Three imperatives to manage the cost of compliance

The cost of compliance can prove to be prohibitive unless managed pro-actively, and efficiently. What are the imperatives for a bank to watch out for?

The top 20 global banks have reportedly paid more than €211 billion in fines, while there have been at least 40 new measures that were proposed by the European Commission since the 2008 crisis.

Now, that is a number the banks need to sit up and note. Either the regulations are likely to come down, or the need to comply will become more compelling. And the tight-rope walk of managing shareholder expectations while being fully compliant with changing regulatory norms can be quite an ask. More importantly, the emerging competition for banks from market forces is not necessarily constrained by the same regulatory compliance costs.

General Data Protection Regulation (GDPR), EU-US Privacy shield, Anti-money laundering directive (AMLD), Comprehensive Capital Analysis and Review (CCAR), FATCA, Dodd-Frank, Basel III, OFSI, International Financial Reporting Standards (IFRS) – the list of regulatory guidelines that need active monitoring and compliance has been on the rise. Banks increasingly need to watch for both the effectiveness and the efficiency of the resources deployed for compliance management. It is a delicate balance between minimising violations and fines on the one hand, versus reducing the cost associated, and the potential business opportunity loss. The cost of compliance – be it in terms of technology or people resources, or the sheer investment of time and effort – can be quite steep, if one considers the capital investments required and the costs associated with it. Here are three key imperatives that would be critical for banks to be increasingly sensitive to, as we move ahead.

Imperative #1. Embed compliance into the process framework
The most significant cost that is incurred by banks, besides fines which may be quite hefty, is not in the investments of technology or data management, but in the staffing of the compliance, function focused on audit validation and reporting. More successful banks have found a way to minimize this by integrating compliance and risk management as an integral part of the operating model.

When compliance is seen as an independent function, narrowly focused on a centralized set of risk reporting activities, without directly being engaged with the channels or customer, and focused on a select few areas of high impact, the entire framework tends to get siloed and seen as someone else’s responsibility. And that is a recipe for a massive duplication of effort and resultant compliance costs.

The trick here is to embed the compliance requirements as a part of the business-as-usual (BAU) norms of the process, then make it an extra activity that’s outside the routine. This is not about just having a few checklists in every process, but ensuring that the risk and compliance consciousness is part and parcel of the operating and delivery model. This is quite akin to the health-conscious making a visit to the gym a habit – a part of the daily schedule.

Imperative #2. Manage, harness and leverage data
An industry estimate pegs the number of pages of regulation that global banks need to comply within 2020 at a whopping 120,000 pages. Now if we think about it, the single biggest factor that can make or break the ability to comply with any regulation is being able to record, retrieve and review data – be it that of the customer or the transaction. Non-standard data architecture and sub-optimal use of reporting applications result in reporting challenges.

The granularity of the data and the ability to construct individual data elements is an essential prerequisite to providing accurate and timely reports to the regulator. The quality of the reports produced and the speed of its delivery is positively correlated to the ability to process data efficiently, and quickly.

The evolution of Regtech has been accelerated also because of the need for quick, effective and accurate reporting tools that help banks meet compliance deadlines. The 4 key characteristics of a good Regtech being Agility, Speed, Accuracy and Interoperability.

Unfortunately, most banks tend to see compliance reporting as an independent action from a tactical workaround model of a “point solution” to address an immediate reporting requirement, then developing a holistic data-oriented approach. Multiple solutions would not only create duplication of data stores, systems and documentation but also result in multiple “sources of truth” which is precisely the biggest cause of compliance nightmares. The critical takeaway, therefore, is to ensure there is a higher focus to ensure the robustness of a unified data framework across the value chain – from the point of its capture to where it gets harnessed.

On another note, the use of data is also a pre-requisite for driving innovation and testing new ideas. However, data masking is a key factor to bear in mind with any experimentation, as the breach of data is not just a regulatory challenge, but also a huge reputational risk. We are not even talking about the cyber-attacks or data leaks – this is just about complying with regulations such as GDPR, introduced in the EU. Investing in data masking and the delivery process would be important.

Imperative #3. Convert Compliance as a competitive edge
If adopted correctly, compliance could well serve as a competitive edge, and there are no surprises there if one could see this as a ‘first-mover advantage. Sensitivity to regulation compliance has a positive influence on process efficacy, technology effectiveness, the rigour of governance and overall risk consciousness, across the organization. And that can be quite helpful if applied constructively.

Reduction of costs in non-value-adding activities that can be easily automated or reduction in duplication can help redeploy compliance resources for meaningful risk mitigation. For instance, when compliance reporting is constrained by semi-automated excel reports or error-prone manual files, it is an excellent opportunity to drive change and bring about an integrated, centralized technology solution with a long-term and holistic approach.

Banks that have embraced this principle, look to drive new ways of doing their business, with an active participatory model with the regulators, potentially having a positive influence on policymaking too. There may be an entirely different perspective to viewing the investments in compliance. In the process of building a substantial compliance and risk management framework, the opportunity loss with a sudden, unexpected impact is significantly minimized.

Pro-active approach to averting issues, if articulated well, will only enhance the valuation of any enterprise in the eyes of a shareholder, as long as it is tenable and in the realms of an acceptable order of magnitude. After all, every insurance policy does come with a premium!

IT outsourcing and shared services trends


Ask any practitioner or academic in the business world to identify the most significant transformations of the last two decades, and two items are likely to figure at the top of their list – Increasing adoption of technology by business and the realization that businesses should stick to their core competencies and outsource non-core services. The confluence of these two phenomena has resulted in the rapid growth of IT-enabled services, IT outsourcing, business process outsourcing and shared services.

IT outsourcing and offshoring is imperative for organizations due to rapid changes in technology, diverse skill requirements and the scale of teams required to deliver large programmes. The business case for IT outsourcing has moved far beyond just labor arbitrage. Due to the rapid improvements in technology and the increasing dependence of business on IT, businesses can no longer hope to deliver all the required services in-house. They will need to use services from best-in-class vendors.

On the other hand, business process outsourcing is embraced by organizations that have large-scale operational requirements, making it infeasible to hire in-house teams. Improvements in remote connectivity and bandwidth have enabled “work from anywhere” models, and thus process activities have naturally moved to countries that can offer cost and scale advantage.

