Will regional banks change their approach to CRM?

The confluence of these market factors can drive significant changes in the way CRM technology may enable banks operating in the Middle East to both serve their customers better and meet their business objectives. In fact, the region is witnessing a monumental revision in the way that financial service institutions are viewing their customer relationships.

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 more accessibility, greater availability and simplicity in their financial transactions and information access.

A growing number of banks in the Gulf and beyond have created an Internet presence to enable their customers to access information and to transact online. Others have embarked on highly publicized call center projects to provide customers with help desk functions.

Unfortunately, many of these systems are not integrated and don’t always offer real-time transactional capabilities. The sophistication of customers has increased measurably, so these often fragmented and disparate initiatives might not be the best approach.

A more coherent strategy-driven approach to customer relationship management that stems from the bank’s strategy relies on deep business intelligence and delivers a multi channel customer relationship.

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 pre integrated solutions that require minimal tailoring to fit their existing environments, a large percentage 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. Oracle Service Oriented Architecture (SOA), on the other hand enables banks to map and integrate their business processes across disparate systems.

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 rules to be endured will be better positioned to benefit from them.

Packaged software solution adoption

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information file can be a diluting process because information is often collected at a summary or aggregate level or is out-of date and incomplete almost immediately, rendering the effort a waste of investment.

The availability of packaged modern core banking solutions from global solution providers such as i-flex 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 ‘360-degree customer view.’

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 5 years, and the Middle East seems likely to follow 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 four major objectives:

1. The deployment of a single operational customer environment.
2. The development of a functional and real-time channel integration using straight-through processing principles.
3. Addressing the need for risk-adjusted performance measurement and management to align the balance between between risk and profit.
4. Respond to the new market demands in the areas of mortgage and Islamic banking.

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.