Bob Giffords Director, EMEA Research & Consulting

The State of European Banking

Key IT Challenges in 2005

IT Banking 2005

Paris, Tuesday 15 February 2005

Europe in Transition 2005

  

Rightward shift

: New Accession States have moved the centre of gravity eastwards 

Regional, European Focus:

for economies of scale 

Record bank profits

but competition is fierce & strong € slows growth

Regulation

fatigue

Roll out

of: IFRS, Basel II/ RBCD, Chip & PIN, SEPA, FSAP, etc. © Financial Insights, an IDC Company, 2005, All Rights Reserved

3 key European Themes

Re-integrating the Enterprise Global Top 10 Issues Industrialising the Value Chain Competitive marketplace still drives leaders © Financial Insights, an IDC Company, 2005, All Rights Reserved



Re-integrating the Enterprise

Customer relationships fragmented – by multi-channel delivery & – diminishing share of wallet through competitive direct banking services – mobile customers are hard to serve  Governance is fragmented by silo based core banking systems, frequent mergers/ acquisitions, & new regulatory demands   Securities processing is fragmented by multiple pools of liquidity, new derivative asset types, and real time arbitrage opportunities  Payments are fragmented by new types of e-money and alternative payment/ clearing networks IT Infrastructure is fragmented architectures, & standards by variety of platforms, © Financial Insights, an IDC Company, 2005, All Rights Reserved

Industrialisation of the Value Chain

Car / Airline Industry = Mature

  Focus on core competencies Many business models: Shared services, classic outsourcing, joint ventures  Business drives component IT/ e-services  Database driven supply chain management & deep integration  Factory + service mentality

Financial Services = Not mature

 Vertically integrated, in-house processes  Captive IT utilities for industry association or in-house IT  IT still fairly monolithic with legacy systems  Relationship management of internal resources and service contracts  Customer relationship focus

Outsourcing 20-30% Outsourcing 70% In house value Creation 30% In house value Creation 70-80%

© Financial Insights, an IDC Company, 2005, All Rights Reserved

Automating Content Management

Automated Work Flows XML / EDI Paperless Office: Document Image Databases Documents Active Documents: Integration Wrapped in XML, XBRL etc.

© Financial Insights, an IDC Company, 2005, All Rights Reserved

Future Outlook for Agile Bankers: Global Top 10 Issues 2005

          Dynamic IT & Infrastructure Profitability & Performance Management Regulatory Compliance & Risk Management Developing new IT enabled Revenue Sources Enterprise Payments Security & Fraud Management Integrated Multichannel Delivery Systems Selective Sourcing Core Banking Transformation Intelligent Interaction Management © Financial Insights, an IDC Company, 2005, All Rights Reserved

1 Dynamic IT & Infrastructure

Responsiveness to Market

Business Strategy Automation and Execution End-to-End, Dynamic Management IT Operations Automation and Management

Operational Efficiency © Financial Insights, an IDC Company, 2005, All Rights Reserved

2 Profitability & Performance Management: Balanced Scorecards

Invest & allocate risk capital Human Capital Build & operate Finance Comply Stakeholder Values Constrain Attract, retain Customers Generate profits © Financial Insights, an IDC Company, 2005, All Rights Reserved Technology Business Processes & Satisfy/ delight

3 Regulatory Compliance & Risk Management

‘Spitzer Effect’ ‘Parmalat’

Sarbanes Oxley, Patriot Act Basel II FATF Money Laundering IAS / IFRS International Accounting Standards EU regulators SEPA, 42 FSAP initiatives, etc.