Even organizations that do not have the high scale of requirements justifying business process outsourcing have realized that most support services, transaction processing and other administrative tasks are duplicated across their divisions. They see clear benefits in bundling such similar services under the ‘shared services’ model. It is estimated that over 80% of the Fortune 500 companies have implemented some form of shared services in their operations.

So what are the factors that are likely to drive the next wave of adoption of IT outsourcing, business process outsourcing and shared services?

Opportunity in crisis
Typically, the journey to outsourcing and shared services involves some effort in change management and transition. Universally, businesses do not recognize the need for this transformation until they go through economic or business related crisis. Western markets went through two waves of transformation during the Y2K era and during the 2007-08 crisis.

The next wave of growth in IT/business process outsourcing and shared services will be driven by a combination of crises and opportunities. Western markets are witnessing a digital transformation, and are looking for new operating models to leverage the opportunities involved. The Middle East is going through a crisis with oil price at its current level of USD 30, and hence businesses are looking for cost optimization and innovative operating models to sustain their profitability.

Transformation opportunities in the Middle East
The nature of services in IT outsourcing, business process outsourcing and shared services is likely to have a distinct flavour for each developing and developed market. Business process outsourcing is likely to stagnate because companies that faced constraints in adopting business process outsourcing are likely to continue experiencing the same constraints (such as local language requirements, regulatory hurdles and the lack of scale).

Factors favouring IT outsourcing wave
Technology adoption: Customers’ expectations on service experience are changing due to the increasing number of channels such as mobile. Businesses are rapidly embracing technology to widen their channels of distribution and enhance customer intimacy. Technology talent is not easily available within the region and hence the region has to source talent from elsewhere.

Regulations: In the past, the need for technology talent was met by hiring immigrant talent, but immigration rules are tightening in many regions and have made this more difficult, from both an economic and regulatory perspective.
Higher awareness: Services providers are broadening their focus from mature Western markets to relatively new markets such as Middle East and Africa. Their investments in business development within the region has helped improve awareness among businesses.

Factors favouring the shared services wave:
Regional expansion: Businesses have realized that a single-country focus is no longer sustainable. They are increasing their regional presence through mergers and acquisitions, which inevitably lead to duplication of process capabilities. Shared services is a key element of the plan to derive cost synergies from M&A.

Economic co-operation: Regional economic co-operation in GCC, Euro and Asia-Pac regions makes it easier to set up regional operations units and shared services.

Cost advantage:

There is a wide variance in labour costs across countries engaged in economic cooperation. Setting up shared services in low-cost locations enables operational efficiency and helps in the development of infrastructure in those locations. For example, in the Middle East region businesses can serve customers from high-cost locations like Dubai, Abu Dhabi or Kuwait through a shared service in Fujairah, thus creating a win-win for both sides.

Embarking on the IT outsourcing and shared services journey The first step in the journey is to review the current operating model, define the target benefits and the target operating model. Clarity on the target state will help in identifying suitable partners and ensuring a seamless transition to an improved model.

10 steps for an effective core banking system selection

Core Banking Systems are the backbone of products and services that Banks offer. With technology becoming a value differentiator, a wrong system selection may cost tremendous opportunity losses. While there are multiple vendors offering off-the-shelf packages, each one of them claiming they have a long list of implementations across the globe, one needs to be careful that the solution fits the Bank’s requirement, and this is not always easy.

How does one select the best-fit solution for a Bank in the most effective manner? How does one ensure that the selection process is made objective, transparent and focused? Cedar has conducted several Core Banking (and other ERP solutions as well) Selection and Implementation exercises in the region.

Based on our earlier experience, we present 10 steps for effective selection of Core Banking Systems

20% of IT projects reportedly fail to achieve corporate objectives, wasting $500 billion worldwide. It is critical for Banks to comprehend their business requirements – both present and future, be it customer demands on products and services, or compliance requirements for business operations. Business Strategy determines the imperatives for IT infrastructure. For e.g. the IT Requirements for an Investment Bank could be very different from that of a Retail Bank, or one that aspires to be.

Ensure that the requirements are crafted in detail. Requirements could be classified as ‘data’ requirements (e.g. Customer information) or ‘processing’ requirements (e.g. Interest Accrual). It is also important to list down all reporting requirements, and also classify them with their relevant utility- regulatory reporting, MIS and Operational reports.

Requirements should also be defined in terms of technical parameters and vendor related parameters. Defining all the requirements in detail is the foundation of a good selection process. It is also important to have this done by the business users, to ensure that this is ‘owned’ by the business team.

Not all requirements are equally important, some are more critical and need to be prioritized:

  • Domain level: Some business domains are more critical than others. For instance, Islamic Banking would assume a higher priority for Banks that plan to offer Islamic products
  • Unit level: Within a business area, some requirements assume higher criticality than others. For e.g. Capturing a customer’s name, age and address is more critical than his/ her family details. It is important to classify requirements by their priority, in order to differentiate solutions that meet more of ‘critical requirements’ from those that cater just the ‘nice to have’. This also ensures that the final ranking of vendors is on the basis of a Bank’s defined criticality rating, not purely on the overall conformance of vendors

IT Infrastructure is more than just the Core Banking software. It involves the selection of multiple ancillary applications (e.g. Branch automation) and also other investments in hardware, networking and third-party software.

There are two sourcing models:

  • Prime Vendor Model: Identify a one-stop-shop vendor, for a ‘turnkey’ assignment. The vendor is responsible for sourcing, integration, implementation and providing support for all necessary components. The advantage of this model is having a single point of contact, thereby minimizing effort within the Bank. Yet, this tends to be relatively rigid and marginally expensive.
  • Best of Breed Model: Determine applications / IT components that best suit individual requirements. Choose Best of Breed. This has clear cost-benefit advantage over the Prime Vendor model, yet exposes to a potential risk of “integration cracks”, where diagnosing issues and identifying “whose fault was it” becomes the Bank’s responsibility.

Transparency of the evaluation process depends on defining the criteria upfront. When these criteria are not defined and frozen, there is every chance of being carried away by certain good features of a system or on the contrary, a few limitations overshadowing other features.

