Post global recession, the banking and finance sector in the region is investing in technology solutions to manage data flows, encourage mobility and guarantee data security in a bid to regain customer confidence and capitalise on their investments in the sector. Pallavi Sharma reports on changing trends and finds out what role IT plays in keeping this industry going.
After growing by an estimated 4.8% in 2010, the GCC economies are expected to see real GDP grow by 6% this year, according to the Samba Financial Group. The report noted that despite the state of uncertainty in 2011, the outlook for the GCC economies remains favourable. According to the study, “Strong oil prices will sustain robust public spending and buoy confidence, while an easing of bank balance sheet strains, particularly in Saudi Arabia and Qatar, is expected to lead to a faster recycling of the region’s large oil surpluses.”
A more recent financial report by the Dubai Chamber Economist published in March this year, points out that the stabilisation of indices of both Dubai Financial Market and Abu Dhabi Securities Exchange suggests that the challenges facing the financial services sector are now over and the sector is now ready to make a remarkable recovery.
The industry is now witnessing a massive shift in focus to retain their existing base of customers while proactively managing risk. As CEOs continue to invest in initiatives to improve existent cost structures and implement better revenue drivers for their organisations, they become more prone to IT involvement in the strategic decision making process when doing so.
This is not to say that CIOs no longer have to extensively convince higher management when seeking budget approvals for IT investments. At the same time CIOs today, find themselves in a position of some power. “IT is no longer considered just a support function or cost centre. Higher management are pro technology and are concerned about core IT concerns and requirements. Today, IT is considered an integral part of strategic decision making and discussions about how best to execute those strategies,” says Vinay Gupta, senior manager IT at InvestBank.
“As organisations look to retain their existing client base while simultaneously attracting new business prospects they invest in business intelligence tools to understand the right channels to approach customers. Growing customer centricity places IT at the forefront as a tool to manage communication channels with the customer and to strategically analyse other investments the firm may be making,” agrees Yasar Yilmaz, Banking Industry Principal for SAP MENA.
Yilmaz claims that this paradigm shift is due to a number of factors, the first of which is that the banking and finance industry (BFSI) in this region is working towards rebuilding and fostering an environment to regain the customer’s confidence, knowing that clients are equally sensitive to the environment surrounding the bank, as they are to the service levels the bank provides them.
He says, “The financial sector is 3D focused with a keen eye on their customers who they want to retain, competitors who they want to gain a considerable advantage over and finally, regulatory bodies, who control fiscal and monetary policies that affect both the internal and external environment of the organisation. This requires heavy investments in business intelligence solutions such as ERP and CRM, which IT decision makers implement and manage for optimum results”
Secondly, according to him, the increasing importance placed on security and a simultaneous increase in the volumes of data has resulted in firms investing in business analytics to generate accurate reports for analysis and decision making. This has also contributed to a change in the role that IT plays in the banking and finance sector.
Yilmaz also points out, “Rapid globalisation has resulted in two key developments in the region. We have witnessed in the last few years many a local bank expand its operations across regional borders. At the same time we have also seen some consolidation in large banks in the UAE such as Emirates Bank and The National Bank of Dubai (NBD). In order to ensure that expansion and consolidation are effective, organisations have heavily invested in platforms that enable integration of data and IT systems across business units, again IT decision makers, with their skills and expertise are the ones who select the right systems based on infrastructure requirements and finally ensure that these solutions are implemented across all business units.”
According to a number of CIOs at banks and financial institutions in the region, IT requirements within the industry are most often traditional – centred on revenue, cost and security. Says Gupta, “IT solutions required for the BFSI sector are largely standard across the globe and due to the internet revolution and growth in technology, the physical location of a solutions provider no longer makes much of a difference because if they’re not operating within the region they have channel partners operating in the region”
However, while the rest of the globe has already seen major adoption of e-banking services, the Middle East BFSI sector remains in its infancy in this arena. As per senior decision makers, there are two major reasons for this. The first is that users in the Middle East prefer personal relationships and therefore are more comfortable when dealing with bank personnel on a face to face basis. The second is that some users due to security reasons, or in other cases due to seeming complexity of web sites and on-line transactions, prefer the security and convenience of branch banking as opposed to undertaking financial transactions online.
