Peter Redshaw, Gartner

The world, as we know it, is changing rapidly. We are becoming a global society; open, networked and transparent. We are always on and instantly accessible. Social, mobile and digital technologies are becoming the norm.

The banking industry is at the heart of this new world but for individual banks it means a huge amount of disruptive change. Successful banks and other financial services institutions (FSIs) will be those that can devise the new strategies and operating models to adapt to this new environment and – critically – have the IT capability to support their transition.

We can see how the “nexus of forces” (information, cloud, context and mobile, and the social commons) has laid the foundation for a new monetary paradigm in which businesses are being forced to transact in mediums of exchange other than in national currencies — that is, a full democratisation of the traditional monetary economy. Individuals around the world are using new mediums of exchange (such as loyalty points and gaming tokens) and stores of value with added-value services, such as access to alternate payment instruments like digital wallets, as a means of purchasing and settling transactions

However, simply understanding the emerging technologies is not enough – FSIs need to relate these technologies back to their business strategy and be able to monetise them. That needs a deep understanding of why their customers behave as they do, how the FSI can make a difference to them and what they can do to really enhance a customer’s experience of banking. Current application portfolios are preventing banks from making the transformation they need to re-engage with customers and stakeholders. It will be apps that enable a new style of engagement with customers — one that is focused on providing needs-based and context-aware services.

So, yes, it’s important to monitor, evaluate and prioritise emerging trends – but it is even more important to understand which major societal, business, management and technology enabled trends will cause disruption. Only then can an FSI start to determine which technologies will be important.

Attempting all this change when much of the banking world is already in turmoil is tricky enough. Doing it parallel with cost optimisation projects and regulatory compliance exercise is even harder. Yet despite the various crises that belabour this industry, there are good reasons for FSIs to be optimistic. For example, the potential of cloud computing and the changing nature of technology sourcing should be embraced by banks that seek to move beyond small, incremental changes to make a radical change to their cost base. And it needn’t stop at cost optimisation. Cloud computing can be a catalyst for long-term business transformation that goes beyond cost and scale to address what a genuinely customer-centric bank will look like. Power has shifted to the consumer and they expect their bank to explicitly recognise this change in the balance of power.

FSIs that fail to make that shift in thinking as well as technology cannot expect to retain customers so easily and may find themselves disintermediated and irrelevant. In order to transform into customer centric institutions, it will need far greater use of data integration and analysis.

All this change, with new technologies and new channels and new architectures, must also be focused on simplicity. FSIs must try to avoid adding to the already excessive complexity of their IT domain. Bank CIOs and COOs must innovate in IT and operations to negate the law of diminishing IT returns. They need to devise ways to increase their ability to provide effective IT and operational support, deal with the business and IT impact of increasing digitisation, and move beyond traditional management models before phenomena such as BYOD and SaaS render them obsolete.

Join us in May in Johannesburg for the Gartner Banking conference where we will discuss these issues and many more.