Slide1 l.jpg
This presentation is the property of its rightful owner.
Sponsored Links
1 / 18

Investing In Infrastructure For Financial Institutions World Bank Conference December 4 – 6, 2002, Washington, D.C. PowerPoint PPT Presentation


  • 144 Views
  • Uploaded on
  • Presentation posted in: General

Investing In Infrastructure For Financial Institutions World Bank Conference December 4 – 6, 2002, Washington, D.C. Gabriel S David Managing Director, Global Financial Industry Group. Globalization Increasing inter-dependence of major economies due to greater integration

Download Presentation

Investing In Infrastructure For Financial Institutions World Bank Conference December 4 – 6, 2002, Washington, D.C.

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Slide1 l.jpg

Investing In Infrastructure For Financial InstitutionsWorld Bank ConferenceDecember 4 – 6, 2002, Washington, D.C.

Gabriel S David

Managing Director, Global Financial Industry Group


Global financial industry trends l.jpg

Globalization

Increasing inter-dependence of major economies due to greater integration

Increasing exposure and focus towards new emerging economies

Demographics

Changing demographics in developed and emerging economies

Regulations

Harmonization of country regulations towards “Industry Best Practices” and emergence of “Global Standards”

Increasing regulatory pressures

Increasing focus on use and integration of risk management activities

Technology

Increasing / critical impact of IT on operations and performance of financial institutions

Increasing rationalization and optimization of IT investments

Increasing interest in Managed Services / Outsourcing

Increasing cooperation in Industry-wide initiatives and emergence of standards

Consolidation

Increasing importance of economies of scale

Increasing and rapid consolidation in the financial services industry

Global Financial Industry Trends..


Where are the major investments required l.jpg

Where Are The Major Investments Required?

  • Credit analysis / risk management systems

  • Shared services (such as credit bureaus for SMEs)

  • Asset Securitization infrastructure and systems

  • Payments infrastructure

    • Cash handling

    • Non-cash (such as POS, credit cards, ACH)

  • Internal bank systems

    • Core banking, lending, CRM

    • Fraud and money laundering

  • National infrastructures for information exchange and sharing


Potential sources of investments l.jpg

Potential Sources of Investments

  • Internal funds from the bank

  • Government sponsored and funded common infrastructure components

  • Third party service providers who can invest and charge on a transaction basis

  • Industry cooperatives

  • Venture capitalists


Major challenges l.jpg

Major Challenges

  • Cooperation between local institutions

  • Governance models

  • Government control and regulation

  • Fragmented / inadequate regulatory frameworks

  • Competitive pressures from international institutions

  • Other requirements for capital


Sme information infrastructure major issues l.jpg

SME Information Infrastructure – Major Issues

  • Global financial institutions entering the emerging markets typically have better application systems and IT infrastructures

  • Common shared services infrastructure is lacking for many areas such as

    • Credit rating / credit checks

    • Fraud and money laundering

    • Industry specific statistical data for analysis

  • Common standards for sharing credit data between financial institutions does not exist in many countries

    • Many look at data they have as proprietary

  • Core banking systems are not compatible and still focused on accounting

    • More information is required to manage the SME credit and clients


And their significant impact on financial institutions ability to service smes l.jpg

…and their significant impact on financial institutions ability to service SMEs

IT Infrastructure

Core Banking

Applications

Standards

Shared Services

Infrastructure

Risk Management

Basel II

Capital Availability

  • Delivery channels usage and leverage (particularly the “e” channels) are sub-optimal

  • Core banking application systems need to be replaced

  • Focus on the branch contacts and networks for client acquisition / servicing and retention rather that more effective use of IT

  • Increasing consolidation amongst financial service institutions – reluctance to share credit / fraud information

  • New emerging requirements such as the The New Basel Accord will also require additional IT investments

  • New competitors better capitalized and financed

    • Leveraging existing investments in IT and operations,

    • Focusing on risk adjusted ROI and impact on financial performance


Given the pressures in the context of today s environment l.jpg

Given the pressures in the context of today’s environment………

Battle for

Market Share

Uncertainty in

Major Economies

IT Infrastructure

Commoditization

Of Products

Declining Margins

& Volumes

Pressures on Revenue

Growth & Profitability

  • Enterprise wide risk management

  • Cross-border management of risks

  • Regulatory issues, Basel II and WTO

  • Transformation of operations

  • Rationalization of global scale and operations

  • New products and market segments

Each issue poses a unique set of challenges to the IT and

back office operations management areas……….