However, with the growth of social media and popularity of the internet almost all BFSI organisations in the region have Web sites. These may be managed internally or in some cases outsourced. IT professionals within the sector are also responsible for the effective management of these web based applications even when they are outsourced, so as to ensure that customer requirements when going to their website are met. Says Gupta, “Although we have hosted our Web servers, we monitor these internally. We regularly collect feedback from customers as well as branches to find out what needs to be improved.” Even when these applications are outsourced IT has to put in place tools and measures to monitor the service levels provided to the users of these sites to ensure that the outsourced company is doing its job.
In the face of recent ICT developments, IT departments within the banking and finance sector have found themselves at cross roads between implementing and ignoring the latest solutions. “The challenge there exists not only in convincing higher management of the benefits of these expensive solutions but also in choosing the right vendor from an already select group of vendors in the region, with prices that do not exceed corporate budgets, capabilities to provide necessary services across critical operations and appropriate levels of after sales support,” explains TN Sekhar, CEO, National Bank of Fujairah (NBF).
IT professionals in the BFSI sector largely agree on the fact that although cost is a deciding factor, it is more important to differentiate between vendors based on infrastructure requirements. “Each vendor claims his solution is the best and promises continuous support. Organisations need to understand that once they have defined the need to implement a fairly new technology, they must make sure that the right vendor is the one who has the capabilities to provide comprehensive end-to-end solutions that fit into the existing infrastructure and integrate existing applications on the new platform,” explains Yilmaz.
“We have just successfully completed a virtualisation project across 60-65% of our systems. The need for virtualisation was to ensure optimum use of IT assets and make technology management easy. In addition to which, virtualisation has helped us move towards building an efficient yet eco friendly data centre. When choosing the right vendor, we looked at who was in the best position to provide us the fastest implementation and would be more likely provide us better after sales support at the best possible price,” says Gupta.
When asked about why the BFSI sector is not as keen as other sectors on cloud computing, CIOs point out that the lack of regulations surrounding the provision SLAs and the lack of robust data centres in the Middle East are contributing factors. Sam Alkharrat, MD, SAP MENA region points out, “The lack of efficient data centres in the region raises security concerns, and organisations in the BFSI sector, who are focused on rebuilding customer confidence so as to encourage both their retail and corporate customers to trust them with their financial information and investment portfolios, are not likely to feel confident about service provision from these data centres.”
Bharat Raigangar, president –ISACA UAE chapter agrees, “Cloud computing in this region is still a maturing trend, after the security breach at RSA, security is a massive concern and organisations in this sector need to define standard SLAs to ensure that both their customer and the organisation’s own data and financial information is secure”
“Another challenge that CIOs face when investing in new technology solutions is the high telecom costs. Service providers in the region need to work on providing organisations in the region competitive telecom costs to boost implementation of these technologies, while regulatory authorities must put in place governing laws regulating the provision of SLAs in the region. This is a standard requirement for any service to
be adapted, how else would a user trust a vendor to provide promised levels of service,” he adds.
CIOs also feel that the region lacks awareness about technology developments, despite recent conferences by a variety of vendors, educating
users about cloud computing and virtualisation, these have taken a long time coming. “With cloud and virtualisation being recent developments in ICT, organisations need to be educated in both short and long term benefits of these technologies, so that higher management understand the ROI on such investments and is pro IT implementing new solutions. Conferences that bring together users of these technologies with organisation that are still considering them, will put in place a basic blueprint for efficient adoption of these technologies and this is just what some organisations need,” says Gupta.
Despite these challenges, the BFSI institutions in the region continue to be optimistic about the months aheadn with technology developments enabling better management of data and real time communication channels with customers and with increase in foreign investments to the Emirates interbank offered rate (Eibor) falling to 3% indicating a healthy market sentiment, the stage for recovery is set.