Decide upfront on weights to be attached for functional, technical, support and implementation parameters, a chronology of evaluation and scoring methodology. It is also important to ensure that the approach to be adopted during the evaluation, and any other selection criteria to be considered is decided upfront

Simple as it may sound, this can be a really tough balancing act, between the degree of detail one needs to get into for clarifying vendor queries, and the time window available for issuing of RFP, and receipt of their responses. The key factor here would be to ensure that information is provided to all vendors, thereby enabling that the process is objective and transparent.

Banks get to review demonstrations once a decade whereas vendors make them for a living. Evaluating solutions for “what you want” and not what the vendors would like to show-case is the key to success. In addition to this there are challenges to be met regarding paucity of time, resources and the need for adherence to scoring process. It is impractical for anyone to remember a marathon of demonstrations.

The scoring of vendors should be immediate and consistent. The key aspect to be remembered is that 23% of IT projects do not meet business expectations, due to lack of business-IT alignment. It is therefore important for Business users to evaluate and score.

One should also be careful not to set the goal-post of the second vendor on the basis of what one saw in the first vendor’s presentation! In other words, the evaluation should be consistently based on what is documented in the requirements specification document on ‘absolute terms’, and not on ‘relative terms’. This is critical to ensure that the overall ranking is fair and objective.

Unless conducted diligently, this could turn out to be a ‘glorified exhibition’. Reference feedback is critical to make qualitative judgment on vendors track record of implementation and support. The important factor is on deciding “whom” to get this feedback from. It has to be another

Bank that is similar to yours in terms of size, operations and services. The other critical element is in determining “what to ask”. Banks stumble upon very interesting revelations during reference checks. What is the point in selecting the “seemingly” most sophisticated solution, whose existing customers reveal otherwise!

As they say, devil is in the detail! Care needs to be taken to ensure that all that is required to be committed by the vendor – in terms of resources, deliverables, timeframe, costs, dependencies, etc. are clearly articulated. The success of implementation is directly proportional to the clarity and detail of the vendor agreement.

One also has to ensure here that the contractual terms are inclusive of all necessary documentation that refer to the commitment made by the vendor throughout the evaluation period. This helps in minimizing the conflicts that are almost likely to occur, due to difference in understanding of the user team during evaluation and subsequently, during implementation.

Measuring “Total Cost of Ownership (TCO)” and getting to compare vendors on “apple-to-apple” terms is indispensable. No negotiation is complete, unless the complete cost of implementation including “hidden costs” and “assumed costs” such as internal resources requirement are compiled.

Cost structures should not be just seen from the software license and implementation point of view. Investments in hardware, networking, third party software, Database, Operating Systems, and additional investment that might be required in data cleansing and migration, training, should all be considered, before arriving at the TCO. Mapping on & off-site activities and linking the payment terms to clearly identified deliverables is also imperative

As can be seen in the enclosed figure, timely delivery of the project is dependent on conformance to ‘critical path’. One wrong step either in prioritization or selection process can lead to project overrun On the other hand if you have done the above homework right, then it is half the job done! One can then be confident that the vendor is the “bestfit” for the Bank and also be assured that implementation terms are tightly defined. Execution of large IT projects demand senior management involvement and enormous commitment, and the efforts invested will be rewarded in the long run

Robotics | Driving New Age Banking

The face of the friendly neighbourhood banker is slowly but surely changing. Robo-advisors, for example, are eating away 50-60% of new jobs in the wealth management space. Welcome to new-age banking

The opportunity to drive higher efficiency, better risk control and lower costs via robotics and artificial intelligence is here to stay. Automated threat intelligence, fraud analysis and quality assurance, predictive analytics, voice recognition and automated response are exciting new areas of focus. Add the convenience and intelligence of bots to customer experience and we may well see a new era of banking. No surprise, then, that around $9.7 billion was spent on cognitive and artificial intelligence in the US during 2017 alone.

From a bank’s strategic perspective, a review of the way forward involves: Which areas drive automation through robotics and why? What is the impact that is to be driven and how? How should the right RPA partner be chosen?

Let’s quickly explore these in more detail.

1. Prioritizing your focus areas:
The primary focus areas that typically qualify for driving robotics are mostly those with highly mechanized operations, with limited decision-making requirements. These are typical back-office functions, validation and verification activities and monotonous operations.

ICICI Bank, for example, has reportedly over 200 software robots to emulate, automate & perform repetitive, high volume tasks across multiple business process functions including retail banking operations, trade, forex, treasury and HR, with a processing capacity of over a million transactions daily. This is estimated to reduce customer response by 60% and increase accuracy to 100%.

Once low hanging fruits are addressed, the approach typically moves to areas that have a better user interface, even while it is focused on highly repetitive activities that tend to clog bandwidth. New generation bots help learn and get better at what they do, driven by intelligent process automation. Good examples here are chatbots linked to social media and websites, providing quick and appropriate responses to customers. RBS recently launched AI chatbot Luvo on a pilot basis, focused on filtering responses and providing appropriate responses to customers. The technology is estimated to reduce investment advisory staff by 200, improve operational efficiency and reduce response time to queries.

The more interesting areas of predictive analytics-driven AI, while having a high impact value, tend to require a much higher degree of focus and preparation. Enhancing customer experiences is also supported by innovations across online channels, where conventional experience is protected. US-based Nuance Communications’ tech, for example, is designed to answer questions from Swedbank’s online customers, while simulating a human conversational style, and is also planned for roll-out across its subsidiaries in Estonia, Latvia and Lithuania.

2. Measuring impact:
This is where it gets a little trickier. No matter how innovative the approach, or how interesting the proposition is, there must be a measurable impact. There is essentially a dual-axis that the impact gets measured by: Robotics driven initiatives may either drive costs down (efficiency) or improve service quality, convenience, and the accuracy levels (effectiveness) or both.

The benefits of RPA could essentially be structured in five broad metrics: Cost reduction, accuracy improvement, productivity and scalability enhancement, quality assurance and risk mitigation.

