• Cognizant 20-20 Insights
Bending the Curves: A Roadmap for
the New World of Banking and Financial
Services
Executive Summary
The global banking and financial services (BFS)
industry is facing unprecedented, even historic
challenges. With customer and regulatory
demands soaring while revenues plateau,
financial services enterprises (FSEs) cannot just
tinker with existing processes for an incremental
boost in revenue here or reduction in cost there.
Tomorrow’s leaders in the BFS sector are today
“bending” their cost and revenue curves to drive
innovation and value while relentlessly reducing
costs. They are using the new technologies of
social, mobile, analytics and cloud technologies,
and the emerging model of business process
services, to shatter the traditional linkage in
which costs rise in lock step with revenues.
Working with global FSE leaders, we are delivering
solutions such as mobile applications, fraud
detection, sentiment analyzers and private cloud
services that deliver higher revenue-to-cost ratios
over time. Capabilities like these, and the business
framework used to deliver them, are rewriting the
revenue-to-cost equation that has trapped so
much IT spending in “maintenance” rather than
“change the business” mode for generations.
This white paper describes how historic economic,
technology and business changes are making
“bending the curves” an imperative for FSEs. It
cognizant 20-20 insights | january 2013
describes the new technologies and business
models that are helping leading FSEs meet these
challenges, as well as our business framework for
guiding this change.
The Economic Reset
Business cycles are of course nothing new, but
the scale and duration of the current global
recession and the perceived role of the BFS
sector in producing it, creates a unique blend of
rising demands and falling revenue.
Even as weak economies depress demand for
everything from retail and business loans to
asset management, government efforts to keep
interest rates low depress profitability on what
lending activity remains. At the same time,
increased demands for regulatory compliance and
reporting are driving up costs. Concerned about
the role proprietary trading may have played in
the downturn, regulators are demanding that
FSEs separate such trading from transactions
they execute for their clients. Enforcing such
separation is time-consuming and expensive,
especially in a complex marketplace in which
dozens of players may be involved in a single
transaction.
Beyond the immediate economic crisis are
broader socioeconomic and technological
changes that transform the BFS playing field, but
also hold the keys for meeting those challenges.
The Global Socioeconomic Reset
The entry into the marketplace and workforce of
those aged 15-35 – the “millennial” generation –
resets the bar for BFS products and services.
Raised on ever more elegant and mobile
computing services, they demand consumer-like
ease of use in their devices and applications. They
are used to, and expect to, draw on their peers
and on multiple sources of information, in real
time, to solve problems.
To understand their impact, consider how
members of an older generation would have
written a term paper. They would have gone to a
physical library, made notes from research texts,
gathered the results and then written their report
– usually in isolation. Members of the millennial
generation, by contrast, might first turn to
Facebook to consult with friends who had taken
the course in the past. They would then go online
for reference material, including everything from
text to video to blogs or Tweets about the subject.
The result would be a paper reflecting the latest
developments in the subject area, richly informed
by a wealth of insights they could gather without
leaving their dorm room.
To best tap the skills of this generation when
they enter the workforce, FSEs must provide
the technology and processes to facilitate their
collaborative and social work habits. To attract
millennials as customers, they must provide
consumer-grade ease of use in their products and
services, and adapt everything from marketing
to customer service to the social and mobile
channels the millennials use.
The next major driver is globalization. Since
1989, almost 3.3 billion new participants have
entered the global financial ecosystem. Most are
spread across fast-growing emerging economies
from Brazil to Russia, India, China and Africa.
The middle class in China alone, for example, is
expected to grow to about half a billion people
by 2025. While these markets provide a welcome
opportunity for growth, each requires financial
products and services geared to its specific needs.
Just as students no longer write term papers in
isolation but collaborate in real time, fewer and
fewer organizations are vertically integrated and
house all their workers in one place so they can
work together. Most organizations, especially
those in “knowledge industries” such as BFS, are
tapping technologies that reduce communication
costs and allow people to easily share information
and insights worldwide.
This virtualization enables the shifting of any
functions that are “context” rather than core
differentiators to the external locations that
have the skills and cost structures required by
the business. This change, which we call business
process services (BPS), allows the global delivery
of BFS processes ranging from underwriting to
accounting to post-trade processing. Initially, its
main focus was reducing costs, maintaining and/
or improving the revenue-to-cost ratio and better
managing potential revenue drops resulting from
unplanned events. As the BPS model matures,
customers are increasingly using it to access
industry-wide best practices, and to use local BPS
resources to develop products and services for
fast-growing local markets.
Four Forces Shaping the Future of Work
The New World of Business
The New Worker/Consumer
Globalization continues to
advance.
The “millennial mindset” comes
to the enterprise.
The New Way to Work
The New Technologies
Dynamic “virtualized” business
processes emerging due to lower
interaction costs.
