platforming. Some have targeted investing in cross-asset trading risk management. The most successful initiatives are always the ones linked closest to the strategy of the business.
According to the Banking Sector Report that was released in 2018 by Bank of Ghana (BoG), earnings from investments constituted the major source of income for the banks in June 2018. Approximately 83% of respondents of the 2019 Banking Survey mentioned that they expect to invest significantly in technology and create agile businesses over the medium term, which will be crucial to meet customer demands and grow profitability.
Tapping into the Growing Trends of New Technology
There are opportunities to be seized from taking a “greenfield” approach which indicates undertaking a project from a blank slate, with no restrictions or constraints imposed by previous work. This is particularly important for businesses where the bar for client experience has been raised dramatically. This means investing in new technology often in partnership with a fintech firm. Undoubtedly, many bank executives in Ghana have come to appreciate and view FinTechs as partners rather than competitors
Technological innovation or electronic delivery channels have contributed positively to the provision of banking services and the growth of the Ghanaian banking industry. These developments include new delivery channels for banking products and services such as Automated Teller Machines (ATMs), Telephone Banking, PC-Banking, and Electronic Funds Transfer at Point of Sale (EFTPoS). Areas, where this is equally prudent, are lending for small business clients, foreign exchange execution, and trade processing. New tech firms have built end-to-end stacks, in less than eighteen months, with small, high-caliber product and development teams.
Developing New Income Generating Operation and Technology from Existing Processes
Ghana’s Banking Survey report 2019 revealed that an appreciable number of banks had generated income specifically to secure the minimum capital through a hybrid of reserves and injection of fresh capital. Others admitted to having secured it through fresh capital injection only. In total, GHS1.5 billion was injected as fresh capital into the banking sector in 2018. Sources of fresh capital injection included equity from parent companies as well as funds from other private investors. Some banks also refrained from paying their shareholders dividends for the year to shore up their reserves to meet the GHS400 million requirement.
However, another great source for productivity gains that banks can adopt to also generate more income is the carving out and “mutualizing” processes. If a bank decides it does not have a differentiating business area or one that it is not able to invest in, success can come from working with private equity, information technology, and business process firms to carve out operations and technology. This can also mean transforming operations and technology into a new business to provide services to multiple wholesale banks. This works particularly well in areas like post-trade processing in capital markets, reference data management, and lending operations.
Combining New and Innovative Methods to Improve Customer Experience
Innovation is critical in this rapidly changing banking landscape. The customer of the future has a choice and is not afraid to exercise this choice, causing banks to invent new approaches to meet their demands. Banks are experimenting and scaling the use of a multi-lever approach to improve end-to-end client journeys, and processes. Firms have been able to improve throughput and productivity by more than 40 percent in product control and operations by merging client channel migration to electronic portals, automated workflows, optical character recognition, and natural language processing process improvements.
75% of Ghanaian bank executives, per the Banking Survey 2019 report, expressed to have already achieved profitable revenue growth by encouraging customers to migrate to electronic channels. In effect, traditional “brick and mortar” branches are expected to significantly reduce going forward, which is consistent with the banks' stated objective to migrate more customers to electronic channels.
Generating and Tailoring Daring Goals Towards High-Level Achievement
The final theme reflects the power of setting bold aspirations. For a few critical topics, firms are striving for a dramatic improvement. Examples are captured in the proportion of technology, staff engineers delivering codes, the proportion of workloads (applications and data) in modern infrastructure, and reductions in exception rates.
There are different implications for the different actors in this ecosystem. For wholesale banks, bolder actions are required to drive costs down. For business processing outsourcing and information technology outsourcing firms, platform partnerships will be critical to driving “mutualization.” For private equity firms, a deep understanding of transformation in this space (for example the ability to automate smaller, more specialist teams) will be crucial to making carve-outs successful.
The overall picture of wholesale banking has a huge value potential for the trading banks, and this can be found where they may least suspect—in their operations and technology teams. These aspects must be treated as businesses in themselves, and their professionals as “business people.” To get an idea of how big the opportunity is, careful consideration must be given to in sell-side capital markets alone where banks spend some huge sums on middle- and back-office operations and technology.
In light of structural changes and reforms in the wider financial services industry in Ghana, a renewed confidence in the sector following recapitalization, good corporate governance practices, sanitization of the non-bank financial institutions among others can only position the sector for growth and profitability in the coming years.