Here are a few applications and use case scenarios for AI and robotics:

  • Improvement efficiency: Typical examples here are the automation of operational, mundane activities. In essence, this is to do with reporting, reconciliation, data remediation and such activities. The direct impact here is to eliminate manual intervention, with an automated approach. Cost drivers are direct measures, e.g. back-office mortgage processing.
  • Increase effectiveness: Accuracy of risk and compliance monitoring, predictive analytics-driven collections, are examples where the impact is more on ‘opportunity savings’ and enhanced revenue via the quality of the process, driven by RPA.
  • Driving both efficiency & effectiveness: These are areas that banks target improved customer experience, through higher quality interactions while increasing the degree of automation. Examples are related to account origination, lending, investment advisory and customer service. Increases in throughput and improvements in returns are standard measures here.

The RPA marketplace and choosing your partner:
The fundamental shift in the approach to driving RPAbased efficiency is not in re-engineering the processes, but automation of the mechanical processes, without changing or replacing the existing application infrastructure. The bank must have a point of view on the objective to be addressed, the volume and scale of automation planned, and most importantly the value and impact that comes of the initiative. The key here is establishing a Centre of Excellence to support a certain line of business, succeeding in a proof of concept, and then pushing this forward on a bank-wide basis with standardized security and governance principles.

Automation Anywhere, Kofax, Blueprism, Workfusion, Softomotive, UiPath, Redwood, Arago, Celaton, Ignio, Contextor, Open Connect, Pega Systems, Kryon, NICE, Verint – these are some of the leading players in the RPA space. Pega’s recent acquisition of OpenSpan and ISG’s takeover of Alsbridge is reflective of increased traction in the market. That Blueprism could generate investor confidence of boosting its valuation 4x within 10 months of listing, is also an indication of the direction in which the industry is moving. Solution providers in the universal and core banking space such as Edgeverve (Infosys) and Infrasoft are also making waves in the RPA space.

The experience of and support from the supplier or implementation partner is a key success factor. Skilled resources with an ability to drive the primary value proposition with innovative design, and technical expertise and their availability in the markets of deployment play an important role in the choice of the supplier and partner.

A word of caution as we move into the era of robotics and automation. These are relatively unchartered territories and so new types of risks emerge. The challenges are more related to compliance, cyber security, data privacy, controls and governance. It is natural, then, that banks who select suppliers offering a better governance framework to test and control, and apply advanced analytics to boost pattern recognition and have well established used cases, will be better off than their peers.

Getting your bank digital ready


The starting point of any digital journey is in having a customer-centric value proposition. The key question that is core to getting the bank digital-ready is ‘what’s in it for the customer?

Everything that gets to be created as part of the digital proposition – the technology infrastructure, the organization capabilities, the operating model – they all tend to converge and create value only when they result in a better experience for the customer. While banks have long moved from being branch driven to being multi-channel, the underlying shift has also been in banks moving away from being product centric to being customer centric.

When ATMs came around, they created the first layer of alternative banking channels that helped a ‘self-serviced’ model. With the advent of the internet and mobile banking, the experience moved to becoming even more direct for the customer.
We have seen a series of debates over the last decade comparing the highly engaged brick-and-mortar branch banking model with the fast and furious electronic banking models that were rated to be relatively impersonal. 85% of today’s retail banking transactions are now reported to be digital.

Yet today we find banks that are a step ahead on the digital journey have successfully converged the customer engagement levels with digital technology. This enables the pampering experience of a ‘virtual relationship manager’ for customers, and advocates higher engagements with interactive ATMs that provide the customer with a ‘wow experience’.

Ultimately, it is the difference that is brought about to the customer and his/ her experience that really matters. And there lies the core value proposition.

Channels are the face of the bank to the customer. From just about enabling multiple channels to creating a ubiquitous experience – across branches, ATM, call centers, IVR, SMS banking, internet banking, mobile banking and now social media banking, banks have come a long way in the ability to make the direct digital connect with the customer.

Sitting behind the glamorous channel layer is the core banking platform where the central customer information and the transaction backbone lies: creating myriads of channel connectivity with the core engine is passé. Unless banks invest and build a robust middleware, it would be hard to sustain the digital journey. And that’s the most critical component of a digital bank:

Channel Connectivity
And that leads us to the other aspect of digitization: any bank that is serious about digital technology would need to embrace the emergence of the new beast called data. Decision making processes no longer are driven by heuristics. Advanced data and analytics is in.

Historically, decisions on customer segmentation, product offering, campaigns and sales were driven by demographic profiling and portfolio level analysis. The advent of predictive analytics and big data has taken the science of data and its management to the next level.

The foundation of predictive analytics is in the ability to generate thousands of variables from the static and transactional data that is available with the bank, that help profile the customer behaviour and build statistical correlation that helps predict the way forward and the best course of action.

While loyalty programs gave an opportunity to tap into transaction data that was outside the bank, the advent of social media and the emergence of big data has brought in a plethora of new possibilities. Forward looking banks have created organizations that are increasingly more conscious of this.

No matter how glamorous the face of the bank is, the real digital transformation happens only when the bank as a whole gets to become more digital-aware. And this means more than just training and awareness. It is about a real cultural shift across the organization.

When one of my clients was looking to drive traffic to the newly revamped internet banking channel, we had a very simple solution that fixed it. We had the customer service representatives and relationship managers to invite the customers visiting the branches to actually login to the internet banking portal on a tablet, even while they were waiting their turn at the teller.

The results were astounding. Most customers found the experience of being trained to use the channel so rewarding, and the non-cash transactions volumes moved very soon into the newly launched internet channel, significantly earlier than expected.

The key here was not just about the quality of the internet banking offering. It was also about the banker in the branch being fully well-versed with what its true potential was, and demonstrating that conviction in his/her communication with the customer.

Most traditional banks do struggle with this cultural shift – but then there are limited choices there. With the increasing penetration of internet, and the mind-blowing growth in mobile per capita in most countries, banks will need to completely embrace the presence in the digital world even for their survival in the not so distant future.

Presence on social media is a hygiene factor. Yet, if the average banker within the organization is unaware of the changes happening around, it does create its own challenges in meeting the Gen-Y demands. Remember, over 50% of the world’s population is less than 30 years!

And hence the need for building a digitally aware organization. This calls for a sustained, continuous learning environment across the organization.

Just as much as how critical it is to have a customer-centric model, it is equally imperative that the operating framework built around it also graduates to a higher digital plane, for the journey to be sustained.

