Advice and Information for Finance Professionals

Banks Face Up to the Danger of Doing Nothing

Lynne Sampson
Managing Editor

What is the biggest competitive threat to today’s banking incumbents?

If you asked many of them, they might say the biggest threats come from fintech start-ups, blockchain innovators, or some other new business model that no one has invented yet.

But a new paper from American Banker argues that the biggest threat is coming from within banks themselves—in particular, their reluctance to move to the cloud technologies required to become a digital business.

“The primary threat to any financial institution is therefore not external at all,” the authors write. “It is its own internal inability to nimbly execute on the digital imperatives necessary for success in the difficult-to-predict but most certainly lucrative future of finance.”

CFOs can lead this charge towards a digital future, the writers argue, because the systems under their purview—ERP, ledgers and sub-ledgers, reporting, audit, etc.—hold the key to agility, efficiency, and innovation.

Internal decision-makers depend heavily on enterprise resource planning (ERP) and enterprise performance management (EPM) systems. They rely on these systems to understand what’s going on across the business; to optimize allocation of resources for maximum return-on-capital; and to keep within the institution’s acceptable limits of risk. Financial services companies have much to gain from cloud ERP and EPM systems, which are much more agile, efficient and innovative than their on-premises predecessors.

The Gains to Financial Services from Cloud ERP

There are a number of advantages that financial services institutions can gain from moving ERP and EPM to the cloud, including:

  • Multi-dimensional insight. To make timely, fact-based decisions, managers and executives need ready access to historical, real-time, and predictive insights. Historical and real-time insights might be delivered in the form of traditional reporting and business intelligence; while predictive insights (looking towards the future) might rely on more advanced data science and visualization to help decision-makers predict trends in customer behaviors, operating margins, and product performance.
  • Accelerated feedback loops. In a fast-paced, innovation-driven marketplace, it’s not just about making the right decisions. It’s about continuously re-evaluating those decisions based on empirical feedback and then quickly making adjustments—whether it’s a bit of fine-tuning or a wholesale change in strategy. In addition to delivering rich insight, cloud ERP must enable speed and frequency of change.
  • Continuous cost alignment. Agility requires the ability to act quickly within the right cost parameters. Historically, that’s been a challenge for banks. With on-premises systems, new technologies required a sizeable investment in advance of returns (the “cap-ex” model). With cloud, banks can now quickly launch pilot programs at more sensible cost. If those programs succeed, they can scale them under an op-ex model that remains well-aligned with the income these new programs generate. If the pilots are not successful, the institution can exit with minimal loss exposure. Cloud ERP thus optimizes margins and mitigates risk, in addition to enhancing agility.

Governance, Risk and Compliance in Cloud ERP

Governance, risk management, and compliance mandates can often constrain the agility needed to compete in fast-moving financial services markets. Here again, the cloud can be of extraordinary value. Cloud applications are updated quarterly by the providers to help compliance with regulatory requirements, consumer protections and risk management—making it easier and less costly for banks to comply with new or modified mandates as they emerge. Banks can allocate their finite resources to high-value innovation—rather than to low-value compliance burdens.

The future belongs to those who transform digital uncertainty from an institutional threat to a source of sustainable competitive advantage. In an upcoming webinar, American Banker will discuss why a digital advantage is critical for the future of banks. You’ll learn how to handle moving to the cloud, why it’s about more than just the technology, and how the choices you make can affect your business.

Register now for the American Banker webcast.

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