A Frost & SullivanWhite Paper

Brian Cotton, PhDand

Juan Fernandez

www.frost.com

50 Years of Growth, Innovation and Leadership

Growth in a New Era: Enabling Competitive Banking With Smarter Computing

Frost & Sullivan

CONTENTS

Abstract........................................................................................................... 3

The New Banking Environment: Regulations, Revenue, And Trust .................. 3

The Business Need for Smarter Computing in the Banking Industry ............ 7

The Business Value of Smarter Computing in the Banking Industry .............. 11

Building a Competitive Bank on a Smarter Business Infrastructure .............. 14

References ....................................................................................................... 16

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ABSTRACT

After surviving the financial meltdown in 2008, the banking industry finds itself at acritical juncture. A slow economy restrains the potential for increasing revenue,while new complex regulations add high levels of uncertainty to the industry. Thebanking industry is also evolving in response to new technology and new customerdemands. Online channels and mobile payments banking have changed the landscapefrom branch-based to personal banking. Banks are faced with the challenge to findnew revenue streams while containing costs, and many are now turning to aSmarter Computing approach to meet the challenges and stay competitive.

Smarter Computing can help turn banks into lean, agile competitors, while helpingensure adherence to regulatory compliance objectives. It can guide banks’ ITdepartments along the path of transforming the IT infrastructure to support theimperatives of a responsive, efficient, and reliable business infrastructure. A number ofprogressive banks around the world are implementing a Smarter Computing approach,including Bilbao Bizkaia Kutxa (BBK), TMB Bank Public Company Limited (TMB Bank),Zürcher Kantonalbank (ZKB), and Banco Pastor. Together with IBM, they are beginningto realize the benefits of Smarter Computing to help them meet the needs ofdemanding customers, and succeed in a competitive, cost-conscious environment.

THE NEW BANKING ENVIRONMENT: REGULATIONS, REVENUE,AND TRUST

The banking environment today is rapidly moving away from the pre-recessionstatus quo. As the upheavals spawned by the economic recession reverberate acrossthe world, banks are being forced to change their product-oriented business modelsand become more competitive for customers. As well, new regulations arecompelling banks to adjust established practices to meet recently enactedcompliance standards. The Dodd-Frank Wall Street Reform and ConsumerProtection Act, Basel III and Solvency II, for instance, have specific liquidity andcapital requirements for financial services institutions.1 These regulations areexpected to help banks mitigate risk, but they are also intended to address a criticallack of consumer confidence in banks, particularly in mature markets.2

Although aimed at risk issues, these regulations are impacting revenue growth byconstraining traditional fees-based methods of raising revenue. The DurbinAmendment, for instance, is expected to cause declines of $5 billion annually fordebit interchange revenues, in addition to a $15 billion reduction in overdraft fees.3

As a result, a renewed focus on cost containment and efficiency is often a top-of-mind for most banking executives.4 Incremental measures to improve efficiency,such as restricting branch hours and automating more types of transactions, arebringing some bottom-line relief, but transformative costs reductions that get tothe core of doing business are becoming essential.

“In banking, trust ismore about what abank is—howcustomers feel aboutbanking there—ratherthan the products thebank offers.”

—John Wood and Paul Berg,“Rebuilding Trust in Banks”

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The most critical factor in the new banking environment is a radically changeddynamic in the relationship between a bank and its customers. To begin, there is ageneral lack of trust in banks. A recent Gallup poll revealed that more than four infive Americans distrust banks.5 Moreover, technology, in the form of smart phones,social media, and pervasive and rapid access to information, has changed the wayindividuals interact with banks. The proliferation of social media, in particular, meansthat customers and banks can communicate with each other, and customers canshare information about banks in their community. Armed with more informationand an ability to influence others, consumers are better informed and demand aconsistent experience across all channels. The banking industry needs to rebuild thebasis of relationships with its customers, becoming customer-centric rather thanproduct-centric. As the authors of the Gallup analysis conclude, “In banking, trust ismore about what a bank is—how customers feel about banking there—rather thanthe products the bank offers.” 6

All of this means that personalized offers and services are becoming critical tobanks’ success. For instance, the top-performing U.S. banks in 2011, according toJ.D. Power & Associates, have a single common practice: a focus on the customerthat provides “products and services to fit a customer’s needs, including lifestyleand access with online and mobile tools”.7

The combination of stringent new regulations enacted around the globe, cost-cutting pressures, and technologically-savvy and empowered customers are movingbanks to consider new models and approaches to their business. Those institutionsthat are capable of succeeding in the process of transformation will likely surviveand thrive into the new era, whereas the others will likely lose value and eventuallybe absorbed by consolidation.

The challenges of the banking environment create complexity for banks, and this isrequiring them to transform their business models and the technology thatsupports them in order to be competitive. This transformation process is guided byfour vital banking imperatives, as shown in Figure 1.

Increase flexibility and streamline operations to drive a simplified enterprisewith greater agility that can balance growth with efficiency and business resiliency.

Create a customer-focused enterprise with new intelligence about customerrequirements, preferences and behaviors, developed by optimizing customer dataand using analytics to cultivate client-centricity and rebuild trust.

Optimize enterprise risk management to achieve compliance objectiveswhile mitigating operational, f inancial and IT risk, while fighting crime andboosting financial returns.

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Drive innovation while managing cost in a bank’s back-office payments andtransaction processes to better serve consumer and commercial customers, whileaddressing new regulations and risks.

