In the second of a four part series, we look at the innovational challenges of financial institutions globally and how in China, particularly with traditional banking models under threat, Huawei, through its Leading New ICT strategy, offers an alternative approach that allows incumbent financial institutions to tackle new challenges head on, and level the playing field with new digital entrants.
Traditional banking is being disrupted. The age-old institution is facing a new breed of connected, digitally-savvy customers who demand better customer services and convenience. Otherwise, they are threatening to leave.
Banks’ dominant positions are also being curbed by technology companies, like Tencent, Alibaba, and a host of new Fintech companies. These non-banks thrive by raising customer experience levels, and with customers responding, they seem to be on the right track.
The result is that many banks are on the defensive. “Although each bank in different locations will have different priorities, all of them will need to transform their current business and their IT architecture to support the new business paradigm,” said Kenny Liu Limin, President of the Financial Services Sector, Enterprise Business Group, Huawei Technologies Co., Ltd.
The stark truth is that the current IT infrastructure is not designed to be agile and support today’s customer demand. That is why a lot of banks are talking about digital transformation. As they do so, they are realizing that digital transformation requires a re-architecting of existing IT infrastructure. Why? Because current IT architectures are product-oriented. These systems were designed to support specific products, according to the Boston Consulting Group report “Transforming Retail Banking Processes”.
This has created silos within banks, and within departments. So when customers demand better omni-channel experience or look for mobile banking, banks have a hard time making these silos speak to each other, much less work together.
This siloed approach fosters inconsistent customer experience and inefficiency as departments build their own systems to support their products. In addition, financial pressure to become leaner and more profitable is now driving executives to ask for a better architecture, placing IT teams in a challenging conundrum.
Dollars and Cents of Leading New ICT
Compounding the problem for many banks is that their IT systems are built over decades of development. In some cases IT architectures in use are over 30 years old.
The design often sees a full stack approach, from hardware to applications, within banks. This old architecture has supported growth in the past and is fully supported by the regulatory bodies.
Ripping this investment is not an option for banks, who are under strict regulatory scrutiny and who cannot afford to misplace customer trust. After all, banks’ biggest asset is customer trust.
Huawei’s Leading New ICT offers a more rational approach. It aims to extend and expand the current IT infrastructure, while offering the benefits that new technology brings. It allows banks to find a middle route to improve their current IT infrastructure, while compete with digitally-savvy newcomers.
For Huawei, such an approach is no longer an option for many banks. When new technologies come out, they change user experience. But these old architectures cannot meet the business development needs and customer requirements. So if the banks keep to the old architecture, they will lose their customers eventually – which will happen especially in China.
Understanding the Leading New ICT Blueprint
Huawei’s Leading New ICT concept sees banking architecture as comprised of three levels: The data level (where the customer data resides), the platform level (which supports banking business), and the service level (where banks offer customer services).
At the data level, Huawei offers a Big Data platform and calls this is the second data plane designed specifically to provide deep analytics without requiring banks to change their current databases. This is more cost-effective and offers flexibility at the same time.
At the platform level, Huawei offers an Open Stack based cloud platform that can enable banks to transform their old architectures to new ones cost effectively. “More importantly it is open. So the bank will not be [locked in] by any single technology provider,” said Liu.
At the service level, the vendor offers a broad range of omni-channel solutions to support different banks. The aim is to deliver customer convenience and better experience, while reducing their reliance on expensive physical branches—one of the major cost concerns for banks.
The Leading New ICT in Practice
Banks are already applauding the new, flexible approach, with several banks already using Huawei’s Leading New ICT approach to improve business operations.
For example, China Merchants Bank (CMB) built its second data plane three years ago to improve credit checking.
For any bank-issued credit cards, credit checks are mandatory. In addition to showing the credit worthiness, it also highlights the customer’s payment behavior and the likelihood of him or her defaulting. In China, the PBOC or People’s Bank of China’s, credit system also includes data from other sources, including carriers and utility companies, to show the payment behavior of the customer.
How to qualify a customer is always a question for the bank. CMB’s new data platform brings data from other sources together and enables the bank to conduct deep analytics to come up with a credit rating or score.
From this, CMB gained two immediate advantages. Credit checks can be done fast and online, from weeks to within minutes. This means the banks can issue credit cards without the customers having to go to any physical branch. Secondly, it improves overall customer experience and convenience, making it more attractive to today’s busy and highly mobile individuals.
Leveling the Future Playing Field
Huawei sees the banking industry of the future being very different and believes new digital players will make the industry more competitive and allow more innovative services to be offered.
“The biggest challenge for any bank is the newcomer coming from technology, especially Fintech. They do need not to open any physical branch. More importantly, they provide better customer experience. So competing with these newcomers will be a big headache for existing banks,” said Liu.
Huawei sees its Leading New ICT concept helping existing banks to compete on an even playing field. It allows them to be agile with customer needs, while strengthening the trusted relationships they have already built with their customers. It also helps them extend their current IT investments, making the transition more cost effective.
The Russell Reynolds Associates’ 2015 survey of C-level executives from across 15 verticals on the impact of digital technologies revealed a telling concern of business leaders on the threat and opportunity posed by digital disruption. Consumer financial services were recognized as being under the greatest threat of disruption.
Speaking to Fintech Innovation, Michael Leung, Chief Information & Operations Officer at China CITIC Bank International, believes that everyone within a bank must embrace digital for the transformation to be effective.
An opinion shared by Liu who added that “all the existing banks will have to change their business model, using new technology to transform old ones. Otherwise, traditional banks will not have a bright future.”
1) The Leading New ICT is the vision of Huawei in Enterprise Business. It relates to an open platform and ecosystem where developers can benefit by building their innovations using new ICT technologies.
2) In the third of this four part series, we will look at how Leading New ICT is helping cities achieve their Safe City visions. The first article is Connecting a Connected World: The case for Huawei’s Leading New ICT.