Social, mobile, big data and
cloud technologies enable new
ways to work, relate and consume.
Figure 1
cognizant 20-20 insights
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The Technological Reset
The four interrelated technologies that create
both challenges and opportunities for FSEs are
social, mobile, analytics and cloud (SMAC).
Social networks have shattered the barriers of
space and time and allow customers, partners and
employees to share information anywhere and
anytime in a user-friendly way. Anything an FSE
does, right or wrong, can and will be publicized
worldwide virtually instantly on social networks.
This makes social networks valuable for not only
marketing, but tracking customer sentiment
about brands. Within the organization, FSEs
are using social networks to gather ideas from
customers, employees and partners to improve
their products and services, and to reduce costs.
Using them effectively requires, however, proper
guidelines for external communication as well as
internal knowledge-sharing.
The rise of mobile technologies has put computing
power, connectivity and e-commerce in the hands
of virtually every consumer at all hours of the
day and night. These users demand not only
anywhere-anytime transactions and customer
service, but a user experience as easy and even
delightful as that provided by the social networks
and games they access on these devices. FSEs
also must provide the same levels of reliability,
performance and security in the mobile world as
in the older PC-centric or ATM environments.
The explosion of data produced by these new
technologies has led to analytic capabilities that
allow FSEs to store, manipulate and analyze far
more data far more quickly than ever before.
The sources of this data range from point-of-sale
systems to credit card records to ATM transactions
to mobile Web commerce sites and social networks.
FSEs must decide which data to analyze, and how
to analyze it most cost-effectively. When the
analysis is done by outside partners, FSEs must
maintain the same strict security and regulatory
compliance as with in-house analysis.
FSEs are already using the cloud to give employees,
customers and partners access to corporate data
and applications over the Internet. They are also
using the cloud as a cost-effective way to access
high-bandwidth computing, analytic and other
functions that would be far more expensive to
host internally. This cloud enablement supports
collaborative systems that extend or replace
traditional transactional systems. Deployed
properly, these deliver knowledge and insights to
the right people, in the right context, place and
time with consumer-like ease of use.
FSEs must also properly balance their investments
in the cloud with spending on brick-and-mortar
customer touch points such as branches and
ATMs. They also need to be sure their cloudbased systems and business processes deliver
the necessary levels of performance, security and
regulatory compliance.
Global Reset
Figure 2
cognizant 20-20 insights
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Since the beginning of the computing age, we
have seen major geopolitical and social changes
coincide with major shifts in computing form
factors and delivery models (see Figure 2). In
none of these cases, though, have so many
historic social and economic forces (the ongoing
recession, the rise of the developing world, and
the rise of millennials) coincided with multiple
technology shifts such as the rise of social media,
mobile devices, analytics and the cloud.
Looking back at this history, it is clear that the BFS
industry is facing challenges of an unprecedented
scale and complexity. The good news is that this
is also an historic opportunity to move beyond
competitors by not just nudging, but bending the
cost and revenue curves.
Bend the cost curve by reducing expenses to
•
maintain profitability and competitiveness.
Bend the revenue curve with increased sales
•
from innovative products and services.
Bend
•
the cost curve by more precisely
matching costs to revenue as conditions
change.
Bend
•
both the cost and revenue curves
by transforming work processes to reduce
waste, improve cycle time and increase
productivity and quality.
Bend both the cost and revenue curves using
•
analytics to more cost-effectively manage
risk in areas such as proprietary trading,
to identify their most profitable business
areas and to assure and prove regulatory
compliance.
Solution: Bend the Curves
Traditionally, FSEs would react to an economic
downturn by cutting costs to bring them in line
with falling revenue. In an equation where revenue
is the numerator and costs the denominator,
organizations would typically reduce the
denominator (costs) to maintain a fixed ratio
with falling revenue. When the FSE expected
the economy to begin improving, it would begin
adding to the “cost” denominator, investing in
new products and services or expansion into new
markets.
Work Smarter
Revenue
Cost
Managing the Dual Challenge
Creating Technology-based
Innovation and Transformation
Driving Efficiencies
N
D
• Reshape the work being performed to reduce
waste.
• Improve cycle time: drive productivity and quality
to enhance outcomes.
• Drive towards “best in class” operating models.
• Increase profit buffer for potential revenue drops.
Figure 3
Today, technology, business models and the
expectations of the market and regulators are
changing too quickly for FSEs to wait for the
recovery to add to the numerator (the investment
in new products and services.) Luckily, the new
technologies of social, mobile, analytics and
cloud (and the BPS business model) allow them to
reduce costs even as they create innovative new
products and services, and to scale the business
without corresponding increases in costs.
Figure 4
These new technologies and business models
are especially powerful because of the extent
to which they work together. For example, the
data generated by users’ social media postings
significantly adds to the data on customer
information and market trends available for
analytic tools. The rise of mobile devices adds to
the growth of social networks, making it easier
for customers or employees to generate data for
analysis or collaboration.
