Techtonic change: What is forcing banks to behave like tech companies?

Banking and financial institutions across the world are well cognizant of the fact that technology development will not be a one-time activity, but an ongoing process.

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Over the last five years, Citibank shrunk its global workforce by 18 per cent. This may sound like downsizing, but there is a silver lining — during the same period, this New York-headquartered banking and financial services company added 23,000 technology specialists. Its current strength still stands at a thumping two lakh!

That is not all. Citibank now plans to add 2,300 coders and data scientists to its team. These technology professionals will be housed at its major centres in London, New York, Shanghai, Toronto, Dublin, Tel Aviv, as well as in Pune and Chennai in India. The new hires will work for its Institutional Clients Group (ICG) business and their role will be to build technology that will help its salespeople to service their clients more effectively.

Bank CEOs, all around the world, have been banging the drum to prioritise tech hiring and compete with the tech giants to do so. Goldman Sachs plans to hire 920 engineers, which is 44 per cent of its existing vacancies. Similarly, at Barclays, the opening for technology roles is around 39 per cent of its total vacancies.

Indeed, banks are leading the charge globally, as the top tech hunters. In the US alone, there is an urgent need of 6,500 technologists in banks – half of the total demand of 13,000 technologists.

Rohit Sen

“My view is that, in India, we are beginning to see it already — there are several partnerships between fintechs and banks. Since each one has its own strength, they can benefit from synergies.”

 

Back home in India, Axis Bank saw the push for digitisation and automation causing the exodus of 15,000 professionals – around 19 per cent of its workforce. The departures happened mainly at the junior level, that is, among assistant managers, managers and officers.

However, the Bank is now planning to hire from the National Institute of Design, the Indian School of Business (ISB) and the Indian Institutes of Technology (IITs). Axis is not the only one in India to do so.

According to the recruitment firm, TeamLease, the demand for technology roles in the Indian banking sector has also increased at six per cent CAGR over the last five years.

So, what is forcing banks to hire more technology professionals? It is the changing business landscape, which is now driven by technology and digitisation.

In a competitive market, where the focus will be on providing better service to customers and retaining them, the adoption of futuristic and disruptive technologies will be the key differentiator. Banking and financial institutions across the world are well cognizant of the fact that technology development will not be a one-time activity, but an ongoing process. It justifies the requirement of an in-house technology team.

Chandrashekhar Mukherjee

“When quantum computing comes in, the regular work will get reduced, and eventually lead to a reduction in headcount. At the same time, banks that rely more on technology for operations will employ more engineers. However, it’s not as though they will be run entirely by engineers; business will also require people with finance degrees.”

Transformers

In the first decade of this millennium (2000-2009), the key focus area for banks was customer walk-ins and face-to-face interactions. Between 2010-2019, the spotlight shifted to digital interactions and round-the-clock touchpoints. However, the next five years (2020-2025) will be all about app-based accounts, digital debit cards, biometric verification, video-call relationship management and servicing, and deposit-taking robotics-enabled ATM branches. Therefore, as banks merge their technology and business strategies, the emphasis of their IT functions will change from service delivery to value delivery.

A PwC study suggests that more than 81 per cent of banking CEOs are reconsidering the impact of digitisation in the finance world — and its evolution from a mere cog in the system to that of the key driver. Not to mention, its ability to shape and redefine business models and revenue streams.

The game is no more about mere customer acquisition, but customer retention. And banks realise that digitisation can help change the rules of the game and take customer convenience to new levels. Not just that — the inspiration to adopt new technologies and beef up in-house tech talent will be directly linked to profitability. A classic example of this is the Citi Group, an early adopter of technology and technical talent. It is estimated that Citi will be able to save $600 million in 2020, due to its efforts early on.

“Technology is now at the core of banking — whether it is to build greater customer intimacy, strengthen competitive differentiation or to drive effectiveness across the value chain,” points out Arun Krishnamurthy, head-HR, India, Barclays.

