Monday May 13, 2013
Banking on the future of banks
By NEVASH NAIR
nevashnair@thestar.com.my
Zafin Labs is privately owned and operates out of multiple locations in North America, Europe, Middle East and Asia Pacific. BACK in the 14th century some entrepreneurs saw an opportunity to facilitate secure transactions between buyers and sellers of goods.
These entrepreneurs took on the risk of transportation, finding and guaranteeing the identity of buyers, and the payment for goods in different locations and different currencies.
For all the risk they bore, these entrepreneurs, who would eventually be called bankers, were rewarded as both sellers and the buyers prospered.
Fast forward to the 21th century.
We enter the digital age and banks modernise their systems with the first computers.
These systems were built around what appears to be primitive tools compared to what is available today and because of that they were based around products and lines of business instead of customers.
Changing products and prices was difficult because it meant changing their core product systems.
Instead, banks copied each other and began offering the same products at the same prices and so the value banks delivered was reduced.
Meanwhile the rest of the world has undergone a true transformation.
Banks need to easily create new and customised products to meet the needs of their clients and the demands of the market. - AL KARIM SOMJI Today, you can buy just about anything from your phone, in any currency and ship it to anyone, anywhere in the world, with the push of just a few virtual buttons.
But when a customer walks into a bank they cannot easily see all the products from them that you use.
Banks not only need to catch up to the modern age, they need to focus on customer centric practices so they can compete with new service providers.
The traditional sources of income for banks are under continuous pressure due to falling deposit margins and a decline in income from other activities such as investment portfolios, trading, treasury and so on.
This has led to a paradigm shift in the banking industry, where banks have increasingly started to focus on wholesale and corporate banking, since nearly 40% of the total revenue for banks and 60% of net profit comes from these segment.
Wholesale and corporate banking are primarily relationship driven businesses where the majority of income is fee and commission based.
To maintain a competitive advantage in this environment, banks need to offer transparent and flexible pricing plans that enable customers to make a choice based on their assets and risk profile.
Banks need to package and bundle different products as a value offering to institutional and corporate customers, individualised customer pricing with special discounts and bonuses while supporting specialised accounting and reporting requirements specific to wholesale and corporate banking clients.
According to Zafin Labs chief executive Al Karim Somji, banks have lived off the margin between borrowed funds from and the money lent to customers in the past and this must change as banks need to be more innovative about fee-based revenues.
Zafin Labs specialises in providing software solutions in relationship pricing and billing for the financial services market
“New demands for unique, customised products and bundles cannot be handled by the traditional business as usual system.
“Banks need to easily create new and customised products to meet the needs of their clients and the demands of the market,” Somji said.
“Without a 360° view, banks are challenged to price products and anticipate what types of products customers are looking for resulting in lost revenue and reduced customer loyalty,” he added.
Relationship banking software is a new tool that allows banks to see their clients’ entire relationship with the bank across geographies and lines of business and this is expected to change the future of banking.
“Think of a person that has a business account in one country with three subsidiaries in different countries.
“They also have a checking account, mortgage and credit cards. Currently the banks can see the business account in one place, subsidiaries in another and personal banking activity in another,” said Somji.
“We help banks see the complete picture of the client so they can offer their clients better prices on their financial products based in the entire relationship, not just the individual parts,” he added.
For example, Al Rajhi Bank, the world’s largest Islamic bank, approached Zafin Labs to address a specific and very costly problem revealed in a case study.
Located in Saudi Arabia, Al Rajhi Bank operates a very large network of ATMs across the country, making physical cash management an important consideration.
An initial analysis of its more than 2,750 ATM locations showed that the bank was maintaining large amounts of idle cash in its network, resulting in higher interest costs on idle funds.
After meeting with Zafin Labs, the bank selected a programme to apply a new, more sophisticated approach to manage physical cash within their bank and to significantly reduce idle cash.
Of course, any solution would need to reduce the presence of physical cash in a number of ATMs while maintaining service to customers – in other words, the optimization needed to decrease cash outages while reducing physical cash presence.
“The first step in the project was to ensure accurate data was available for use by the miCashOptimizer solution to ensure the optimisation and filling automation capabilities would deliver significant costs savings,” explained Somji.
“To that end, Zafin Labs created a custom adapter to take accurate transaction information from the core banking systems to feed into miCashOptimizer,” he added.
The team then created an optimisation model based on the prior 24 months of network-wide customer transaction history, and using that optimisation model, constructed bank-specific models to address unique urban and rural cash access points.
The result? A 20% to 40% reduction in physical cash, 10% to 20% reduction in cash costs and less than 1% occurrence of cash outages
Besides Al Rajhi Bank, Barclays has also used Zafin Labs’ solution.
After reviewing its retail banking product innovation capabilities, Barclays, one of the largest tier-one banks in the world, decided to improve on its existing core banking system.
Being headquartered in the UK, Barclays was also looking to deploy a system that would help it comply with the new regulations coming out of the UK’s Office of Fair Trading.
Barclays required a pricing and new product innovation platform that facilitated rolling out new products more quickly while reducing costs.
The newly selected system was expected to process data from the source systems, as well as integrate with its existing upstream and downstream systems.
This innovation layer also required streamlined processing and product creation at the business user level.
Based on these twin needs, Barclays selected Zafin Labs as its provider of choice.
The flexibility of Zafin Labs’ miRevenue Solutions Suite was cited as key in meeting these two retail banking needs.
Along with Zafin Labs’ track record in deploying retail banking innovations, the combination of the miPricing and miBilling modules became an obvious solution.
Each year banks leak millions of dollars in revenue through uncollected fees, unbilled transactions, and one-off waivers and discounts.
“Revenue leakage and the high cost of making product and pricing changes in the old banking systems, create an exciting opportunity for banks,” said Somji.
“Our clients have had great success achieving 100% ROI in under 12 months. miRevenue has been implemented in more than 40 countries worldwide across all lines of business. miRevenue has been plugging revenue gaps, pricing the total value of relationships, and creating new banking products since 2005,” he added.
Source:
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