Thursday, 24 November 2011

Wanted: CEO for UK Retail Bank

With the news that the RBS Retail Bank CEO, Brian Hartzer is to return to his native Australia to take up a similar role with Westpac and to be groomed as Gail Kelly's replacement, he is but just one more executive to leave UK Retail Banking. He follows Deanne Oppenheimer (Barclays returning to her native Seattle - see ), Helen Weir (Lloyds Banking Group - left when Antonio Horta-Osorio joined as CEO), Lynne Peacock (NAB), Joy Griffiths (Lloyds Banking Group - left retail banking to become CEO of Experian Analytics - see ) and Andy Hornby (HBoS - though whether this was a loss for Retail Banking is far less apparent).

Without resorting to the over-used Oscar Wilde quote, to lose this many Retail Banking CEOs does not look to be just chance. What is it that is driving these talented executives to leave UK Retail Banking?

Certainly retail banking in the UK is becoming one of the most heavily scrutinised and regulated banking sectors anywhere in the world. This is leading to executives spending more and more of their time talking to regulators and politicians rather than spending their time on running their business. The ability for talented executives to make a difference, to reinvent the industry and to service their customers in a way that they deserve to be treated is becoming increasingly difficult.

The leadership of the banks is also changing. Whereas the likes of Lloyds TSB, Barclays and HSBC used to be led by executives, such as Sir Brian Pitman, who had risen through the ranks of retail banking and understood the industry, the UK banks are now all led by former investment bankers, who are not passionate about retail banking, for whom serving the consumer and the small business is not second nature and whose vision for their banks is articulated in terms of aggressive ROI targets, which leaves the traditional retail banking executive spending large proportions of their time educating and managing their bosses about the business of retail banking rather than being able to focus on their customers.

It is also true to say that not many people nowadays would want to admit at social events that they are a banker, not if they don't want to end up on their own for the evening! The prolonged pillorying of bankers undoubtedly has an impact on individuals however thick-skinned they may be. In other geographies the role of the banker is far more respected and prestigious.
For the ex-pats who have joined the UK banking sector, and even for many British citizens, the changes in the bonus systems and the introduction of the 50% income tax band have all made the UK a far less attractive place to work and therefore, where there is a choice, moving abroad or back home can be very attractive. Whilst only a few years ago the tax regime in Australia appeared to be more onerous than the UK that situation has been reversed and for both Brian Hartzer and, even more so for Deanne Oppenheimer, going home has significant financial advantages.

Brian Hartzer isn't going to be leaving RBS for a while but who are the potential candidates to replace him? Already the speculation has started.  Will a UK-based candidate be found? Could we see the return of Mark Fisher from Lloyds Banking Group back to Edinburgh? It is very unlikely that we will see the return of Helen Weir, Lynne Peacock, Deanne Oppenheimer or Joy Griffths. Of the up and coming executives Nigel Hinshelwood, COO of HSBC UK, must be in the running, but given the nationalised, increasingly UK-focused nature of RBS would that be an attractive option?

Given that any UK-based executive knows what the UK retail banking market has become maybe the easiest option for RBS is to look abroad and for their next Retail Banking CEO.

Barclays COOs/CIOs joined at the hip? ANZ doesn't agree

In an interesting move Barclays Global Retail Banking COO, Shaygan Kheradpir, has announced that the COO and CIO of each of the business units within the Global Retail Bank ( Barclaycard, UK Retail Banking, Barclays Africa and Western Europe) will jointly run their businesses and report to their CEO as well as to the GRB COO. This is sending a very clear message that, for retail banking, IT is as important as operations and that only by jointly working together can they succeed.

One can only assume that this is a move to change the behaviour often seen in banks where IT is seen as the whipping boy of Operations, the department that holds back the business from evolving and competing and the recipient of a lot of finger pointing.

In many banks and other financial services organisations IT reports into Operations and is not represented on the Executive Committees of their business units. This move by Barclays firmly places IT at the top table. It represents just how much more banks are dependent upon IT to be competitive.

Commonwealth Bank has gone one step further and has their CIOs reporting directly to the CEO, such do they see the significance of technology to the success of their banks.

Too often recently there have been tales of how IT has stopped the business working. You only have to look at the woes that National Australia has been enduring and the impact on the business of systems not working.
See Interestingly NAB has a structure whereby they have split responsibility for IT between effectively BAU (Business As Usual) and New Technology with Adam Bennett as CIO and Christine Bartlett, the executive programme director of the NextGen technology upgrade programme.