“India is an important market and talent hub for Barclays. We have invested significantly in building scale and capabilities across all of our footprint in India, technology in particular. Last month, we inaugurated the largest site for Barclays outside of our London HQ, in Pune, India,” shares Krishnamurthy.

Banks, be it global or Indian, private or PSU, have no other option but to integrate upcoming technology and leverage data and analytics in order to transform into smart banks that can identify and service customers’ needs.

For instance, Kerala-based South Indian Bank has launched unique digital initiatives, such as branchless banking for rural India and digital e-lounges that provide access to account- opening kiosks, cash recycling machines and cheque-deposit machines.

“When quantum computing comes in, the regular work will get reduced, and eventually lead to a reduction in headcount. At the same time, banks that rely more on technology for operations will employ more engineers. However, it’s not as though they will be run entirely by engineers; business will also require people with finance degrees,” asserts Chandrasekhar Mukherjee, erstwhile CHRO, South Indian Bank.

The new super hero

As technology spreads its tentacles over the modern banking system across the world, a new protagonist is emerging — the chief technology officer or the chief information officer. Over the years, the CTO’s role has changed from being a facilitator of the system to that of a key driver.

How did that happen? Technology’s role has moved beyond value preservation to revenue generation in banking. In the new ecosystem, the role of CTOs or CIOs is to balance critical business and IT operations with innovative infrastructure and applications that enable disruptive new business models, generate top-line value and drive competitive advantage.

Rituparna Chakraborty, co-founder and executive vice president, TeamLease, explains, “Before 2018, the key skills that a bank would seek in a prospective CTO/CIO candidate, was the ability to communicate business information to the technical teams, and good management skills. In the last two years (2018 and 2019), banks have started looking for primary skillsets, such as technical architecture and engineering skills. However, in the new year, the desired skills for a bank’s CTO/CIO are in coding and programming.”

Arun Krishnamurthy

 “Technology is now at the core of banking — whether it is to build greater customer intimacy, strengthen competitive differentiation or  drive effectiveness across the value chain.”

The growing importance of a CTO/CIO in the banking system is evident from the guidelines set by the Reserve Bank of India (RBI) for the appointment of CTOs in nationalised banks. The objective is clear — to state that the CTO’s role is of importance and a tactical one, and that it can only be fulfilled by a person with relevant expertise and experience.

For RBI, the appointment of qualified personnel as CTOs is crucial to strengthen and sustain the risk governance framework of banks. “Rapid innovations in banking and technology call for better risk governance in the areas of finance and technology,” the notification added. According to RBI, a CTO should be an engineering graduate, or hold a master’s degree in computer applications (MCA), or any equivalent qualification, with a five-year experience in banking information technology- related projects. The notification said that the candidate’s experience should include work on IT policy and planning, financial networks and applications, financial information systems, cyber security technologies and payment technologies.

The unprecedented pace of the technological changes in the world is another reason why the CTO’s importance has increased manifold. To stay ahead, the CTO/CIO will have to act in almost real time. Indeed, we are talking about leveraging data and tailoring solutions to meet customers’ needs on a real-time basis.

Besides ensuring smooth banking operations and developing innovative products, CIOs/CTOs will need to encourage both the leadership and the employees to embrace an agile fintech mentality.

The Frontmen

If the CTO is the new general in the banking system, the frontmen are the young techies. While the CTO lays down the roadmap, the tech brigade will have to churn out technology solutions proficiently. If these two are at the two extreme ends of the talent curve, there are mid-level tech professionals as well in between.

This talent war will be quite intense. Banks will compete with the hardcore technology companies to attract talent — many have already begun to do so. It is not an easy task. The attraction that technology professionals feel for the FAANG (Facebook, Amazon, Apple, Netflix, Google) companies is strong. One may even add companies such as Tencent, Baidu and Ant to the list.

