Convergence strategies for retail banking

IT plays an integral role in retail banking service and relies on high-quality networks for all service delivery channels. To evolve toward converged solutions, an open and flexible architecture is needed that focuses on delivering value to clients through communications-intensive applications.

After several years of strong revenue and earnings performance, banks face a number of business realities. Changing regulations and legislation in the financial services industry present both opportunities and challenges. Opportunities arise as financial institutions are allowed to offer an ever-broader range of services; challenges involve achieving regulatory compliance in a timely fashion. Recently declining mortgage and deposit revenues are driving banks to seek new revenue streams as well as placing pressure on profit margins. Revenue growth is increasingly dependent on acquiring new customers and improved cross-selling of products and services. Branch investments have to be undertaken, while optimising the use of service delivery channels to minimise transaction costs and maximising the opportunities to grow revenues and products per customer.

To address these business realities, retail banks need to continue to leverage IT for competitive advantage. It is less about the technology itself, and more about execution leveraging the installed base, minimising risk and basing evolution on solid business foundations. Nortel's Architecture for the Converged Enterprise is a standards-based roadmap for ongoing network planning, design and implementation towards convergence.

Business convergence

Convergence is not about driving a wholesale change-out of existing equipment and replacing it with an IP Telephony system - it is the unification of existing and emerging information technology to focus and optimise business value.

Convergence has been happening in retail banking for decades, while managing customer relationships across multiple physical and virtual delivery channels. Convergence can take many forms:

• Network convergence gains economies by standardising the IP suite of protocols, as well as ethernet, and by leveraging optical networking for improved price/performance.
• Communications convergence enriches interhuman interactive communications through increased mobility, personalisation and rich media.
• Application convergence delivers improved customer interaction in real time.
• Business convergence eliminates the boundary between service delivery channels, various product groups (for example, credit cards and mortgages) and various functional groups (for example, in support and sales).

Convergence is part of the answer to some of the challenges and can result in greater customer loyalty and revenues, increased employee effectiveness, and lower operating costs. While convergence may highlight the critical need for application, data, service and network continuity, and disaster recovery, as well as for security, these requirements have to be met today to retain customer trust, to meet competitive pressures and keep the business viable. Key drivers for IT investment are:

• Regulatory compliance, which was chosen as the most important investment in 2004 by 42 per cent of retail banks surveyed in Datamonitor's Financial Services Technology Survey
• Upgrading the branch network infrastructure for increased functionality and overall lower total cost of ownership
• Teller/service re-engineering driven by banks' objectives to increase the number of products per customer and improve service provision in the branch
• Management of multiple electronic channels for improved customer experience and improved margins

Retail banking convergence strategies

Communications solutions provider Nortel believes that convergence is an important tool for retail banks - it addresses the issues, challenges and opportunities inherent to the industry. Nortel has identified five important convergence strategies.

• Converged applications in the branch. Convergence is the foundation for fully leveraging the branch as a cross-selling channel and for re-engineering the branch network for improved scalability, performance and reliability. Convergence can take many forms. The converged desktop combines the standard digital phone with the power of the PC. For example, incoming calls can be displayed along with the relevant information on the PC as part of incoming and outgoing call management; click-to-call from corporate directories or desktop applications such as email and documents can minimise re-keying errors and make staff more efficient; and management of conference calls and voice mail is greatly enhanced through visual displays.

Application convergence takes this a step further. It delivers real-time multimedia collaboration capabilities between in-branch personnel and banking expertise in other sites and a strong coupling with business applications. This can be part of a business model that leverages all staff (whether at the branch or not) to serve customers better, and of an e-learning environment that keeps branch staff up-to-date on the latest bank services and products.

The business drive to up-sell customers and the reality that skills may be distributed creates a new opportunity to serve the customer better through improved collaboration among bank representatives. Application convergence in the form of SIP-based multimedia collaboration addresses this need effectively through presence management, personalisation, application sharing, secure instant messaging and the convergence desktop. Video collaboration can be integrated into traditional transactional data platforms; this would be particularly valuable in dealing with customers using appropriately equipped banking kiosks.

• Eliminating the branch access bottleneck through convergence. A major obstacle to web enablement of retail banking applications and to the delivery of convergence at the branch level is available branch bandwidth. Many branch networks are still operating at 128kbps with ISDN back-up for data, and have additional CO trunks for incoming and outgoing voice calls and fax, and for surveillance circuits. This is inefficient and inadequate to deliver convergence at the branch level. The long-term objective is to move all voice and data traffic onto a single IP network, driving the need for broadband facilities at every branch, but this may be perceived as too risky. Convergence achieved by moving all traffic to IP is not readily justifiable. That said, other forms of convergence can enable broadband access while delivering added business value.
• Converged virtual contact centre. Contact centres, including self-serve voice portals, are an important resource in serving customers, whether wired or wireless, PC-enabled or just using a phone, looking for a branch, account or product information and services. Directing customers to the best channel to optimise opportunities for up-selling and/or minimising transaction costs is an important requirement, as is the need to offer an increasingly personalised service. The new service model calls for engaging customers through a balanced blending of contact centres and web and voice self-serve applications. Convergence can positively impact both the top and bottom lines in interacting with customers over various electronic media. Convergence can enhance customer service through web enablement of contact centres and through self-serve applications based on advanced speech recognition technologies.
• Secure converged mobility, nomadicity and connectivity on demand. Mobility is the ability to move around and stay connected through wireless technologies, at a branch to offer a concierge service or at a regional site. Nomadicity is the ability to get connected wherever you happen to be (home, hotel room) through both wired and wireless technologies - a capability that has real value for branch managers, executives and contact centre agents. In both cases security is paramount. Convergence for mobility and nomadicity allows employees to take connectivity to the customer, and their work environment with them, wherever they are and whenever they want.
• Converged optical backbone. Many financial institutions, including retail banks, have invested in SANs, driven by the exponential growth of information that needs to be made available across applications, and the business requirements to use this information for competitive advantage and to engage customers. SANs can be differentiated according to whether they operate within a single data centre (SAN switching), or between sites (SAN extension). SAN extension is critically important to address the business and regulatory needs of disaster recovery and business continuance. ERF

Further information

Nortel
Tel: +44 870 907 9009
Fax: +44 1628 432 089
Email: euroinfo@nortel.com
Website: www.nortel.com