Across the globe banking was left reeling as a result of the sub-prime meltdown and the following financial crisis that gripped the world, and the recovery process has been long and arduous.
In South Africa, however, the banking sector survived the crisis with far less damage than international counterparts, due in large part to proactive measures put into place years ago, including the National Credit Act (NCA).
Enforced regulatory compliance such as the NCA meant that the credit crisis did not hit South Africa as hard as countries like America, and the already high interest rates and strict lending criteria meant that customers of the banks themselves were not as hard hit by the recession.
However, while the credit crisis and the recession did not have as large an impact on local banking as could have occurred, other factors have held the South African banking market back from being able to evolve and implement new technology to better service customers and improve internal efficiency.
The biggest issue that the sector as a whole has had to contend with is legacy equipment in core banking systems, and externally imposed regulations and environmental situations that have prevented IT budgets from being used to update these legacy systems in order to offer new services and improve efficiency.
The need to comply with international regulations, including Basel II, Basel III and Sarbanes Oxley has required huge investments into technology and systems, which have tied up scarce IT resources and budgets for many years.
Local regulations such as the NCA, – while they helped curb the effects of the recession – also added their own pressures as compliance required a major demand on IT finance and technology. The new PCI standard has had a similar effect. All of these externally imposed factors have meant that from a technology investment point of view the focus and the money have all been channelled towards complying with imposed external regulations.
In addition to the compliance factor, security has been a major concern in the South African banking market and dealing with this has also required significant investment into technology. Technology and software have had to be invested in to handle security around ATMs as well as internet banking, which comes with myriad ever-evolving threats, such as phishing, fraud and identity theft.
The net result is that banks in South Africa have simply not had the resources available to invest the time and money to examine internal systems that support products and deliver services. Many internal systems are hampered by legacy and outdated equipment and are focused on product as opposed to process, which has held the banking sector back from serious efforts to improve internal efficiency.
In the international market some headway is being made into this space, as banks are looking at payment system processes across the entire organisation rather than specific business units, and are finding ways of optimising these to reduce costs and improve service levels.
However, South African banks have been reluctant to change these, as the systems that support payment processes are responsible for a large percentage of revenue. The local banking industry operates on legacy platforms and systems that have been added onto and modified over time and represent a significant investment, underpinning the reluctance for change due to risk and cost. But the reality is that change will have to happen, as inevitably with legacy systems the cost of maintenance will begin to outweigh the cost of new technology. Added to this is the fact is that they will have to change to meet future demand.
Conducting a baseline analysis of processes and technology across the organisation is a useful place to start, as it provides an overall view of what is in place and highlights areas for improvement. This can be further added to by conducting an internal benchmark, which will point out which areas are doing well and which are lagging behind. This is essential in optimising processes not just vertically but across business units and departments. An external benchmark can also be used to compare a bank against its peers to see where they stand on the status quo and which areas most need improving to bring them up to speed.
Improving internal efficiency and replacing legacy systems may involve capital outlay, but ultimately will lead to reduced cost and improved customer service. Now that that externally imposed pressures of compliance, regulations and security have been dealt with, it is the perfect time for local banks to look within to make processes better, faster and more efficient and optimise them across the organisation, by examining processes and discovering where technology can be used to leverage improvements and cost savings.
By Allan Dickson, Consultant at Compass Management Consulting