Customer demand for new ways of banking is forcing retail banks to look beyond cost-cutting, regulatory compliance and increased sales as ways to justify IT investments.
IT trends around online and mobile services are affecting retail banks to such an extent that business cases for IT spending are changing.
Business cases for IT investments traditionally demonstrate the ability for IT to cut costs or add revenue. Banks are notoriously conservative when it comes to IT spending. Unless there is a clear cost saving, business benefit or regulatory requirement IT investments are unlikely to be signed off. This explains why systems that are as much as 40 years old still underpin the operations at large banks.
But customer demands for new ways of banking using digital technology are changing this, so retail banks are looking at IT in a different way.
Digital services for flexible banking
Barclays Bank is justifying IT projects in a different way to ensure it reassures customers that it is keeping up with developments in digital services.
The bank recently outlined the success of its roll-out of Wi-Fi in its branches nationwide and revealed that it is about to embark on a project to introduce multifunction touchscreen devices, with the capabilities of the behind-counter systems, to serve customers in branches.
Barclays said the business justification was the need to make sure the bank was seen by consumers as digitally advanced.
“We did not have a traditional business case, but we had a strategic intent to demonstrate our digital credentials,” said Barnaby Davis, managing director UK branches at Barclays.
Mobile and online banking apps
Online and mobile banking apps have been introduced by mainstream banks in response to consumer demand, and branch networks are being given IT overhauls to make them attractive to customers who demand services such as Wi-Fi and self-service.
Daniel Mayo, financial services analyst at Ovum, said there is a strong focus on improving customer experience at retail banks.
“Retail banks in the UK were slow to take up mobile banking because there was no clear return on investment," he said “But they realised that despite the lack of return on investment it is good for brand value. They can target the younger generation.”
Mayo said most business cases for IT investments at banks are part of a specific division and project, so the return on investment is easier to measure compared with organisation-wide digital strategies.
Barclays has become a leader in terms of digital developments in the past 18 months, he added. As well as its plan for multi-function customer service devices in branches, the bank has already introduced the Pingit app to enable mobile phone users to make free payments to other UK mobile users directly, launched a mobile banking app, implemented Wi-Fi in all UK branches, and rolled out 8,500 Apple iPads across branches to improve interaction with customers.
Banks investing in innovative technology
A study of 300 banks in 66 countries, carried out by IT supplier Infosys and banking association Efma last year, found that 70% of respondents plan to increase their spending on innovation, with the mobile and online channels seen as the most important delivery channels to invest in. The research revealed that 93% of banks will offer mobile payment services and 89% plan to offer bespoke tablet banking applications to customers in the next three years.
Meanwhile, investment banks, which were hit hardest in the aftermath of the credit crunch, remain heavily focused on IT investments to help them meet regulatory requirements.
Rik Turner, capital markets IT analyst at Ovum, said on average 40% of budgets are set aside for compliance, and as a result compliance-related IT projects take up a significant amount of IT resources.
He said these projects include those around data storage and retrieval technology, although investment banks are also trying to improve the performance of the front office with real-time analytics, complex event processing, in-memory databases and in-memory data grids.
