The eCommerce "Boom" of recent years resulted in some significant investment in online infrastructure developments made to support eCommerce visions for a "new way" of conducting business. The "new business vision" did not take place as promised. It rather turned out that the established business principles, which were supposed to be substituted, remained valid after all. Many financial institutions are now concentrating again on their core services and specialist know-how around financial offerings. Does this mean that the invested capital for online infrastructures has been a write off? Can the investment made for new business visions be used for established business principles? Were the new business visions valid in the first place? What do banks have to do in order to recoup on their investments?
Understanding the past and present objectives
Has it changed?
Infrastructure investments during the e-commerce hype had one major objective: to exchange existing heavy and often proprietary front end and back end infrastructures for internet-based technologies. The vision to renew old and established systems for faster and cheaper processing of data and transactions drove the e-commerce idea forward.
And, for the first time, the vision of global, interoperable systems with unlimited straight through processing capabilities promised to come true. However,the anticipated returns on investment did not materialise and the financial services industry had to react. But instead of re-assessing the reasons for the downfall, many online solutions and plans were put on hold or were stopped completely.
But was the vision wrong? Were all the demands made up? Was nothing of the 'new economy' respectable? Were all infrastructure efforts a waste of time and money? It is most probably true that online infrastructures were oversold and over-promised.
However, the objectives of reducing costs, faster processing,quicker turnaround time and international presence at acceptable cost are probably ever more true today. The objective to harmonise systems and to make them interoperable via internet technology is still correct and desirable.
Therefore it is important for future e-commerce engagements to have an understanding of what went wrong. To a large degree the solution of the set objectives were assessed in technical terms. An online infrastructure during that time was hardly ever designed around business principles but more on newly available technology standards or the requirement for technical solutions to be fast and state of the art. Business principles, specific client requirements or the usability of many systems were often not taken into account or given a low priority in the excitement of new technology. End users did not use many of the new services, not least of all because they did not necessarily meet their specific needs and expectations.
Moreover not all systems were interoperable because so many new technical standards and solutions, interpreted in different ways, were not interlinked. Many were implemented as island solutions rather than aligned to the existing back office infrastructure. One had to be quick – and this did not leave time for full system integration. As the main objective of the past and the present is still similar, the valid question has to be asked, whether all online investments have to be written off or if some or all of them can be recouped?
All is not lost - Online technology for Banks remain important
The need for online infrastructure development remains and becomes even more vital for secure end to end processing and financial transactions over the internet. This applies to basic services (internet access), for established processes like message exchange (email) as well as for meeting the demand for 'business globalisation'. Online availability is designed to satisfy the growing demand for more flexible, faster and most of all cheaper services.
It is important however that online systems are interoperable with other infrastructure initiatives, for example,from a procurement system into the back office infrastructure for financial transactions towards clearing services for payments of other organisations, such as Swift and Apacs. Only an integrated process flow can provide the above mentioned benefits.
It is also a fact that investment in online technical infrastructure has been substantial in many cases and needs to be capitalised upon. From a financial point of view, in many cases the considerable investment made remains relevant to the requirements of the business. Technically considered, the infrastructure is still advanced enough to build new services.
Past investments versus new requirements
What are the factors to consider when deciding what to do with existing online infrastructures? Three major questions can be identified:
- What is the bank's strategy and business objective?
Depending on the strategic direction and market positioning, online infrastructure must support existing but especially future business opportunities. For example, a niche player must decide whether it wants to position its services regionally or globally (although global does not need to mean worldwide but could also be regionally diversified). A global offering needs a widely accessible infrastructure for serving major markets and core clients
- What do the clients require?
If it is unclear what client demands are in terms of their financial service needs, it is impossible to create compelling financial services. The infrastructure must be a profound component of new service offering planning. Finally the client has to pay – directly or indirectly – for real time services and immediate messaging solutions, but will only pay if real benefit is achieved. Therefore it is crucial to identify and classify clients' functional requirements (conditional payments, trade finance support, eFX, procurement services); operational requirements (service availability, applicability, processing time, costs) and infrastructure prerequisites (operating systems, internet connectivity, system access, security)
- What are the potential 'quick wins' for further activities?