However Barclays is clearly demonstrating how technology can help lead a business. First out with the tap and wave debit card in the UK and first out in the UK with the mobile wallet on a phone with their joint venture with Orange (see )

For this joint responsibility to work effectively requires a special type of COO and a special type of CIO. The head of Operations will need to have far more than just an appreciation of IT than has traditionally been the case. Equally the CIO will need to have a deep understanding of how the business works and how IT can enable the bank to compete. Traditional CIOs who have come from an IT Service Delivery, focussed on keeping the lights on, may struggle to perform this role. The type of CIO required for banks is clearly evolving. This is discussed further at
This dual leadership can only be seen as a temporary measure until enough executives emerge who can really master both banking and technology - people like Shaygan Kheradpir, whose last role was CTO at Verizon, and is an example of the Renaissance Man which is needed to manage banks in the 21st century.

In a move against the trend ANZ has announced that Anne Weatherston the CIO will no longer report directly to the CEO, Mike Smith, but will now report to Alistair Currie, the new COO, whilst still retaining her position on the management committee.

Shortly after the ANZ announcement Westpac has followed suit in going against the trend and has announced that they will not only introduce one COO but two and have a CIO reporting into each one, removing the CIO responsibilities even further from the CEO and the board.

Only time will tell whether either ANZ's and Westpac's or Barclays' and CBA's models are right. It will be interesting to see and costly for the banks that have got it wrong.

Monday, 14 November 2011

Are those annoucing the death of the branch false prophets?

The death of the bank branch has been predicted more times than sightings of Elvis Presley have been announced since his death.  It started with the introduction of ATMs or cash machines, was reiterated with the arrival of call centres, declared to be inevitable with the emergence of the internet and the giant leap forward of Web 2.0 has been welcomed by many commentators and consultants as the final nail in the coffin. But as like in all the good horror movies since the pale, thin, mud strewn  hand of Sissy Spacek shoots up from the grave in ‘Carrie’  no sooner is the bank branch declared dead than it springs back to life, reinventing itself whether it is by becoming a coffee shop, a children’s nursery, an airline lounge or, more recently, an amusement arcade or, in the case of Metro Bank, a Las Vegas casino.
So are the soothsayers, the banking visionaries, correct that branches are dead and that anyone who suggests otherwise is either a dinosaur, very, very stupid or should be taken away by the men in white coats?
Sitting in New York writing this blog it would appear to be anything but true with so many shopfronts on so many streets being new or refurbished branches with their glistening self-service machines, their comfortable sofas, their bright colours and lighting these do not look like the last desperate gasps of an endangered species. Indeed there are also lots of unreformed branches with poor lighting and high screens, so the so-called death of the branch seems to have been prematurely called.
So why is there so much written about the fallacy of bank branches and the call for them to be assigned to a museum?
Certainly there are more and more ways that customers can interact and transact with banks than simply talking to a teller or an advisor in a physical branch.  The increasing ubiquity of devices that provide digital access  that has gone from dumb terminals through laptops, netbooks, mobile phones, smart phones, tablets, NFC-enabled cards and NFC-enabled phones can lead to the conclusion that digital channels will totally replace physical channels.
This perspective is further strengthened with the almost daily emergence and evolution of  different ways of connecting in the digital world whether it be using email, SMS, Facebook,  Twitter or some other increasingly enclosed environment.
However the reality is that, whilst the take up of these new ways of communicating and living our lives is accelerating, most of these have not  yet become mass market nor have they become a way of life for the majority of people.  On the other hand for many of  the people who  make a living out of predicting the future of banking the use of these tools has become second nature, as indeed it has for most of the people within their circles.  The reality is that they are not representative of the mass market and that, whilst they may quote figures that show that the take  up of new technology is faster than it has ever been before, they talk about banking as seen through their own lens and not necessarily that of the majority of customers.

Does this mean that these forecasters should be ignored? Absolutely not - for what they say makes a lot of sense and is highly appropriate challenges to the existing banking fraternity. It cannot be disputed that for a long time the most powerful voice in a retail bank has has been that  which belongs to the owner of the branch network. It is the branch network that has absorbed the majoirtiy of the discretionary investment funding for the banks. The agitators are arguing that this economic inbalance between branches and other voice and digital channels needs to be addressed and there needs to be a recognition that branches already are just one of the channels and ways for banks to service and transact with customers. That doesn't mean that branches will go completely away, because there will always be some customers that want to transact with a real person in a physical space that is private and away from distraction. For some segments this desire to transact in person is stronger than for others. For instance the branch-centric, locally empowered model that Handelsbanken operates in the UK focussed on SMEs and mid-corporates is highly successful both in profitability and customer satisfaction (see ).

