The challenge of speed
The challenge of speed
About the research
The report is based on a survey of 461 senior,
Europe-based executives. Of these, 72 were from
the financial services sector, including retail,
corporate and investment banking as well as
insurance. More than half (52%) of respondent
companies have annual incomes over US$500m.
The survey sample is senior, with 49% C-level or
above and a further 23% senior vice presidents,
vice presidents or directors. In addition, The
Economist Intelligence Unit conducted seven
in-depth interviews with corporate leaders or
noted academic experts, as well as substantial
desk research. This article aims to offer some
guidance to managers in financial services
hoping to drive greater process speed and
harness the potential of changing technologies
to better serve their corporate goals.
Speed and quality under pressure: How financial services are
different
Every industry must adapt to survive, but financial services are distinct. They are also caught in a net
of conflicting demands from consumers, regulators and shareholders. These challenges have become
sharper in the wake of the financial crisis, which has damaged customer trust and provoked sharp reregulation. As technology changes, financial services organisations ought to be ripe for innovation.
However, no doubt because of their strict regulatory requirements, they tend to be more bureaucratic
and risk-averse than other sectors. And let’s not forget that change requires investment capital—
something that for many financial services organisations is still scarce.
Change is not slowing down
While 99% of financial services executives have experienced technology-related disruption of their
industry in the last three years, more than one in five (22%) expect the next three years to yield zero
technology-related disruption. After the business model and process shifts of recent years, and given
the pace of innovation in mobile banking, analytics and social media, it is astounding that they should
predict no such disruption. Noticeably more than in other industries, financial services executives tend
to think that technological change has plateaued. This idea – that change is slowing down – is actually
a potentially dangerous one for the financial sector.
© The Economist Intelligence Unit Limited 2014
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The challenge of speed
“Technology transformation is escalating,” says Tony Prestedge, chief operating officer of the UK
building society Nationwide. As evidence, he points to the digitisation of money. “Just look at the
entry points of PayPal and Google Wallet. Most banking institutions still use a batch system. They
process throughout the day and then consolidate and balance the ledgers overnight. Come on, man,
it’s a 24-hour world out there. Real-time banking will soon be the norm.” The rise of algorithmic
trading and cloud computing makes this as important to investment institutions as it is to traditional
lending and financial services organisations. Brokerages have followed exchanges online and
customers demand smooth interaction, anywhere and all the time.
It is not only the development of technology that is putting banks under pressure. It is about
responding to changing customer demands. “The Internet used to operate on a model of connecting
people to a web page,” says Jaroslaw Mastalerz, the COO of mBank, the third-largest retail bank in
Poland by number of customers. “That’s how most banks still operate. But when you look at how
people use the Internet now, it’s connecting to individuals through Facebook and Skype and the like.
Customers are going to want to interact with individual employees over their mobile phones just as
they used to interact with people in branches. And that change requires reworking processes because
people interact with people – especially when using mobile phones – quite differently than when they
interact with web pages.”
Regulators are also pressuring banks to evolve quickly. “It’s not only the technology and the shift in
customer behaviour that is driving change,” says Dr. Peter Leukert, Capco Partner and Head of the
Capco Institute, a business and technology consultancy, and the former CIO of NYSE Euronext. “It’s
also the regulatory requirements and the huge cost pressure that banks are under. I don’t see the pace
of change slowing down in banking.”
Indeed, regulatory compliance and security are of paramount importance for the financial sector, and
essential for business and consumer confidence. Moreover, banks need to simultaneously comply with
national and EU regulations, which are layered on top of each other. This becomes even more complex
for institutions operating in several markets across the continent, as the EU has not yet delivered
a unified single market in financial services. Even the Single Rulebook of the European Banking
Authority (EBA) will not eliminate local tailoring and regulatory variation. Thus, financial services
companies need to ensure not only that their technology processes are integrated, but also that they
meet seamlessly with the complicated layers of regulation piled upon them. They still have to move fast
to meet customer demands, but they can ill afford any mistakes in the process.
What is holding financial services back?
It is not surprising, then, that financial services executives value the ability to carry out rapid
organisational change. More so than in other industries, financial services executives value agility,
with 58% citing speedy adaptation as important, compared with the respondent’s overall average
of 44%. In particular, they stress the importance of changing quickly to achieve objectives such as
attracting and retaining customers, adopting new technologies and improving regulatory compliance.
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© The Economist Intelligence Unit Limited 2014
The challenge of speed
Where is adapting to change is most critical: How financial services are different
(%)
All
Financial services
47
44
37
37
28
16
Regulatory compliance
Adopting new technologies
Attracting and retaining customers
Source: The Economist Intelligence Unit.
