How compliance tech empowers banking business growth

In banking technology, the quest for innovation and efficiency is relentless.

Adaptix's engagement with nearly 200 banks revealed a common thread — the complexity inherent in their application frameworks. These frameworks, like complex networks of boxes and wires, range across assets, from front to risk to back-office activities.

The primary goal for banks is simplification through shifting toward integrated systems, streamlining data and developing a more efficient way of working. However, the persistent backlog of regulatory reporting, intensifying since 2008, demands significant attention, as illustrated by the escalating volume.

This blog looks at the strategies adopted by different banks to balance business growth and compliance amid evolving challenges.

 

Different strategies, different outcomes

 

Here’s a short story of two banks we‘ve worked with for the past 9 years: Guardian Bank and Vanguard Bank.

Guardian Bank

Guardian Bank began its technological transformation journey in 2014, aiming to reduce costs. For almost 9 years, the bank executed a long-term program to implement a consolidated system. This approach reflected a traditional big-bank mindset, with teams focusing on day-to-day operations and regarding money spent on technology as a cost.

Despite investing significantly and executing large programs, Guardian Bank faced challenges in achieving its ambitious targets. As processes became more complex, the bank experienced delivery delays, and the expected business value failed to materialize. To date, Guardian Bank is still grappling with technological challenges, spending extensively without realizing the desired outcomes.

Vanguard Bank

In 2014, Vanguard Bank adopted a different approach, focusing on agility and incremental value. The bank initiated transformation by reorganizing teams into DevOps structures, seamlessly aligning business and technology. Initially hampered by obstacles, this senior-management-sponsored approach proved successful. By implementing unified backlogs across all systems and dynamically monitoring backlog prioritization, the bank delivered incremental business value every 2 weeks.

After 9 years, Vanguard Bank stands as a testament to the success of this strategy, maintaining regulatory compliance while achieving continuous business value and technological progress.

 

Market trends: Increasing compliance costs

Figures from a 2022 analysis of the UK market emphasize the significant financial burden on banks. On average, companies spend a staggering £200 million on compliance technology, varying costs for small banks (£83 million) and retail banks (£264 million). UK financial services experienced a 19% increase in spending over 2021, reaching £34.2 billion a year. Moreover, 32% of banks anticipate compliance costs exceeding 5% of revenue. And projections predict an 8% blanket increase over the next 3 years. These trends highlight the pressing need for banks to navigate compliance challenges efficiently.

 

Aligning technology with business: Four key concepts

 

Here are four central concepts to help navigate the complex landscape:

1. View through a business lens

Like any other enterprise, banks must base decisions on cost, revenue, compliance and profitability. Focusing on these fundamental elements when presenting projects to senior management is crucial.

2. Optimize the human capital workforce

Workforce statistics from a McKinsey study revealed the stark reality: Between 25% and 40% of teams' workloads are about writing code, leaving 60-75% for coordination and daily operations. With 90% of employees classified as junior or mid-level, banks lack senior expertise.

This situation calls for reskilling rather than firing-and-hiring (echoed by the McKinsey study, which states that reskilling is 20% more effective). Empowering automation and autonomy (as seen in the Vanguard Bank case) is imperative for optimizing workforce productivity.

 

Workforce calibration is key

 

3. Consider technology through business impact

Demonstrating that technology (e.g., outsourcing, AI, DevOps and cloud) is not simply a cost-reduction tool but a driver of business impact. Each technology is explored in terms of achieving revenue and speeding up time-to-market.

For instance, outsourcing extends beyond cost reduction. It enables banks to expedite time-to-market as offshore locations can hire hundreds of people rapidly. This acceleration in product delivery allows banks to gain a competitive advantage by first introducing new products and capturing a larger market share.

Another example is cloud, which serves as a business enabler, not just a cost reducer. By providing on-demand resources, enabling flexible calculations and ensuring business continuity, cloud allows for broader business evolution. It transforms infrastructure from a constraint into an enabler, aligning technology with business goals.

4. Implement a strategic roadmap

 

The transformation journey begins with team modernization, as demonstrated by Vanguard Bank. Establishing C-level-sponsored DevOps processes forms the foundation. This approach spreads across teams, ensuring incentives, role clarity and effective monitoring of velocity and work quality.

A pivotal strategy involves dividing programs into manageable phases. This phased approach aligned with funding strategies triggers quick returns on investment. Also, by reallocating cost savings from one phase to the next, banks can achieve business value at the same cost, creating a sustainable and cost-effective transformation journey.

Finally, implementing a target operating model (TOM) provides North Star guidance. Banks are encouraged to visualize a model where every project aligns with the ultimate business and IT objectives.

In other words, without a clear TOM, a bank might approach regulatory reporting as a standalone task, focusing solely on data collection and report creation. In contrast, a TOM guides the development of regulatory reports in line with the broader vision for dataflow and consolidation. This ensures that each reporting project contributes to long-term objectives, promoting efficiency and strategic alignment across the organization.

 

In closing

 

Once again, we stress the vital nature of strategic clarity and adaptable decision-making in technological integration, compliance and delivering business objectives for banks. Seamless alignment, human capital optimization, the rationalization of business impact and a methodical roadmap build a robust framework for transformation.

Adopting a TOM and ensuring projects enhance efficiency and contribute cohesively to achieving long-term goals is essential. It transforms the burden of regulatory compliance into a business catalyst, prompting banks to shift from defensive to offensive strategies.

So, which strategic approach resonates most with your organization's mindset?

• Prioritizing compliance and risk mitigation. Technology cost is high but necessary
• Focusing on seizing opportunities within regulations. Tech investment helps drive business
• It depends. The strategy is driven by how complex our legacy technology is and the teams’ bandwidth

ADAPTIX is remarkably successful in resolving issues and delivering whichever approach our clients favor. Here’s how you can find your decision model:

• Strategize: Lead with clarity, uniting technology and business for effective change
• Architect: Build agile teams that enhance business practices while following regulations
• Execute: Drive your transformation with adaptable decision-making, considering revenue, cost, and risk

 

Let’s talk

 

If you’d like to learn more about how Adaptix Solutions’s compliance technology empowers banking business growth, visit our website or contact us.

 

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