These cries for revolution and major change in the distribution of economic power in retail banking should be listened to by branch-based banks, welcomed as a wake-up call and acted upon, whilst recognising that a balance between branches and digital for most main stream banks will be the right answer for some time to come.

Tuesday, 1 November 2011

The world awaits the birth of a new banking platform

Across the world, bank CIOs are watching closely the activities in the delivery rooms in Melbourne, Sydney, Swindon and Frankfurt. There is much pacing up and down and the carpets are well worn as these babies are seriously overdue. There is so much attention being paid to these four cities because CIOs across the world are holding back their own decisions until they are sure live birth is possible.

It shouldn't be underestimated just how significant the decision and, even more importantly, the delivery of a new core banking platform is. Commonwealth Bank of Australia made a Stock Exchange Announcement, not to say that they had finally delivered their banking platform, but simply to update on progress. That is how seriously it is taken; enough to move the share price of a bank.

Replacing the core banking system is the equivalent of a full heart, lungs and brain transplant, with all the risks inherent with that, and this is why no major bank has actually done this since the 1970s. Sure, there have been cases of banks being migrated from one legacy system to another , examples being NatWest's systems onto RBS's banking platform , Lloyds' systems being migrated onto TSB's, but migration onto a modern, new, agile system for core retail banking just hasn't happened.

If it hasn't happened is that because there is no good reason to make the move? It is certainly true that most established banks of scale across the world are working on systems that were initially developed in the 1960s and 1970s, when the use of punch cards and batch processing was state of the art. Many of these systems were never architected or designed with the future in mind, have little documentation and most of the original developers have either retired or gone to that great punchroom in the sky. This has left a legacy of systems which are creaky, unflexible and often have a DND (Do Not Disturb) sign above them because no one is quite sure what happens when you make a change to them. You only have to look at the week plus outage that National Australia suffered last year to see how challenging these old systems are to maintain and keep running. So when new products, channels or technologies come along it takes a lot of money, time and effort to force these creaking platforms to adapt. The business gets desperately frustrated with the CIO and complains that IT is holding back the business. You only have to look at how slow the banks have been to respond to social media and the overall digitial agenda to see how the systems are holding them back.

The challenge for every CIO facing the problem of moving to a new core banking platform is how to make the business case. Using CBA as an example, the original budget for the core banking replacement progamme was AUD$580m ($580m, £355m), which no small amount. This has now soared to AUD$1.1bn (£675m) and late last year it was announced that it was going to be another year late. They're not alone with having these challenges, Nationwide in Swindon, UK are having similar problems (though being a mutual they don't have to announce their numbers to the Stock Exchange) with the programme running far behind schedule and multiple changes of integration partners. In Frankfurt, where the programme was originally designed for Deutsche Postbank, its scope has beenextended to Deutsche Bank's retail bank following the latter acquiring the former. And still no one has the full solution out there.

The challenge with spending such astronomical numbers (particularly at a time when capital is increasingly important to the banks) is what the payback period is. Based on the numbers Commonwealth Bank quoted this week, which was that the new system would repay AUD$300m (£184m) over three years, then that suggests that the payback period is at least 11 years. If you're sitting there as the CEO or the COO of a bank and comparing an investment that pays back in 1 to 2 years versus one that no one else has succeeded in delivering and pays back in 11 years, you can see why not many banks have embarked on this journey. Brave man Mr Ralph Norris, CEO of CBA. When the average tenure of a CIO has fallen to a mere two and a half years, then it is no wonder that there aren't many CIOs brave enough to bring forth the case for replacing their core systems.

Since 2008 National Australia has been working on installing Oracle's i-Flex core banking solution. Whilst they have a live greenfield implementation in their UBank operation they will only have a foundation release  implemented in 2012 -  four years after making the decision. Costs continue to soar with infrastructure costs up a whacking 56% YOY 2010/2011 to AUD 719m (£465m), with most of that increase being attributed to the Next Generation Banking Platform.

Which brings us back to why the world looks on as the brave CIOs of NAB, CBA, Nationwide and Deutsche Bank  pace nervously back and forth in the delivery rooms waiting for their new arrival. Stock up well because, even now, it could still be a long time coming!