How banks can make sense of digital disruption

One of the biggest challenges that banks will face as they embark on digital transformation is to ensure that the technologies they are investing in today remain relevant amid the rapid pace of change.

In a candid presentation at this year’s IDC Asian Financial Services Congress in Singapore, Ramesh Narayanaswamy, group chief information and operations officer at Malaysia’s CIMB Bank, said by 2023, mobile devices in their current form may not exist, yet banks are continuing to roll out mobile projects and platforms.

“People are also saying that there may be no apps – and this becomes tricky as all of us have a strategy for mobile-first, digital banking,” he said. “How do we ensure that whatever we do is still relevant? Technology is not cheap, so how can we afford to change everything in three to five years when we’re not at the scale of Google and Amazon?”

But that does not mean banks should rest on their laurels. Instead, Narayanaswamy said banks should look farther ahead, and challenge assumptions that regulators discourage the use of emerging technologies such as blockchain and cloud computing.

“The regulators and central banks are talking about using blockchain and big data to collect taxes,” he said. “They are thinking way ahead of banks, and even those in the technology industry.”

Narayanaswamy also touched on the issue of privacy in the banking industry.

Noting that there is no absolute privacy, and that users are willing to provide personal data in exchange for free services, he said privacy issues are fundamentally service quality issues that crop up during service lapses.

As for cloud services, Narayanaswamy said banks think regulators do not like the cloud, but that is only because banks have failed to explain what they are doing with the cloud.

“It’s really an industry issue – when we were drafting guidelines for the use of cloud by banks in Singapore, the biggest challenge we faced was that everyone told us how to get on the cloud, but no one could tell us how to get out of the cloud,” he said.

“If you say everything is software, how can it not be regulated? There’s always a downside to everything, and when the downside happens at scale, regulators will step in”

Amid the financial technology (fintech) gold rush, Narayanaswamy observed that some fintech startups do not fully grasp the seriousness of the banking business. “We can bring down economies and start wars, but unfortunately the people I meet daily don’t seem to understand what banking is,” he said.

“When I ask them what happens when something goes wrong, they say they will just release the next patch, but by then millions of dollars would have been transferred,” he added.

With more software-driven innovation, Narayanaswamy also believes the software industry will be regulated in time to come. “If you say everything is software, how can it not be regulated? There’s always a downside to everything, and when the downside happens at scale, regulators will step in,” he said.

To stay ahead, Narayanaswamy called for banks to go back to basics and make sense of what they are doing – which often includes a hodgepodge of initiatives and technologies recommended by consultants and analysts.

For example, despite having powerful and sophisticated IT systems, banks are still not picking up suspicious fund transfers pointed out by regulators and audit teams. “We don’t seem to have an understanding of basic things,” said Narayanaswamy, calling for banks to deconstruct core banking processes.

“Everything that is considered core banking should be deconstructed, because otherwise you’re just building on existing legacy without understanding what’s going on,” he said.

Going back to basics also means striving for zero defects when developing applications.

“When I started programming, this was the only goal we had: how do I write a program that does not have a defect? Today, everyone says no problem, just do another agile migration – but you would have created the damage.

“There is no aspiration in the banking industry to have zero defects, and that’s why central banks are after us. If you can tell central bankers that you can guarantee zero defects, they’ll let you do whatever you want.”