To lure a tech professional to join a banking organisation, the incentive has to be strong and of a higher value – and we are not talking about value in terms of financial benefits. According to HackerRank Developer Skills Report 2019 – based on interviews with 70,000 developers – ‘professional growth and learning’ is the top priority for developers across levels and this criterion is above ‘competitive compensation’. It implies that a tech company may be better poised than banks to lure tech developers with interesting projects, massive amounts of data to work on or some cool, interesting problems to solve.

Culture quotient

To win this war of talent, banks and financial organisations will also have to undergo several levels of transformation. Otherwise, they may have to be content with mediocre talent.

First, the banks need to do away with their rigid and bureaucratic system and adopt a more agile culture. The traditional segmentation of front- and back-office functions will not do; instead, multidisciplinary teams will need to work together on well-defined tasks. There are some tangible benefits as well in doing so. A non- bureaucratic setup with non-hierarchical, multidisciplinary teams that are co-located, will deliver projects much faster. Armed with more power to take decisions and not be entangled with the bureaucracy, the banks will be able to take greater risks with certain projects. The reason for this is understandable: the consequences of failure on small-scale releases are quite manageable.

Next, the banks need to work on their employer value proposition (EVP). HackerRank’s research reveals that close to 60 per cent developers may stay away from a prospective employer, which is not aligned with their own culture or values. One way the banks are altering their EVP is by rebranding themselves as ‘tech’ companies. Lloyd Blankfein, CEO, Goldman Sachs, says the bank is now a tech company and roughly one-quarter of its 33,000 employees are engineers.

Some banks have gone a step ahead and earned a status based on their technical expertise. As per the consulting and research firm, DarwinX, among banks, ING has the most tech-intense workforce and is best equipped in next-generation infrastructure talent. ANZ shows the best-equipped workforce in terms of data and machine learning talent, whereas Goldman Sachs is the most tech talent ‘hungry’, with the most tech job offers. In India, banks will have to cover a mile to be able to achieve such status and attract the right talent. They need to realise that winning the war on tech talent is not just about having a large tech team, but also about having the right skills and talent.

Friend in a foe

It may be early days, but banks are facing some competition from fintech companies, that have made it big, and even some that are still growing. Fintech startups thrive on innovations and ideas — the adoption of the latest technological capabilities, coupled with the ability to change at breakneck speed, have wiped out any entry barriers and allowed them to compete with financial giants.

This competition will only get more intense in the times to come. With technology increasingly becoming an imperative in Indian households and digital servicing domains, the next-generation customers are likely to place their trust in robots or artificial ‘chat bots’. Watch out for advancements in applications of artificial intelligence (AI), machine learning (ML), blockchain and robotics, with fintech as the next big driver. This will enable much-enhanced operational efficiency, rental savings, digital currency, robotics, quality control and analytics-driven collections strategies to replace existing KPIs.

What about banks, which are unable to set up differentiated technological expertise or a robust inhouse tech team? There is still a winning formula available to them if they collaborate with fintech companies. In fact, collaborations between legacy banks and fintech companies are on the anvil.

Rituparna Chakraborty

“Before 2018, the key skills that a bank would seek in a prospective CTO/CIO candidate, was the ability to communicate business information to the technical teams, and good management skills. In the last two years (2018 and 2019), banks have started looking for primary skillsets, such as technical architecture and engineering skills. However, in the new year, the desired skills for a bank’s CTO/CIO are in coding and programming.”

Already, NIRA, a fintech company, partners with Federal Bank on bringing out the balance sheet at the lowest cost. Banks can take deposits, so their cost of funding is lower than any other company. There will be more areas of cooperation between the two in future.

Rohit Sen, an established banker and founder of NIRA, says, “My view is that, in India, we are beginning to see it already — there are several partnerships between fintechs and banks. Since each one has its own strength, they can benefit from synergies.”

Banks are certainly on the change curve. The good news is that technology plus regulations is unlocking the banking value chain. How a bank acts now will decide whether it will win or lose in the future.

(This article first appeared in HRKatha magazine.)