Thus, today’s historic socioeconomic and
technology reset is an opportunity to
simultaneously:
cognizant 20-20 insights
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How We Are Helping Our Clients
Consumer Finance
CRM
Cards and Payments
Facebook App
Global Bank
Facebook App
Mortgage services
Mortgage analytics
Global Bank
Private Workbench
Global Bank
Mobile Auction
European Bank
Social Analytics
European Bank
Digital
analytics
Consumer Finance
Mobile App for
Auto Loan
Processor
Google Wallet
Global CB
Mobile App for
Property
inspection
Increasing
Revenue
Cards and Payments
Basel II compliance
Cards and Payments
Merchant Fraud
Global Bank
Digital
analytics
Global Bank
Mobile Global
Remittance
Global Bank
Mobile Internet
Banking
Cards and Payments
Anti Money Laundering
European Bank
Social Community site
Regional Bank
Mobile Banking
Global Bank
Integrate Social Links
/Plugins
Cards and Payments
Private Cloud
Social
Gloabl Bank
Health Saving
Accounts
National Bank National Bank
Global Bank
iPad Mobile App Mobile Banking Mobile Banking
Consumer Finance
Alternative currency Exchange
Reducing
Costs
Mobility
Analytics
Cloud
Figure 5
The increasing use of cloud technologies makes
it easier for virtual organizations to share work,
information and processes worldwide. The cloud
also makes it easier for organizations to access the
massive amounts of computing power required for
real-time analysis of massive data sets, without
maintaining expensive fixed infrastructures used
only during peak periods.
Both the cloud and BPS allow FSEs to pay for
resources (human or technical) only when they
are needed. When a project ends, or demand for
a product or service decreases, the associated
costs drop immediately. Alternatively, if demand
for a product or service rises, the combination
of cloud and BPS allows the FSE to realize the
revenue immediately at a lower corresponding
cost than ever before possible.
SMAC and BPS at Work
We
•
developed a social media strategy for
a global money management firm that
dramatically improved employee engagement
and harnessed feedback from them to
improve product development, marketing
campaigns and lead generation.
For
•
a client that provides solutions and
services for the BFS industry, we developed a
social media platform that gathered feedback
from its clients and ISVs. The feedback helped
this solutions provider enhance its offerings
with functions and features that serve more
clients at lower cost.
Quick Take
Bending the Curves: Social Networks
•For a leading financial markets surveillance
firm, we created a scalable social integration
platform that captured and analyzed
interaction with customers to identify ideas
for new products and services. The result:
Significant cost savings and knowledge
sharing with customizable analysis and alerts.
Today, working with leading FSEs, we are proving
the power of the SMAC technologies and the BPS
business model to bend revenue and cost curves.
FSEs can use collaborative social networks to
develop new products and services to increase
revenue. They can also leverage customers’
comments and behavior on social networks such as
Facebook and Twitter (often through mobile devices)
to track feedback about their brands, market their
services and communicate with customers.
•For a national bank, we created a sentiment
analyzer that tracked customer comments
on social media to identify customer service
and other problem areas, and generate
consumer awareness.
•For
a credit card processor, we created
a “community of practitioners” to share
expertise across functions and geographies.
Using social media, we are helping FSEs in ways
including the following:
cognizant 20-20 insights
5
Using mobile technologies, we are helping FSEs to:
Forge
•
closer links with customers using
mobile banking and mobile wallets.
•
se location-based services to better
U
understand customers’ needs and provide
more customized services.
•
resent information, products and services
P
in mobile-friendly ways.
•
ake transactions and finding information so
M
easy that customers are less likely to switch
to competitors.
Drive Revenue Enablement
•
Increase revenue through the creation of new
products or services identified by analysis of
customer sentiment or transaction.
•
se this deeper analysis of customer
U
behavior to boost revenue and reduce the
cost of sales through more insightful crossselling and up-selling.
Combine
•
analytics with mobile and social
tools for the real-time delivery of coupons
and offers based on customers’ social
interactions and recent transactions.
•
nalyze customer purchases from partners
A
such as airlines, hotels and restaurants to
provide more specialized real-time offers
based on customers’ behavior and social
media activities.
Revenue
Quick Take
Bending the Curves: Data Analytics
•For
a major credit card company, we
performed customer link analysis using
merchant data to provide a “single version
of the truth” of each customer’s credit
exposure. This allowed accurate scoring of
the customer base.
Cost
• Focus on customers and implement innovative
solutions.
•For
a major financial processor, we
implemented merchant fraud risk scoring
from rule-based detections of adverse
actions and risk-based due diligence. Result:
Reduced cost by lowering false positives
and cost of review, without compromising
the detection and resolution of fraudulent
transactions.
