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Modernization vs. Innovation: Getting Ahead in the Era of the New Normal

For the past 18 months (or there about), analysts, journalists, bloggers and sometimes people who are all three rolled into one have discussed the need for change and reform in the financial services industry. Regulators and government leaders have taken turns at the mic to discuss their particular brand of change and/or reform but for the most part very little has happened beyond talk.

So while this may sound harsh  I think it’s time to strike both words from our collective vocabulary for the rest of the year. Instead let’s talk about opportunity and renewal. A few bright, happy, positive words that speak to the future instead of the past–which is in many ways going to be–the best way forward to the “new normal” for the financial services industry in general and corporate banks in particular.

What does the “new normal” mean? Well, BCG did an admirable job at the end of last year of putting in place a usable definition of the concept of the “new normal”.  Their team defined it as: “a period of slower economic growth, higher loan losses, scarce liquidity and more realistic pricing of risk“. All of which have certainly been true for the past year.  However, if you’re a corporate bank or an organization that supports corporate banking; how do you get to and more importantly profit in the new normal?  Do you modernize or do you innovate?

Most of us would not necessarily think about the need of the corporate banking model to modernize–i.e. to make modern in appearance or style; to update.  But the fact is that when you look at technology many corporate banks are still far behind the curve. Particularly when compared with their seemingly more modern or perhaps more innovative retail counterparts.

Think about it…as an individual consumer you can not only get a single view of all of your accounts via the internet, but you can also access your account data anytime and anyplace you desire.  You can  move money from one account to another, send payments via the web, phone or even through your iPhone.  You can download a report and move the history of all your transactions to the program or solution you prefer–think Microsoft Money or Quicken. You can set up alerts and security monitoring from your laptop.

Unfortunately, all too often corporate customers don’t have access to this same level of flexibility or transparency because their banks are still hampered by outdated, legacy platforms and systems that haven’t kept pace with innovation.

With pressure from retail customer experiences impacting corporate expectations, banks have a decision to make regarding their next steps. They can either try to catch up to the retail market, i.e. modernize their existing systems to incorporate the elements of flexibility and transparency that customers are demanding.  Or they can use technology to innovate and get ahead of the market.  The former is much easier than the latter.

It is always easier to follow a path that has been charted by someone else so the path of least resistance for corporate banks is definitely one that simply modernizes existing IT systems.  But innovation, according to a survey released earlier this month, is on the radar for bankers although most believe that “inflexible IT systems and bottlenecks in IT development” are  preventing any substantive progress toward the goals of growth and improved efficiency.

So while more than 50% are making innovation a priority and support leveraging new channels to achieve it, 40% are still too risk averse to move forward. And at a time when, competition for every dollar is increased, doing nothing is not an option–particularly for corporate banks.

Yet there is a bright spot on the horizon and this lies in getting more value and creating a more collaborative view from the resources and tools that you – Mr./Ms. Corporate Banker already have – to create a compelling new customer experience from the data you also have.

A recent Financial Services Club blog noted that the next wave of bank innovation will be based upon:more accurately profiling the needs of customers by channel and the experience the customer expects, wants or needs in that channel. For Corporate banks that currently collect a vast amount of data not only from and about their corporate clients but also about their corporate clients’ trading partners, customers and suppliers, the seeds of innovation already exist.

As Ben Kingsley said in Sneakers, “it’s all about who controls the information”.  Unfortunately, much of this information is trapped in siloed systems that can’t work together to create a single accepted view of the transaction or if you prefer the corporates’ truth.  Now without launching into a sales pitch (because really what’s the fun in that) the facts remain that banks who hope to not only be seen as progressive but who also actually want to be innovative will have to overcome their own aversion to risk and invest.

Investment in innovation means investment in flexibility i.e. in IT.  It means building or buying or doing a little of both to gain the tools necessary to create an interoperable IT foundation.  One that can connect disparate legacy systems, adapt to changing standards, transform/translate varying message types, support multiple protocols both old and new–and do it all without breaking a sweat–because that is how corporate banks will be able to gain control of the data and deliver an innovative experience to their customer base.

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