For instance, leveraging customer data is not only about building campaigns with advanced predictive analytics but is also about creating the right customer segments, building more appropriate product offerings, and delivering them seamlessly Adapting digital operating model cuts across the bank – right from the sales engine adopting data driven sales automation, all the way to having outsourced fulfilment services leveraging cloud technology.

While technology does serve to the backbone, the real digital banking proposition is in the ability to harness its value in identifying customer needs better, creating and delivering the new age product and service offerings, and in enhancing the end-to-end experience, both inside and outside the bank.

Creating the new paradigm of a digital bank also comes with its share of risks and challenges. The need for increased cyber security and internal fraud prevention systems goes hand-in-hand with greater proliferation of digital technology – one must recognize that the information systems are not only accessed by the bank employees, but also by customers and partners across multiple platforms.

And of course the other word of caution: ‘digital’ is not a destination, but a journey in itself. This is not a one-time project, but a physical, cultural and organizational transformation, and an ongoing one at that. Getting the digital technology in place and creating the right infrastructure only makes on digital ready, and there can never be a point of final arrival.

Changing customer needs necessitates transformation in banking models, but then again, those changes result in a new set of demands by the customer too… after all, what came first, the chicken or the egg?!

Getting the most from your IT investment

It is always disturbing to note how very large IT investments by most organizations do not get the intended benefit, for the simplest of reasons :

Why do IT projects tend to face difficulties through their implementation life cycle? Is it because it is too technical? Is it because we don’t have the right people? Is it because the solution itself is not what a company should be looking at in the first place? Or even after getting the implementation done, what can be done to get the most of the investment? After all, IT investments don’t come cheap, and as an SME, one needs to ensure the right return on the investment is received.

What we saw above are very common questions that one gets to hear from CEOs, especially SMEs. One can make the entire investment a rolling success and deliver continuous value both to the enterprise and the shareholder if one gets three simple and common tenets that need to be followed while making any serious IT investments. And they get answered with three simple questions: why what, and how. Let’s explore them.

Addressing a business objective Simple as it may sound, this is perhaps the first and foremost factor that needs to be ingrained in the minds of both the organization and the vendor while any large technology initiative is undertaken. And don’t be surprised – 90 per cent of projects that fail have this as one of the common reasons for not being successful. When you fail to plan, you are indeed planning to fail.

Any project – IT or otherwise, has to have the alignment to the business need defined upfront, in clear terms. Why am I investing in this project? What business pains am I addressing? What benefits do I expect to reap? This could be defined by way of improved processes, better turnaround time, reduction of manpower and effort, the better quality of MIS, reduction of dependency on multiple smaller and disparate systems, higher operational controls, and so on. But the bottom line is to define: what is the foremost objective that will matter the most to you, from a return of investment standpoint. That defines the “why” part of the equation. And that is key to the first part of this equation.

The right solution, vendor and team This is moving into the second part of the equation, which is to ask the question “what.” The typical questions that one needs to ask are not too daunting, but are quite pertinent: Which is the right solution that addresses my requirement – has it successfully been established in the region? Does it have the right functional and technical capability that I am looking to have? Several times, we do see organizations investing in a solution that is quite good functionally but has an archaic architecture or that is not scalable.

More importantly, who is the right vendor I need to partner with, to deliver the implementation successfully? What should be the team I need to have in place to deliver this project – do I have the team in place, and if not where do I get the right resources from – can they be contracted, employed or mandated to a firm?

One should note that not having any of the above can make or break the quality of the output expected from this initiative. Unless we get the solution, the vendor, the team and the mandates for them right, it would not make the right recipe for success.

The other important factor is the ‘Total Cost of Ownership (TCO)’. While the cost or investments of a solution is directly measured by the license, implementation and customization costs, the indirect costs that get associated with this investment also count – the support costs, the hardware and third-party solutions required to run the core solution, the database investment, etc.

Additionally, there is a list of “supplementary” costs that also need to be accounted for in the TCO, which are measured by way of internal team costs, other service providers for testing, training, project management, etc. There can be quite a few hidden costs that one uncovers much later unless due diligence is applied upfront in having these well-reviewed and tightly contracted.

Project plan and controls The most critical part of the project, and perhaps where maximum management attention is attracted, is the ‘how’ part of the equation. A specialized area in itself, the very idea of a well-managed project implies it has been well planned and well-executed.

Investing adequate time in planning the project – in terms of the activities and sub-activities, the resources executing these activities, the interdependencies, the key milestones in the project and what is known as the “critical path” of the project that conveys if the project is on track or not, are all critical.

A good project management office (PMO) also helps in defining the mechanism of tracking these projects, determining the key risks and identifying mitigations that need to be put in place, the communication framework for both internal and external updates, escalation framework for any deviation that needs to be managed and also a formal project status update model, that gives a periodic update to key stakeholders are important for timely delivery – that saves unnecessary wastage of time, effort, and of course, money!Having reviewed and managed multiple such projects globally and also in the Middle East, one thing I have always found most effective is to have the right measurement and alert systems in place.

Ultimately, one can only manage what can be measured, and if you have your controls for measuring the project progress right, then management of it becomes that much easier!


Digital onboarding of wealth customers: what, why and how

Being the wealth manager of choice for millennial customers also means keeping pace with the winds of change
That it is imperative to allow a customer to self-onboard digitally, is now a given. Be it the self-service kiosk at the airport, or having a retail banking account created, the need for a physical interaction is long past. Why then, would a millennial wealth customer be any different? Welcome to the world of digital onboarding – be there or be gone.

What: defining digital on-boarding 
Offering a portal for the customer to onboard oneself or delivering an omnichannel experience is just the technological angle to the paradigm of digital onboarding. The subject here is much more significant.

The name of the game is in being able to condense the steps involved across lead generation, customer analytics, need assessment, product recommendation and account opening all together into a consolidated experience that is offered digitally. And this takes a little more than a good technology platform. Let’s explore this further.

In the not so distant past, the lead generation of a classic wealth management customer was all about the personal touch of the senior relationship manager, and having a deep, engaged conversation that helped profile the customer and his or her needs, and reverted with a set of products that were eventually recommended. This was followed by an account opening process, which was also made to be convenient with a digital experience.

