Financial Services and Banking respectively are affected by two major trends. Causes for these trends are internal and external influences: External influences are for example new technological developments and Web 2.0 / Enterprise 2.0 while internal influences are such as cost pressure on Information Technology departments and organizational restructuring.
- Trend 1 – Enterprise Architecture Management (EAM) key for cost savings and flexibility
Due to planned cost savings, large financial organizations are trying to understand how their Enterprise Architecture works. This is key to start IT consolidation, release IT budget (especially RTB – “Run the Bank” a.k.a. “Run the Business” costs) and increase flexibility, but this intent is also a great challenge. Usually, Business/IT models and the corresponding IT landscapes have grown over time. Therefore, in most organizations there is no real Business/IT Alignment and we find a complex IT landscape with duplicate functionalities in almost all areas – frequently accompanied by a silo-structure: The principle “one business request => one IT application” has shaped the existing Business/IT structure and the corresponding inflexible “IT elephant”. - Trend 2 – New Financial Services (also referred to as “Finance 2.0″, “Bank 2.0″ and “New Banking” *)
Due to new developments such as Enterprise 2.0 and Web 2.0, new business models are emerging within traditional finance and banking areas. Two examples:
1) The Web 2.0 era results in “parallel financial worlds” and Peer-2-Peer (P2P) models, circumventing traditional and established organizations. People are using second markets to manage their trading activities (such as https://www.secondmarket.com/) or are using new providers to manage their personal finance (like http://www.mint.com).
2) Future mobile technologies will enable everybody to pay via mobile phone, circumventing banks and mobile carriers. Developments such as Near Field Communication (NFC) allow making payments without using money within your wallet or credit cards. In fact, we are waiting since more than ten years for the breakthrough of mobile payment. To date, mobile carriers and banks prevented “ready for market” – solutions. As of now, there are new technologies and new financial service providers (see ex. 1) making easy mobile payments possible – without bank or carrier support.
Why do I see these two trends? That’s a simple question.
- Trend 1 – The growing competitive pressure forces financial services organizations to increase flexibility and reduce complexity. Key is the existing organizational and IT strategy and their corresponding alignment. To date, there was not any need to go into this field, since finance was not subject of depression. After burst of the two big bubbles, the dot.com and the US housing bubbles, pressure increased and areas such as investment banking are not profitable enough any more.
- Trend 2 – Financial services and banks are still in the area of “Web 1.0″. To date, there is no adaption of new technologies and opportunities are not perceived. This is the chance for the new financial service providers to fill this gap and to leverage new forms of financial services – easy and in real-time.
In addition, both trends are compatible. While consolidation within financial services organizations starts, budget will be released to invest in new ways to manage financial services. But keep in mind: The later the established organizations will start consolidation and moving to the new finance model, the later the new services can be made available… New financial services providers such as Google (see http://www.google.com/wallet/) will use their lead to divest established organizations their customers.
In the next days I will go into the Bank 2.0 / Mobile Payment – example…
References:
- Google Inc.: “Google Wallet – make your phone your wallet” – URL: http://www.google.com/wallet/
- Intuit Inc.: “Free Personal Finance Software, Budget Software, Online Money Management and Budget Planner | Mint.com” – URL: http://www.mint.com
- SecondMarket Holdings Inc.: “SecondMarket – Secondary Market for Alternative Investments, Private Company Stock” – URL: https://www.secondmarket.com/
*) Since these terms are used in different context and have partly different meanings, a clearer differentiation is necessary. The definition and differentiation of these terms goes beyond this article. A good introduction to the term “Bank 2.0″ gives Brett King, author of “Bank 2.0″, see http://www.banking4tomorrow.com/ – The term “New Banking” is described in the blog of Dirk Elsner, http://www.blicklog.com/ .