China

Details

  • Service: Advisory, Management Consulting
  • Industry: Financial Services, Banking
  • Type: Business and industry issue, Publication series
  • Date: 9/26/2012

KPMG China Connect

KPMG China Connect - a bilingual business newsletter

It reports KPMG's latest research and insights, client events, news and firm-wide developments.

 

 

Building future-proof operating models in wholesale transaction banking 

Building future-proof operating models in wholesale transaction banking

By James O'Callaghan, KPMG China

 

Given the recent transformation of China's markets and the payments market in particular, many banks and payments processors are now seeking to build a level of 'future-proofing' into their transaction banking operating models. This is a welcome trend.

 

The timing of this is very appropriate given that many Western banks are also looking at their strategy to decide what to do with their legacy core banking platforms, many of which were implemented during the 1980's or inherited through acquisitions. These systems are now struggling to support organisations as they transition through the evolution of mobile payments and technology and respond to the demands and volumes of clients and transactions.

Advantage China
China has a clear opportunity to harness its considerable advantages (such as the evolution of mobile technology, increased transaction volumes, rapidly developing Cloud infrastructure and a comparatively stable economy) to develop flexible, scalable and adaptable operating models capable of lasting a generation or more.

 

However, building future-proof operating models requires China's banks to have a high level of awareness, both of their own structural advantages and limitations, as well as the direction of the changes going on around them. China can also learn from lessons learnt by Western organisations regarding the challenges faced when undertaking such large transformational initiatives.

 

Look inside and out
To start, banks will need to gain a clear understanding of their long-term strategies and objectives. Is the over-riding goal of the organisation to increase transaction volumes or expand into new markets? Is international expansion on the horizon or are all eyes focused on domestic growth? Does the bank have a clear vision of what their clients need now and in the future and how they want to be serviced?

 

This will allow banks to start to envision their future operating model and develop a framework against which they can properly align their decision making process and design principles. In turn, this will lead to the creation of a target operating model that will act as a roadmap for all future decisions and investments.

 

Taking a holistic view
Banks will, however, need to be aware of the impact these changes will have on the broader organisation. Indeed, given the interconnectedness of today's banks, true future-proofing cannot successfully occur in individual silos; it requires banks to take a holistic view of the organisation to understand the dependencies of the change and its impact on suppliers, customers, stakeholders and employees.

 

Of course, a range of other considerations must also be overlaid. For example, take regulation: banks that either have, or plan to have overseas operations, will need to carefully consider how regulation in foreign jurisdictions may influence their operating models. Many markets now require sensitive payment systems and processes to be conducted within the jurisdiction itself, which will impact the ability to centralise operations. In much the same vein, data and security are also key concerns for regulators, possibly requiring the establishment of local data warehouses and new controls and governance systems.

 

Assessing the dependencies
All of this will naturally impact the sourcing decisions that must be made. Some systems and processes will need to be maintained on-shore, while others may be centralised and put into a shared service model that serves as a regional – or even global – hub. The introduction of Cloud computing into the payments ecosystem will also add a new dimension to the sourcing decision process.

 

Key to developing a successful future-proof operating model will be securing the buy-in of senior leadership and the various lines of business. As with any transformation project, the direction and strategy will need to be led and communicated by the business itself, and so tight collaboration between the functions will be critical, especially with the technology partners. Architects of future-proof operating models will also need to dedicate resources towards helping the business to understand the implications of the change, developing future-proof processes and communicating the change throughout the organisation.

 

Regardless of the shape of the operating model, the bottom line is that – to last into the future – operating models will need to be flexible and agile to ensure that any environmental changes can quickly be absorbed into the daily operations. Ultimately, the ability to adapt will be the only true test of how 'future-proof' the eventual operating model will be.

 

What to expect at Sibos

 

China's banks and payments processors will be looking to gain insight and lessons from the successes and failures of operating models in other markets. At Sibos, attendees should anticipate a significant amount of discussion about future-proofing and may want to come to the event with their minds open to creating mutually-beneficial relationships with China's domestic players.