Well, that can no longer sustain itself with the emerging millennial, young wealth management customers – and that is not a small segment if one considers the fact that $1 trillion is being passed from one generation to another every year.

The mantras for a successful digital on-boarding experience are three:
1. Make it intuitive. Asking the right questions without seeking pre-existent information already known about the customer is fundamental here. More than 50% of the negative experience recorded in the first interaction is when the wrong question is asked. The benefit of using an ID capture technology is not only for Know Your Customer (KYC) purposes, but also to be leveraged in automating the capture of pre-existent information.

2. Make it quick. Turnaround time and minimal paperwork are two sides to the coin of the onboarding experience. While providing tailormade advice is fundamental, doing so without spending too much time with paperwork is equally important. Avoiding multiple data entries and ensuring there is no re-keying of data are mandatory for a good onboarding process

3. Make it engaging. The propensity for a customer to attrite is highest within the first 90 days of onboarding, and this is primarily a derivative of how granular the engagement levels and metrics of experience are monitored. Even while the TATs need to be quick, the engagement levels need to be high. A well-defined customer journey-map profiling each stage of the onboarding process and the moment-of-truth therein is core to the quality of engagement.

Why: the writing is on the wall
Having a mobile-first user experience that is subsequently rolled out to other channels is fast becoming the norm for any industry that predominantly deals with the new-age customer. When customers are switching from one channel to another seamlessly, any successful wealth manager would also need to be able to provide an omnichannel experience including social media connectivity. Not only does this help divert customer engagement from experienced call centre channels to more cost-effective online chats and social media, but also to deal with being relevant in the right place at the right time.

Interestingly, client advisors spend more than 30% of their time on non-client facing activities and making it convenient to have web-enabled account management and video calls for an anytime-anywhere experience can also drive the overall cost structures down.

The concept of digital identification, document management and an automated AML is not only about the customer experience – it is also about enhanced compliance. The list of regulations that the industry is now dealing with is entirely unprecedented. MiFID II, CRS, AML, UCITS, AIFMD, FATCA, Dodd-Frank, EMIR, BASEL III… the list goes on.

At the core of regulatory compliance is the quality of data and the timeliness of its capture. An automated approach to on-boarding customers also accelerates the absorption of pre-authenticated information using established ID, without having to recapture or re-enter.

The common benefits of digital onboarding are, mostly, the following:

  • Dealing with demands of the new-age customer
  • Keeping the costs down, with minimal paperwork
  • Building a superior experience with reduced TAT
  • Driving enhanced compliance with better quality data

How: it’s much more than just technology
Ultimately, it’s the experience of the customer that matters. However, the experience is not just about the technology platform, and digital on-boarding is also not just about the experience.

There are seven elements that need to be in place for any digital onboarding framework to eventually be successful.

1. Client awareness. Have we sufficiently made the customer aware of the digital onboarding model? There is no point in having a best-in-class platform that remains uninhabited.

2. Process hand-offs. Is there a well-aligned convergence of self-service, other channels and in-person engagement? Nothing can be more irritating than a disjointed channel experience.

3. Product offering. Is the product offering deep enough to meet the need of the new-age customer? Remember, the ambience of the restaurant can never substitute for the quality of food served.

4. Capturing and nurturing data. Does the onboarding process sufficiently authenticate the sanctity of data and subsequently in its effective processing? Ultimately, data is the feeder that drives insights of the customer.
Trained organization. Is the front, mid and back-office organization aligned with the digital onboarding model? It’s not just about orienting the customer, but successful transition lies in having the advisors and the operations team well trained.

5. Technology roadmap. Do we have the right roadmap to sustain the digital onboarding experience – be it an in-house application or a third party platform. Is there a roadmap for sustained feature enhancement and support? This is not a one-time investment.

6. Technology roadmap. Do we have the right roadmap to sustain the digital onboarding experience – be it an in-house application or a third party platform. Is there a roadmap for sustained feature enhancement and support? This is not a one-time investment.

7. A great digital onboarding framework will only make the customer sign into the enterprise with an expectation for an equally great product offering and engagement experience – if not more. Living up to that expectation is critical. More than 50% of attrition happens within the first 12 weeks of the customer coming on board – and the successful wealth managers are those who embrace and respond to this reality.

“A well-defined customer journey-map profiling each stage of the onboarding process and the moment-of truth therein is core to the quality of engagement.”

Four tenets for successful technology transformation


Large technology transformations always come with a set of expectations. The ideal projects that succeed in delivering maximum value are those that get executed in the expected timeframe, within defined budgets, and more importantly, meet the business’s requirements. Simple as it may sound, the complexity can be appreciated by just looking at how many such projects get delivered.

The biggest challenge in change management is in comprehending the change itself. While people are expected to resist change, in most circumstances, the reality is that the quantum and quality of large technology transformations is not fully appreciated till the enormity daunts – and that is usually much later, after embarking on the journey.

Having assisted more than 20 banks in the region through large core banking transformations and having successfully managed technology integrations of multiple bank mergers, Cedar Management is sharing the four tenets that are essential to making a successful technology programme delivery

The most important aspect of a large programme is not in its execution, yet almost always in its communication. Just having a 2000 line Microsoft Project plan, will not do. Knowing your goalpost is one thing and ensuring it is the same goal post for all stakeholders is another. Therefore, a common qualification of the end objective becomes important.

A very clear articulation of what the programme will entail – what involvement is expected from whom, how much time will be required, what operational impact will be felt during such period, what the key milestones are – all of these matter.

Most transformation programmes are triggered due to a primary underlying need: either the current platform is outdated, or out of support and needs an overhauling. However, that is not reason enough to drive ownership.

Putting in that extra effort to make stakeholders aware of the benefits – customer impact, simplified processes or operational efficiency is critical. Even more important is to clarify any misplaced expectations and being transparent on what is ‘not’ in the scope of transformation. This avoids much dissonance later.

While having a project plan and end objectives is the first step to driving a transformational change, it is also equally important to define the timelines, how this will be delivered, and by whom. The more clarity on how each activity of the programme will be executed, the higher the likelihood of ensuring it gets done. The devil is in the detail and having visibility on each of the building blocks.