“We’re very lucky we have a chief compliance officer who focuses as much on simplification as she
does on compliance,” says Nationwide’s Mr Prestedge. “That allows us to comply with regulatory
requirements while at the same time removing unnecessary barriers to speed.”
Integrating technology platforms is a common problem. But financial services executives more often
cite systemic obstacles to agility:
l bureaucratic mind-sets that impede decision-making
l insufficient information access
l risk-averse cultures that stand in the way of unproven initiatives.
In terms of enabling speed, mBank’s Mr Mastalerz points to one solution: change the culture by hiring
entrepreneurs, rather than traditional bankers. Speaking about his own organisation, he affirms: “We
don’t have an incumbent group of bankers who learned the business in the 1980s and 1990s. It’s very
difficult to convince those people to adapt to disruptive change. We focus on selecting people who
share strong interests in business and technology, and then create an environment where they can be
more flexible than in the average bank. The people we hire don’t see speed as an impossible challenge.
They just do it.”
The financial institutions surveyed are more likely than other sectors to use technology, but they tend
to lag behind organisationally. Less than 30% of respondents agree with the statement: “We minimise
© The Economist Intelligence Unit Limited 2014
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The challenge of speed
Biggest obstacles to agility: How financial services are different
(%)
All
Financial services
47
37
40
31
35
35
23
Bureaucratic
decision-making
processes
Effectively linking
all of our
technology
platforms
Insufficient
access to
information
31
29
28
A risk averse
culture
25
The difficulty of
getting employees,
business units or
functions to adopt
a common approach
24
The complexity
of our business
processes
Source: The Economist Intelligence Unit.
internal barriers to rapid action (such as unnecessary approvals and controls)”. This pattern holds for
several other practices that could lead to greater speed, such as sharing speed-related best practices,
assigning formal responsibility for managing speed, and benchmarking their processes. Financial
services executives further cite the issue of “poor governance of change management” more than
those in other sectors (43% versus 29%). These are essentially issues of management diligence and
process optimisation. Executives need to assign responsibility, track progress and replicate successes
once they are identified.
Towards that goal, below are some key takeaways for delivering greater speed:
Address what can be managed
“There is regulatory complexity, where there’s relatively little you can do unless you simplify your
business,” says Dr Leukert. “There is complexity around product and services, and there is a lot you can
do to simplify that. And there is complexity in legacy technology, and often there is no business case to
completely replace that, so you need to manage it, keep it under control, and make sure you retain the
ability to change at least the customer-facing parts quickly. Complexity can be managed if you manage
it both on the portfolio level and the individual project or initiative level. The key is to have a very clear
blueprint and a plan for executing against it.”
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© The Economist Intelligence Unit Limited 2014
The challenge of speed
What financial services does to enable speed - and what other sectors do
(%)
All
Financial services
40
36
36
33
30
29
25
21
24
21
17
8
We use technology We minimise internal We share best
We have assigned
extensively to
barriers to rapid
practices
formal responsibility
enable greater
action (such as
related to speed
for managing
speed
unnecessary approvals
speed to an
or controls)
individual or
department
We assess or
benchmark
processes
for speed
Speed is not in
our culture
Source: The Economist Intelligence Unit.
Use technology as a support
Mr Prestedge emphasises that you should “articulate a business strategy in a way that allows
technology to be a responder to rather than a driver of the organisation’s direction.” Technological
change is all around us. But to be effective, its speedy deployment must be in the service of
business objectives.
Then refine your operations
Use benchmarking and other process improvements to ensure that speed can coexist with quality.
Identify internal barriers to greater agility and eliminate unnecessary approvals or controls.
Bureaucracy is necessary when it contributes to legitimate risk management or compliance
goals. Everything else should be slimmed down so that the business can operate quickly but
without mistakes.
Increasing speed while satisfying both customers and regulatory requirements is going to be a serious
challenge. But financial services companies are facing an array of new market entrants; many are
aiming to overturn traditional business models. If existing companies don’t strive to become faster
and more agile, they may simply get left behind.
© The Economist Intelligence Unit Limited 2014
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The challenge of speed
About the sponsor
Ricoh provides technology and services that
can help organisations worldwide to optimise
business document processes. Offerings
include managed document services,
production printing, office solutions and IT
services.
www.ricoh-europe.com
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© The Economist Intelligence Unit Limited 2014
Whilst every effort has been taken to verify
the accuracy of this information, neither
The Economist Intelligence Unit Ltd. nor
the sponsor of this report can accept any
responsibility or liability for reliance by any
person on this white paper or any of the
information, opinions or conclusions set out
in the white paper.