Simplify to stay agile
For long, the sheer size of large banks has given them the competitive advantage of economy of scale. But according to a recent analyst report, this erstwhile advantage has been completely negated by a proportional increase in complexity that has brought into play a new law of diminishing IT returns.
Banks of every size are well aware of the new normal in banking; characterized by cheerless macroeconomics, constrictive regulations, changing customer expectations, non-conventional competition and significant challenges to profitability. The industry response has been to reconfigure existing models in order to lower costs, enhance efficiencies, strengthen compliance, accelerate innovation and create true customer-centricity.
But IT complexity seems to be the biggest challenge to that reconfiguration effort. Consider these findings from the latest EFMA-Infosys Innovation in Retail Banking study: the average time to market for new offerings at large banks was 11.6 months, compared to 7.8 and 5.8 months for medium and small banks respectively.
Agility will be the touchstone of competitive differentiation in the new normal, but existing technology infrastructure may well lack the flexibility to deliver.
Core transformation of banking infrastructure is no easy task but it has become the strategic imperative, especially for larger banks saddled with stockpiles of disparate technologies accrued over the years.
Recent innovations in the banking solutions industry are opening up an interesting new approach to transformation. Today banks are finding that they have option of modernizing progressively by replacing one component at a time. This approach saves them both time and money and presents a low-risk transformation option that's a simple solution to what was once a complex problem. In an industry where the value of agility cannot be overestimated, componentization will surely be a welcome option.
Read our previous blog in the "Simplified Banking" series