Each of the building blocks of the programme needs to be well thought through and deconstructed to a point where it becomes easy for anyone to understand what is planned to be done, how will it be done, what are the prerequisites, when it is scheduled to be executed, who will play what role in such execution and what is the exit criteria for the activity.

Ownership levels gain momentum when participation levels are increased. This is not only true at an operational level, but even more so at the leadership and board level.

Having a steering council that includes members of all business unit heads, and having a direct and visible sponsorship by the CEO becomes a very important success factor, especially when implementations involve multimillion-dollar transformations. i.e. what is important to a boss is important to the organisation. Management buying plays a very critical role for the organization to embrace change and responsibility lies at the top.

Driving the right governance structure brings three key benefits:

1. Keep all stakeholders up-to-date on what’s going on, what is expected and pre-empting any disappointments later. While good news takes the stairs, bad news takes the elevator.

2. Seek timely decisions and interventions. Have a governing body that can help in deciding on key matters of the programme, approving any variations to the plan on a timely basis. A stitch in time does save nine.

3. Facilitate enhanced participation. Business participation becomes a key bottleneck in most technology assignments – it’s always a tight balance between business-as-usual requirements and long-term programme requirements. Having an active steering council facilitates timely stakeholder interventions.

A good frequency for steering council meetings is typically once a month. This gives the right space for having a meaningful update and also helps provide directions and preemptive measures on a timely basis.

In addition to the steering council, it is generally recommended to have an operational working group constituting the execution team that meets more frequently for operational decisions, and also engage business and technology teams on a collective, active forum. Third-party vendors engaged in the programme are required to be fully participative too.

“Where there is a direct benefit to businesses and they can see an impetus to their revenue it is easy to get ownership. It becomes more challenging when it is a change like core, which is driven by strategy and vision and hence needs board-level ownership”


Focus is usually more on areas of issues that need a fix, than so much on areas that have been delivered well. Challenges and risks always get more management focus and mindshare than success does. Equally, if not more critical is that we pause to celebrate every cause that was successful in a large transformation engagement. The benefits are two-fold

It sends a very positive message across the project team and the stakeholders that progress is monitored and appreciated. People respond more to what is inspected than to what is expected!

It helps to have a balanced view of what is done, and what remains to be done. The climb gets steeper as one nears the peak, and having a sense of how much has been done is very important for the team to rise up to the occasion.

So how do you know if the tenets are indeed working? Quite simple. Remember, it’s not the pat on the back, but the noise of dissatisfaction that is always generally the loudest.

When you have all key stakeholders aware of what’s going on and are bought-in on your decisions, when the original plan, timelines and methodology are broadly holding good throughout the execution, when there is enough ownership to drive participation and the success thus far is celebrated well to motivate the team, you can be fairly assured that you are on the right track. If not, then you may need to go back to the first line and start reading this carefully again.

4D approach to selecting the right Islamic Banking System


Here is a quick guide with four dimensions of focus: ‘the 4D approach’ to selecting the right Islamic banking system.


The requirements from an Islamic banking standpoint tend to be specifically based on both the region in which it operates and also the directives as provided by its Shari’ah Board.

A well-defined requirement document would need to focus on the Islamic products and processes that are key for the bank. A good business requirement specification (BRS) document, which includes all key requirements would typically have 5000+ features typically listed, which forms the basis for the detailed evaluation. This includes developing and managing Islamic asset products, finance scheduling, and also the origination, maintenance and termination of contracts.

Similarly, on the liability side, the approach and methodology related to the profit calculation – including the frequency of profit calculation and disbursement, profit calculation approach and provisions such as charity contributions are key to be well-defined upfront.

In addition to the needs of Islamic products, a BRS document would also need to address other typical features expected of a solution – CIF (customer information file), credit, operations, branch functionality, GL, channel integration, MIS (management information system) and reporting, among others.

To make a holistic and balanced evaluation, it is important to also classify the requirements into three buckets – critical to have, good to have and nice to have, ideally with a 30% to 35% distribution in each bucket.


Although historically banks have adopted an approach to building Islamic features around conventional core banking platforms, a whole new breed of Islamic banking solutions is now available for banks to make an informed choice from.

While the large conventional core banking solution providers such as Infosys, Misys, Oracle FSS, Silverlake Axis, TCS Financial Solutions and Temenos have all built an offering for the Islamic banks complimenting their respective conventional offering, we also find solution providers such as BML Istisharat, ITS, Path Solutions and ICSFS with offerings that are more Islamic focused.

The key here is to determine the right shortlist from the vendors from the above list, to whom the request for a proposal (RFP) is sent, inviting a formal proposal for a deep dive evaluation.

In order for the determining the shortlist of vendors, defining the context is critical. There could be three typical scenarios when it comes to the context of an Islamic banking system selection:

  1. The bank is a pure-play Islamic bank
  2. The bank has two separate offerings – one is conventional and the other is Islamic
  3. The bank is conventional, but looking to also have an Islamic window

Each of the above scenarios brings different constraints and requirements, both from a functional architecture and co-existence of multiple solutions, and the technical implications where different platforms would need to interface, especially where the bank is having both a conventional and Islamic offering.

In addition to the functional and technical qualifications, the initial shortlist would need to be determined based on the kind of regional presence, successful references with similar banks and the overall comfort that the bank can draw.


Invariably, one would find most of the RFP requirements are claimed to be met by each of the solutions in the market. Validating a vendor’s claim is both an art and a science. One has to be clear on what you want to see, or you would end up seeing what the vendor would like to show! Remember, demonstrating the solution features is the daily job of the pre-sales team of the supplier but is almost a once a decade event for a bank!

Typically, four to five-day reviews per solution would be adequate for a reasonable understanding, and the degree of conformance to the claim made on feature availability.

While evaluating the features on both asset and liability products are important, the focus and emphasis in a typical Islamic system evaluation tend to get more skewed on the construct of the asset products, as they generally get to be more complex and bank-specific, driven by respective Shari’ah principles.

Typical Islamic products functionality that are critical in an evaluation include murabaha, ijarah, istisnaa, musharaka, mudarabah, tawaruq and salem, among others. Islamic liability products including wakala, profit calculation and distribution methods (pool/fund based) and Islamic trade finance and treasury features also have their unique attributes that need to be evaluated.