Nobody is going to wait for several years to gain some first return on invested capital. The goal could be to decide on potentially less complex solutions for example, via a phased approach of complex service delivery but with the generation of a small but positive revenue after a short time
The new commercial objective
Putting the Business Driver back on track
Overall it is vital to realise that technological infrastructure serves commercial objectives and business requirements, not vice versa. Particularly in times of dominant cost awareness financial institutions today more than ever need to consider business objectives such as flexibility – what to offer to whom and when; internationality – where the offer is available and connection with other parties; and fast services and response times – acting in real time or near real time and upon demand. This all is supported in a perfect way via online services.
The commercial value will be generated via clients and external services. Therefore the analysis of these external business requirements drives the technological infrastructure and should be specified in a clear strategy. Often a reinvention of an existing strategy and its related services is not needed,but a rigorous re-assessment is compulsory. This should also be based on lessons learned information from previous online activity development.
The assessment of online services should state what is essentially required from clients, partners, suppliers and bank internal groups, and how it can be established, including risk assessment and alternatives. The assessment can very often profit from a large pool of resource and knowledge existing in the financial institution. It should also include new areas for cooperation with other parties and enhancement of established services.
It becomes clear therefore that online technology must assist business needs to be successful, either by meeting external client needs, strategic developments and positioning, or internal cost reduction efforts. This can be best achieved by
- Developing a clear services, product and application strategy
- Conducting a risk assessment of existing and planned services and
- Defining a clear financial business plan providing a commercial consideration of any solution
It should then be determined how to use or reuse the technical infrastructure in place today for the assessed service engagements of the future.
Business transformation as a result of successful online infrastructure
Online infrastructure exists therefore to support business processes and methodologies. There is little need to reinvent processes, but to restructure and re-engineer them. This will eventually lead towards the necessary business transformation for the benefit of all involved parties of the value chain. A business transformation will only take place if all efforts serve client needs and support existing business principles. Only then the integration of flexible and fast services will reassure existing business relationships and foster business reputations. This will of course also reduce costs and operational risks on all sides. Such a desirable transformation is not done in days or weeks. However, a business transformation is imperative to be competitive, flexible and international for the global future.
Having worked with a number of Financial Institutions before, during and after the eCommerce Boom we have realised and assisted them to concentrate particularly on five major activities, which are vital to recoup on the online infrastructure investments:
- Pursuit of interoperability as high priority objective.
Without technical interoperability seamless processing will not be feasible to reduce transactional costs and processing times. Only with true interoperability, and this includes business and legal interoperability, will an expanded service reach to multiple environments be possible
- Understanding of and alignment with the financial institution's global strategy.
In order to be successful with any client service offering, a clear and recognised direction is required with clearly defined objectives. The vision must be transparent, attainable and understood by all
- Alignment with industry verticals and customer requirements.
Industry and clients are the ones with business requirements to be met and business solutions to be developed. An alignment with their objectives is the only way to combine business benefits for both the clients and the bank. The client will always follow the innovative bank that provides and works with them to develop beneficial business solutions
- Consideration of co-operation with other financial institutions or country schemes.
As globalisation continues,service cooperation and alliances are important to ensure international acceptance of similar services. Maybe it is not practical to be present in each market and to be compliant to all regulations. However, it is commercially not only valuable but also mandatory to interlink own solutions with other players in respective markets. This helps to not only achieve wider and better acceptance of services, but also reduces the financial and operational risks
- Recognition that business ideas and transformation processes must be largely driven by the financial institutions themselves in order for them to also reap the benefits
Full exploitation of past online investment has merely been delayed and needs to be realigned to a financial institution's overall service and business strategy. When properly planned and aligned to commercial objectives and planned business strategy the online infrastructure will and must support client demands, streamlined processing, fast and reliable access to information and services at any time and in real time. And the more usable and widespread it becomes, the more beneficial it will be for all players: clients, suppliers, partners and the financial institutions themselves.
Published in ePayments Magazine, Edition 4, Sibos, October 2002.