Will regional banks be changing their perception of IT

The confluence of these market factors is driving significant changes in the way that technology enables banks operating in the Middle East to both serve their customers and meet their business objectives. In fact, the region is witnessing a monumental revision in the way that financial services providers are viewing the IT side of their businesses.

Changes in customer demand
Increasing Internet adoption across the region has created a fundamental change in consumers' relationships with their banking providers. Just as the Internet has encouraged a culture of instant access to information in a simple way, anytime, any place, anywhere, so Middle East-based customers are now demanding greater availability and simplicity in their financial transactions and information access.

While a growing number of banks in the Gulf and beyond have created an Internet presence to address changing customer needs, many of these systems are not integrated and don't offer real-time transactional capabilities.

The sophistication of customers has increased measurably, so regional banks must have systems in place that meet customer expectations about accessibility and functionality.
Rising IT integration costs

In the current economic climate, regional banks are closely evaluating the costs of IT as compared to the value that technology delivers to customers and the organization as a whole. Analysts have estimated that up to eighty percent of all new IT projects are actually integration efforts to try to make the new system or application work properly with the existing technology platform.

The growing trends across the Middle East toward multi-channel banking and increased customer focus are pushing up integration costs without any real benefit being passed on to the customers.

While some regional banks have invested heavily in integrated solutions that require minimal tailoring to fit their existing environments, a majority of financial services providers here are using obsolete core technology that costs more to maintain and is more difficult to integrate with.

There is good news on the way, however, to combat rising IT costs. New offerings such as Oracle's grid computing enable banks to virtualise software across multiple resources, allowing better and less expensive use of a bank's computing resources by balancing out peaks and troughs of activity, which are typical for banks - for example, end-of-day closing functions.

Low-cost hardware
While integration costs have increased for regional banks, IT hardware has become more affordable, marking a shift in IT investment patterns.

Middle East banks are demonstrating that they no longer require high cost platforms, and are increasingly deploying commodity hardware to run Unix and Linux, as the necessary computing power is now available at a more affordable cost.
A growing number of financial service providers are making the realization that the reliability and scalability elements of their IT environments reside in the software they select.

Accordingly, regional banks are increasing their software investments and reducing the amount of budget they must allocate to pricey hardware platforms, and the costs associated with systems maintenance and support.

Banks in the region are also demonstrating that they can attain greater levels of reliability using clustered systems and commodity hardware. This strategy drives out cost, and when combined with an operational customer database to store information, virtualizes resources and enables banks to run various activities across multiple hardware resources.

Evolving regulatory environment
Some of the most major changes in the region's banking industry are being driven by proposed regulation around records retention, capital adequacy and risk management, as well as global accords such as Basel II. In addition to the fundamental compliances issues, banks are also considering how changes associated with these regulations can lead to greater competitive advantage.

At the heart of proposed records retention laws as well as Basel II, regional banks will be likely to collect virtually all data around customer activity and have this information available centrally. To truly benefit, though, banks also need to have an infrastructure that allows real-time monitoring and management of risk-adjusted performance.

This will enable them to integrate the risk line of the business, which is concerned with avoiding loss, and the finance line of business, which is focused on how to outperform risk. Banks that view new regulatory changes as opportunities for improvement rather than strictures to be endured will be better positioned to benefit from them.

Packaged software solution adoption
The availability of packaged core banking solutions from both regional and global solution providers has also made a significant impact on the Middle East's banking sector. When weighing packaged solutions, banks must consider whether specific offerings include a 'customer view.'

The practice of extracting consumer data from different sources to put into a centralised customer information file can be a diluting process because information is collected in at a summary level or is out-of date and incomplete almost immediately, rendering the package a waste of investment.

However, core banking solution vendors are now providing new functionality and business advantages to organizations across the region. As smaller banks are already benefiting from the implementation of such solutions, large banks are beginning to consider them. Few banks would debate whether they must replace their legacy systems -- the answer is that they have to do it, and the sooner the better.

A number of key incentives are encouraging regional banks to overhaul their core banking systems, including regulatory requirements and competitive demands. Analysts have forecasted that 30 of the world's top 100 banks will replace their core banking systems within 10 years, and the Middle East seems likely to support that trend. Ultimately, banks require packaged solutions that enable them to focus on their core competencies, and not waste resources on developing in-house IT systems.

Top three objectives
Oracle's research within the Middle East's banking sector has revealed that financial services providers are working toward three major objectives: the development of a single operational customer environment; the development of a functional and real-time channel integration using straight-through processing principles for all process automation; and addressing the need for risk-adjusted performance measurement and management to align the balance between between risk and profit.

In addition to these goals, changes in customer demand, fluctuating costs in integration and hardware, the changing regulatory environment, and the adoption of packaged solutions, are driving major changes in the way that regional banks approach technology and the role it plays in their business objectives.