Another important validation would also include compliance to AAOFI (Accounting and Auditing Organisation for Islamic Financial Institutions) standards that are adopted by most Islamic banks.

Just as the functionality of the solution is critical, it would also be important to validate the technology platform and the architecture of the solution carefully. Typical parameters for an evaluation would include system design, performance and scalability, flexibility for future product development, security, data integrity, integration capabilities and user interface.

Additionally, a good evaluation should also consider the supplier organization and its financial strength, global and regional experience, implementation track record, kind of support provided and the overall long-term outlook as evidence of its track record. An evaluation ranking should be based on all three considerations – functional, technical and supplier credentials.


The devil is always in the details. While a techno-functional evaluation would help determine and rank the top two or three best-fit vendors, the final fitment choice is best made based on the supplier who makes it to the better part of the following three-point checklist:

  • Who is best positioned to deliver a smooth implementation? This is a function of the quality of the project plan, the degree of customization effort, and most importantly the relevant experience as evidenced by the team proposed. Having skilled professionals with deep Islamic banking understanding is a critical success factor.


  • Who is willing to make the right contractual commitment? This is critical. Suppliers who are too rigid about their contractual terms and statement of work are equally challenging as those who may be too flexible and bend backwards!
  • Who has the most effective ‘total cost of ownership’? The pricing of a core banking solution is generally not just about the license, customization or implementation cost. It is also about the maintenance over the next five years, the indirect costs of hardware and other third-party solutions that need to be in place to use this solution.

Even after you have completed all of the above, the one important factor that would help you make the final decision is the commitment and sponsorship at the senior-most levels of the supplier organization. At the end of the day, what matters to the management is what matters to the rest of the organization. It’s important that the project is of high importance to the CEO of the supplier organization – and that does matter!

Managing the management of change

Ramkumar finds out what goes into bringing change across an enterprise.

The greatest effort in change management is in comprehending the change itself. Simple as it may sound, I have always found it the most interesting, yet intriguing part of implementing a process or organizational transformation across both SME and large enterprises.

Let us understand this better. We deal with change across organizations in three levels, based on the context and impact that it tends to create.

In simple terms, this is reflected by the depth of change it brings to the organization, the time span that this change tends to be absorbed across the enterprise, and the effort it takes to bring in this change. So what are these? 

Individual unit level 

This is typically evident in a new focus that organizations bring in, seen in unit-level focus for a specific objective, typically for a quick short term one.

A good example in a change sales effort — bringing in a new direction and focus on the target segment, key account relationships, transforming the sales organization to bring in higher customer focus and driving higher sales performance. These have a high focus at a unit level, has a faster implementation timeframe, and are relatively quick in getting it implemented.

Business unit level

Be it an entire business unit – such as an operations function or a finance function, SMEs do bring in and implement change at a specific business unit level. These are usually done over a period of time, and driven by a relatively longer-term objective.

Typically these initiatives are driven towards addressing a key pain point such as addressing increased customer complaints in a certain area, reducing the cost structure of a certain production process, among others. Further, it does take a higher effort to have these fully implemented.


These include less frequent initiatives that have a very high degree of impact across the organization. While unit level changes may be done more frequently, enterprise-level changes are not expected to happen too soon, and too frequently – or they would have an adverse effect too.

A very common example of enterprise-level change is where an ERP solution is rolled out across the organization and the resultant change it brings in the way the processes are rolled out. Not only is this change more long-term in its sustainability, but also has an effect across the organization and takes a significant effort to execute.

While the human tendency is usually to resist change, in most circumstances, the acceptability of the change is much higher at an individual unit level. As the surface of change grows, so does the complexity of implementation.

The point to remember is that the enterprise level changes are not just trial and error initiatives. These call for very high investments, demand a fair degree of management time, are assumed to be the foundation layers for the future direction of the organization, and when they don’t bring in the desired results, the loss is significant.

So what can be done here, and how does one ensure the change is managed well, and even better, maximize the value derived from an effort of such an organizational change? Based on over 17 years of consulting experience, I have always seen this best managed when four basic tenets of change are well implemented.

Let us explore them closely:

Communicate the benefits

Silly as it may sound; sometimes the most impactful aspect of large projects is not in the execution of it, but in simple and direct communication to beneficiaries. When the participant of the change process is made aware of the benefits that come with it, the degree of involvement increases manifold.

Taking extra effort to make employees aware of benefits – be it simpler processes, reduced effort, increased customer benefit or organizational efficiency, the more clear the communication, the more effective its acceptance. Ensuring completeness of message reduces second-guessing and mitigates an invariable element of skepticism.

Maximize participation, drive ownership

I have always found ownership levels automatically driven when you have participation levels increased. It does not matter if the involvement is in just one element of the project or many. The fact that an employee had participated in it itself drives the sense of ownership.

A word of special attention here — it is important that the most dissonant unit of the enterprise or stakeholder gets to participate most. The age-old technique of having the bully in the class being made the monitor almost applies in all situations, and change management is no exception.

Celebrate change and increase visibility

Unfortunately, success does not receive the same attention as issues and challenges. Instinctively, management focus always tends to focus on the areas of issues that need attention. While this is key to fix a problem on a timely basis, it also tends to dilute the opportunity of celebrating successes.

When an organization is driven towards a mission where change is the foundation, every element of success on the way deserves a higher visibility and management appreciation – that is the key to institutionalizing improvements.

Drive change from the top

What is important to my boss is important to me. And that’s universal! Unless the CEO and his direct reportees embrace change, you do not expect it to percolate down the order. In most organizations, this happens to be the most common cause for critical projects not taking off. Neither carrot nor stick does the miracle when management conviction is weak. Conviction needs to be demonstrated in more ways than just lip service, and the responsibility lies at the top.

The best part of these initiatives is that they are universal and applicable in most situations. While all four are important, they are not necessarily in a certain order, and each of them has its own benefits and is not required to be implemented collectively. And the last word on change — as I said before, the most important part of bringing in change is in comprehending it.

Let’s say it’s not about just comprehending, but about having both the cause and effect being comprehended by everyone who matters!