Major pressure on enterprise data infrastructure, analytic engines, and reporting tools/processes Compliance and regulations have top share of mind © Financial Insights, an IDC Company, 2005, All Rights Reserved

4 Developing new IT enabled Revenue Sources

 From price sensitive commodities to value added differentiation   Fast time to market (weeks not months/ years) Leveraging – advanced business intelligence, market research & profitability analysis – parameterised Product Factories – customer centric Fee Repositories  Focus on – Deep supply chain integration for corporates – Holistic private client services  No new killer apps © Financial Insights, an IDC Company, 2005, All Rights Reserved

5 Enterprise Payments

ACH Demographics EBA RTGS CLS Cheque Clearing Visa/MC

Presentation Formatting Gateway Management Business Logic Connectivity Third Party Services

Credit Ratings

Common Payment Services

Operational Risk

Fraud Anti-Money Laundering ANALYTICS & KNOWLEDGE

ePayment Proc

Shared Delivery Stack Authori zations PROCESS MANAGEMENT

Risk & Authorizations

Document Image Alerts & Notifications

Performance Mgt

Optimized Routing Liquidity Management Payment Methods Performance Management Product Factory Credit Risk

Control

Customer Profile/ Policy Banking Investments

Market Data

Insurance Shared Delivery Stack Teller Advisory Call Center

Source: Financial Insights

IVR ATM Kiosk Internet PFM PDA WAP Delivery Channels

© Financial Insights, an IDC Company, 2005, All Rights Reserved

6 Security & Fraud Management

 Identity theft (Phishing), First Party Credit Fraud, Virus attacks, Denial of service, etc. all growing  Technology solutions, processes & policies all need to evolve with criminal skill levels  Enterprise level visibility & command & control  2 Factor authentication & digital signatures  Forensic security tools and techniques are important for tracking © Financial Insights, an IDC Company, 2005, All Rights Reserved

7 Integrated Multi-channel Delivery Systems

Teller Advisory Call Center IVR ATM Kiosk Internet Web & Internet Connectivity Content Presentation Business Rules Transactions Business Objects PFM Delivery Channels PDA WAP Touch point performance management Shared Delivery Infrastructure Connectivity Banking

Core Systems Core Systems Core Systems

Investments

Core Systems Core Systems Core Systems

Insurance

Core Systems Core Systems Core Systems

Back End Product Factory Systems

Source: Financial Insights

Customer

Knowledge Interaction

Knowledge Factories

© Financial Insights, an IDC Company, 2005, All Rights Reserved

8 Selective Sourcing

      Turn fixed into variable Costs & reduce them Increase range of Skills on Demand Transformation of the IT Infrastructure Increase Service Levels 24x7 Support Pan European / Global Operations Moves to Selective Sourcing – ASPs for cards, payments, mortgages, fund management, web hosting, etc. – Leverage best practice and market knowledge – Offshoring for certain BPO – Insourcing to create economies of scale & revenue to fund in-house development © Financial Insights, an IDC Company, 2005, All Rights Reserved

9 Core Banking Transformation

Banking

Core Systems Core Systems Core Systems

Investments

Core Systems Core Systems Core Systems

Insurance

Core Systems Core Systems Core Systems

Product Factory Systems

  Web services will dominate here too Business Process and Content Management are critical features  Component based application services with real time database updates must integrate with delivery channels, payments, governance & other services  Parameter driven product factory & customer based fee repositories © Financial Insights, an IDC Company, 2005, All Rights Reserved

10 Intelligent Interaction Management

Customer - Centric Sales & Service

Business Intelligence

• • • • History, Analytics Pattern Recognition Mgmt Reporting Dynamic Marketing

Multi Channel Delivery

• • • • Channel Integration Authentication/Security Intelligent Routing Audit & Delivery Logistics

Data Customer Management Collaboration

• • • • Customer Preferences Data Access Case Management Account/Service Management © Financial Insights, an IDC Company, 2005, All Rights Reserved • • • • • Business Process Authentication Service Enrollment Event Definition Exception Management Straight Through Processing

Essential Guidance

 Think “Enterprise Architectures”  Think “eCollaboration”  Think “Data-driven Marketing”  Think “Factory Mentality”  Think “Performance tied to value proposition”  Think “Dynamic IT” And work progressively towards strategic goals © Financial Insights, an IDC Company, 2005, All Rights Reserved

Questions

Bob Giffords Director

EMEA Research & Development Financial Insights IDC United Kingdom, British Standards House 389 Chiswick High Road London, W4 4AE [email protected]

+44 208 987 7100 © Financial Insights, an IDC Company, 2005, All Rights Reserved