One of the top issues facing senior banking executives these days is rather simple to pinpoint. But it’s the opposite of simple – it’s the problem of complexity.
According to the most recent Accenture High Performance Finance Study, which surveyed 617 finance executives globally (168 from Asia-Pacific), the complexity of banking issues remains a business operational challenge.
Banks worldwide must balance increasingly stringent capital requirements with pressure from shareholders to grow revenue streams, increase market share and maintain margins against a highly challenging market backdrop.
In Southeast Asia, we see banks expanding beyond the Asean region and the integration process takes time. Witness DBS Bank completing the acquisition of the Asian private banking business of Societe Generale in Singapore and Hong Kong this past October.
And Japanese banks continue to search cross-border for growth as well – but again, it takes time. For example, Bank of Tokyo-Mitsubishi UFJ finally announced in January that it had completed the integration of BTMU’s Bangkok Branch with Bank of Ayudhya pursuant to its purchase announced in 2013.
Complicated cross-border expansion doesn't only take the form of mergers and acquisitions. In early February, for example, BTMU announced it had entered into a memo of understanding with Bank of Ceylon to develop and promote a wide range of financial services between Sri Lanka and Japan.
Given each new country has its own regulatory requirements, it comes as no surprise that complexity is a pressing issue.
Digital technology
Fierce competition – often from new entrants thanks to digital technology – is another major challenge. Digital is a challenge for traditional banking because it lowers the cost of entry and allows new competitors to move into the banking value chain.
In late January, Alibaba Group’s finance arm launched Sesame Credit Management, a credit rating system that leverages the Chinese e-commerce group’s user data. Alibaba, as well as Tencent and Fosun International, are also among 10 companies approved to set up privately owned banks in China.
More nimble rivals, may be able to capture new market share, especially given government efforts to expand financing opportunities for consumers and small businesses.
What can banks do to be more competitive amidst these challenges? Ironically, the enabler of increased competition – digital – could also be the solution to the challenges.
Banks that move fast to harness the power of digital technologies will be able to:
- · Drive growth by reaching new customers.
- · Improve customer engagement by offering new and more targeted services.
- · Increase profitability by running their business operations more cost-efficiently.
- · Reduce risk by more clearly understanding the full business picture
In order for banks to become more digitally enabled they need to knock down some of the silos in their operations.
As banks have expanded across regions, by acquiring other businesses or growing their own, so they have often developed with unique country flavours.
While it is good marketing to be homegrown and not perceived as a bank from across the border, it isn’t good business practice for the Singapore retail arm of bank A to handle accounting, regulatory reporting, or performance management in one manner while the Malaysian arm does it in another manner and the Indonesian arm in yet another.
These, along with many back office processes, should be standardised and digitally enabled.
In the banking industry, complexity cannot be avoided – indeed, it is a natural by-product of growth and success. High-performance financial services must therefore find ways of managing these complexities.
By standardising and optimising core processes, leveraging digital solutions, tearing down silos and sourcing skilled risk professionals more creatively, banks will be better placed to handle the challenges and win out against the competition.
Aliette Leleux is a managing director and head of finance and risk, Asia-Pacific, for Accenture.