• Drive top-line revenue growth.
• Protect and enhance margins and profitability.
Figure 6
Quick Take
Bending the Curves: Mobile
•For an insurance provider, we developed a
mobile application for property inspection.
The result: Reduced staffing costs, faster
customer service and improved customer
satisfaction.
Working with us, leading FSEs are utilizing the
cloud to:
•
reate virtualized organizations that allow
C
employees in multiple locations to access
systems
and
information,
promoting
efficiently and agility.
•
Increase collaboration among
internal and external players.
•
hare best practices and ensure proper
S
regulatory oversight among multiple
geographies.
•
end the cost curve by scaling the number
B
of customers served without an equivalent
increase in cost.
•For
a leading consumer finance firm, we
developed a cross-platform vehicle auctions
framework with real-time bidding and
updates. This gave the client more accurate
real-time information about vehicle pricing,
allowing it to make better decisions.
We are using analytics to help our FSE clients to:
•
educe losses through improved fraud
R
detection.
cognizant 20-20 insights
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multiple
Quick Take
Bending the Curves: Cloud
•For a credit card and payment processor, we
created a private cloud that reduced costs,
increased server utilization and decoupled
costs from revenue by allowing the client
to scale computing resources up and down
with demand.
•For a national bank, we created a private
cloud using Microsoft’s Azure service to
reduce overall costs and ramp spending to
match demand.
Our Clarity framework provides a proven model
for analyzing and meeting the historic challenges
facing FSEs (see Figure 7). Clarity balances the
short-term optimization of costs and revenue with
longer-range initiatives. To improve effectiveness
and efficiency, it seeks to optimize processes
and technologies through best-in-class and lean
initiatives. At the same time it uses the new social,
mobile, analytics and cloud technologies, along
with the BPS business model, to extend FSEs into
new markets.
Our Clarity Framework
•In customer cloud engagements, we have
d
Effectiveness
end the revenue curve with a readily
B
available source of specialized skills to
drive new business initiatives and enter new
markets.
Quick Take
Bending the Curves: BPS
•Post-trade processing.
•Investment administration.
•Card processing.
•Cash management.
•Fraud analytics.
•Liquidity management.
Clarity Framework
Meeting historic challenges is inherently risky.
“Bending the curves” of both cost and revenue
with fast-changing technologies can easily
become too complex, expensive or unfocused to
succeed. That’s why, in our work with hundreds
of clients across dozens of verticals, we have
developed proven frameworks to guide both
strategic and implementation processes.
cognizant 20-20 insights
Innovation
ize
•
CXO
Goals
tim
Op
As a BPS provider reengineering its own business
processes to bend its own cost and revenue
curves, we are helping FSEs to:
end the cost curve with a scalable source of
B
staff that can be easily ramped up and down
as needs change.
Social
Mobile
Analytics
Cloud
n
te
Ex
delivered significant return on investment
in less than a year.
•
•
•
•
•
Virtualization
• Best in Class
• Lean
Efficiency
Figure 7
Conclusion: A Time for Action
The combined economic, regulatory, social and
technology changes facing FSEs is challenging
them to rethink their business and innovation
models, decouple their costs from their revenue
and leverage new partners who can help reduce
their costs while increasing revenue.
Our work with leading FSEs worldwide shows that
social, mobile, analytic and cloud technologies,
along with the BPS business model, can rewrite
the cost/revenue equation to provide dramatic,
and ongoing, increases in profitability. We have
also found that the use of a framework such as
Clarity helps achieve the balance FSEs require
between short-term optimization and long-term
extension into new markets and offerings.
This balanced approach is helping create the
next generation of FSE leaders, forged out of the
ongoing transformative challenges facing the
global BFS industry. To discuss the implications for
your organization and how Cognizant can partner
with you to create transformational capabilities
that provides new opportunities, contact us at
[email protected] or visit www.cognizant.com.
7
About the Author
Prasad Chintamaneni is Senior Vice President and Head of Cognizant’s Global Markets, Banking and
Financial Services Practice. He has 20 years of experience in the banking and financial services and
information technology industries across Asia Pacific, Europe and North America. Prasad is responsible
for the sales, business development, consulting and client relationship management organization with
global P&L management responsibility. Previously, he led the company’s North American region for the
Banking and Financial Services Practice. Before joining Cognizant in 1999, Prasad spent seven years in
investment banking and financial services, including a stint at Merrill Lynch as a member of its business
strategy committee in India. Prasad obtained his bachelor’s degree in engineering from the Indian
Institute of Technology, Kanpur, India, and an M.B.A. from the XLRI Business School in India. He can be
reached at [email protected].
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process
outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in
Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry
and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50
delivery centers worldwide and approximately 156,700 employees as of December 31, 2012, Cognizant is a member of
the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune500 and is ranked among the top performing
and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.
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