New products and market segments l.jpg

Assist in product development, packaging and management efforts

Develop new settlement & reconciliation processes to support the introduction of new products and services

Provide information / value-added services to support the delivery of customer relationship management activities – including money laundering and fraud prevention

Provide up-to-date / real-time information necessary to track risk and business performance

Incorporating IT and BPO involvement and expertise into front office activities

Developing and harmonizing common business processes to support varied products

Enabling direct access to back office data repositories

Increasing integration with front office applications and systems

Increasing interfaces with customers IT and infrastructure

Undertaking straight through processing initiatives

Requiring subject matter experience and expertise from outsourcers and suppliers

New Products and Market Segments….

Increasingly IT and Back Office

Processing Areas Are Called Upon To:

IT and Back Office Processing Areas

Have Responded By:


Cross border management of business risks l.jpg

Shifting of businesses in targeted markets and economies

Shift of traditional country specific activities towards regional / global management models

Continuously re-assemble / readjust the complete supply chain based on least cost, least risk, best quality

Integrate their operations with those of merged and acquired businesses

Increasing controls, continuous improvement (particularly Six Sigma) and undertaking more reporting activities

Creating centralized support centers or shared servcei centers to support shifting markets

Conducting fundamental reviews and re-delineation / re-alignment of roles and responsibilities

Developing and rolling out new processes , procedures and systems to support centralization initiatives

Undertaking painful “ right sizing” to reduce duplication and increase optimization of resources

Outsourcing of IT and back office processing areas where it makes sense and where the supplier has the financial strength, subject matter expertise, tools, methods, processes and metrics that are “best in class”

Cross-Border Management of Business & Risks

Increasingly IT and Back Office

Processing areas are called upon to:

IT and Back Office Processing Areas

have responded by:


It infrastructure l.jpg

Provide more accurate and timely data, near real-time

Shift towards on-line banking and decision making information systems

Continuously reduce IT infrastructure budgets and operating costs

Integrate their infrastructure with those of merged and acquired businesses

Increasing controls, continuous improvement (particularly Six Sigma) and undertaking more reporting activities

Creating centralized support centers or shared service centers to support shifting markets

Conducting fundamental reviews and re-delineation / re-alignment of roles and responsibilities

Developing and rolling out new processes, procedures and systems to support centralization initiatives

Undertaking painful “ right sizing” to reduce duplication and increase optimization of resources

Outsourcing of IT infrastructure and processing areas where it makes sense and where the supplier has the financial strength, subject matter expertise, tools, methods, processes and metrics that are “best in class”

IT Infrastructure

Increasingly IT and Back Office

Processing Areas Are Called Upon To:

IT and Back Office Processing Areas

Have Responded By:


Core banking applications l.jpg

Provide more accurate and timely data

Shift towards decision making information systems:

Client focused information systems

Client behavior scoring / monitoring systems in the credit and payments areas

Money laundering / fraud prevention systems

Provide seam less information access and in many cases integration across all banking distribution/delivery channels

Continuously reduce budgets and operating costs

Integrate external data with internal operating data

Increasing controls, continuous improvement (particularly Six Sigma) and undertaking more reporting activities

Implementing new core banking application systems that have the data required for

Client relationship management

Client behavior scoring / monitoring

Early warning capabilities (alerts/alarms)

Re-engineering the supply chain of back office operations to be compatible with the new systems

Focusing on minimum customization, increased standardization across the enterprise

Undertaking painful “ right sizing” and re-aligning of application systems architectures

Leveraging third party suppliers where it makes sense on a ”partnership” basis

Core Banking Applications

Increasingly IT and Back Office

Processing Areas Are Called Upon To:

IT and Back Office Processing Areas

Have Responded By:


Risk management initiatives l.jpg

Incorporate new compliance and control procedures as a part of new risk management initiatives, particularly Basel II

Subject their IT and operations to greater oversight by internal / external Auditors and regulatory agencies (increasingly from multiple jurisdictions)

Provide up-to-date real time information necessary to support risk management activities

Increasing controls, continuous improvement (particularly Six Sigma) and undertaking more reporting activities

Placing a greater emphasis on supporting risk management / middle office / compliance activities

Developing and retaining more board based operating experience and subject matter resources

Redesigning core processing systems to incorporate the new data / reporting requirements for risk management

Increasing integration with middle office / risk management applications and systems

Undertaking straight through processing initiatives

Requiring subject matter experience and expertise from outsourcers and suppliers

Risk Management Initiatives…..

Increasingly IT and Back Office

Processing Areas Are Called Upon To:

IT and Back Office Processing Areas

Have Responded By:


Estimated costs of implementing the new basel accord l.jpg

Estimated Costs of Implementing The New Basel Accord

  • The estimated costs for those banks that have not focused on this will be high:

    • Global banks: 4.5% - 6.5% of global IT and business operations budget for 3 – 4 years

    • Regional banks: 6% - 8% of IT and business operations budget for 3 – 5 years

    • Small banks / local banks: 7% to 10% of IT and business operations budget for 4 – 6 years

    • In developing markets: 7.5% - 11% of IT and operations budget for 4 – 6 years

    • In Japan: >11% of IT and business operations budget for 5 – 7 years

  • On-going maintenance and support costs: increase of 3% - 5% of total IT and business operations budget

Source: BIS – Updated September 6, 2002; EDS Analysis


Slide15 l.jpg

Silo focus

Sales growth driven

Rapid product extension

Planning disconnect with back office operations

Price discounting / Repackaging

Re-skilling (banking versus selling)

Increased stress (bank officer to sales officer / culture)

Disgruntled front line

Internal focus

Product centric

Production oriented

Stress due to:

Inconsistency in volume

Product expansion causing manual work around

Stretch in skills

Focus on process not value

Lack of technology

Check and control focus

Lack of subject matter skills in outsourcers

In many financial institutions There is a significant economic disconnect between front office and back office which destroys value……

Front Office

IT and Back Office

The result: C/I ratios = Increase continuously

R/ Return on Equity = Decline continuously

Value Destruction

Economic Disconnect


This is all about the focus on best practice and the industrialization of banking l.jpg

This is all about the focus on “best practice” and the industrialization of banking….

Manufacturing

Examples

Financial Services /

Banking Applicability

Highly

Customized

  • Rolls Royce

  • Mercedes AMG

  • Dell

  • Structured Finance

  • Project Finance

  • Private Banking

  • Risk Management

Efficient

Customization

  • BMW

  • Lexus

  • Harley Davidson

  • Corporate Finance

  • Capital Markets

  • Asset Management

  • Wealth Management

Business Management & Controls

Technology / Ops Innovation

Automated

Production

Lines

  • Sony

  • McDonalds

  • Pizza Hut

  • SME Services

  • Payments

  • Credit Cards

  • Trade Finance

  • Consumer Finance

  • Global custody / custody

  • Safekeeping

  • Deposits

  • Retail lending


The transformation of it and back office processing areas is paved with difficulties l.jpg

The Transformation of IT and Back Office Processing Areas is Paved With Difficulties…

  • Demands of the front office / client facing business units and unwillingness to relinquish control

  • Workforce transition issues / organization culture issues

  • Restrictions in centralizing operations due to foreign exchange regulations, local market and exchange rules…

  • Local industry practices and governance models that re inadequate

  • Difficulty in pricing / costing managed services / outsourcing contracts

  • Writing off the investments in current technology as you re-tool

  • Developing necessary critical mass (volume and subject matter expertise / skills) to support shared services / utility initiatives

  • Upfront investment costs required


Slide18 l.jpg

Our Vision

EDS … the recognized global leader in ensuring clients achieve superior value in the Digital Economy

  • By delivering the right strategies, solutions and services

  • Through superior execution on a sustained basis


  • Login