Figure 1: Imperatives Guiding the Transformation of the Banking Industry

Source: Frost & Sullivan analysis and IBM

The imperatives shown in Figure 1 revolve around how a bank can transform itsbusiness model to be more efficient, attuned to the customer, and more responsible.The transformed model enables banks to adopt the lessons from the retail industry,shifting from a product focus to a customer focus and adopting a highly efficientstance, while adhering to regulatory mandates specific to the banking industry. Thisallows them to develop highly personalized relationships with their consumer andbusiness customers, and strengthen their loyalty. It enables a bank to develop a single,master view of each of its customers, and use it to guide product development andmarketing. This can be particularly important for banks as they develop relationshipswith customers holding multiple accounts. Finally, the new model empowers thecustomer to select their methods and channels of interaction with the bank, whileletting the banks learn from social media so that a customer’s suggestions andfeedback are able to build a bank’s brand. The bank that embraces these imperativescan become a lean, informed and versatile organization capable of driving operationalefficiencies and growth. The key requirement of this success is the need to upgrade abank’s IT infrastructure to handle the demands imposed by these imperatives.

Increase Flexibility & Streamline Operations

• Detailed View of Business Architecture• Detailed View of the IT Architecture• Create Agility in Core Banking

Processes• Staged Transition of Core Banking

Legacy Applications

Drive Innovation while Managing Cost

• Process, Manage, Measure, & Monitor Consumer & Commercial Payments

• Integrate Horizontal Payments & Treasury Capabilities Within a Bank

• Enable Cash Management & Supply Chain Finance

• Rapidly Adapt to New Risks & Regulations

Optimize Enterprise Risk Management

• Integrate Finance and Risk Data• Monitor Real Time Transactions• Automate Risk and Regulatory

Compliance• Institute Proactive Risk Management• Detect, Report, & Prevent Fraud and

Other Financial Crime

BankingIndustry

Transformation

Create a Customer-Focused Enterprise

• Customer Care & Insight• Multichannel Customer Experience• Develop a Single, Enterprise View

of the Customer• Cross Channel Campaign Management

& Targeted Marketing

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The conundrum for many banks is how to support these imperatives with an ITarchitecture that is collaborative, scalable, secure and integrated if their currentsystems do not have these characteristics. In the current atmosphere of financialefficiency, banks need to ensure that they are getting the most out of their installedinfrastructure. This means that the smarter IT architecture should be able to bebuilt on a bank’s existing infrastructure, and need not be a compete replacement ofthe existing equipment. Scalability is important to enable a bank to respond toincreased demand, such as customer response to promotions or market-basedevents. The systems must also support high-performance computing across multipleworkloads to accommodate large numbers of transactions across multiple channels.The infrastructure also needs to be flexible to adapt to changes in demands andnew applications, freeing IT managers to direct resources where they are neededmost. The architecture must also be reliable and robust to ensure constant uptime.Finally, it is crucial that the infrastructure be standardized to close gaps in theexisting architecture, governance rules, and process management simultaneouslyacross the enterprise. Many banking IT infrastructures have often beenimplemented without these necessities as top considerations, or as a result ofmerger and acquisition activity they are not part of an integrated design, andtherefore fail to interoperate smoothly.

Banking industry leaders are beginning to seek advanced IT solutions to help thembecome more competitive and remain compliant. Forward-thinking bank CIOs arestarting to transform their IT infrastructures to respond to the imperatives driving newbanking business models. These infrastructures must accommodate a constantly updatedstream of information from customers and partners through multiple channels, feedinginto analytic platforms that enable quicker reactions to changing customer preferencesand operational conditions. They also need to perform complex information capture andprocessing efficiently, and to support different types of operational models to keep costsdown. Smarter Computing is an approach that can help banking industry CIOs transformtheir IT infrastructures to address these imperatives.

Key Infrastructure Requirements

• Scalability

• Performance

• Flexibility

• Reliability and Availability

• Standardization

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THE BUSINESS NEED FOR SMARTER COMPUTING IN THEBANKING INDUSTRY

Introducing Smarter Computing

Smarter Computing is a new approach to transform IT systems to enable banks tobecome more focused on the customer, while managing risk and exercisingefficiency. This approach is based on three fundamental capabilities:

• Designed for Data involves designing an IT infrastructure to harness allavailable information, including real-time streaming data, to unlock insights forbetter decision-making. It is about extending beyond traditional sources of datato generate insights by leveraging new forms of information, which can beincorporated into a bank’s information supply chain to reduce operationalcosts, master a single version of a customer profile, simplify data security, andget insights from huge volumes of complex data.

• Tuned to the Task reflects matching workloads to systems that are optimizedto the workload characteristics, ranging from transaction processing anddatabase management, to business intelligence and analytics, to managingcommunications across branches and business units. Optimizing the systems tothe workloads enables greater performance and efficiency, helping CIOsmaintain a lean operational profile.

• Managed with Cloud Technologies gives CIOs the ability to changeoperations to support evolving business models and enable delivery methodsthat bring greater efficiencies out of existing IT assets, and deploy resourcesflexibly, dynamically and quickly to multiple branch locations and partners in acost-effective manner.

Smarter Computing supports business transformation by creating a technologyframework to enable business operations that realize the business imperatives, andgenerates business value in a competitive, cost-conscious environment. The SmarterComputing approach in the banking industry revolves around how customers’ andbanks’ operational data is collected, processed, analyzed, saved, and shared. The ITinfrastructure that supports the model’s business operations delivers business valueby using data to guide decisions, by using optimized systems to maximize efficiency,and by leveraging the cloud to transcend administrative silos and legacy systemlimitations. Figure 2 illustrates the application of the Smarter Computing approachto banking industry innovation.

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Figure 2: Smarter Computing and Banking Industry Transformation

Source: Frost & Sullivan analysis

Bank CIOs can use Smarter Computing-based IT infrastructures to carry out theoperations underlying their transformation imperatives. Because a bank’s variousbusiness operations have different characteristics, workload-optimized systemsyield efficient computing infrastructure designs. The efficiencies lie in systems thatare flexible enough to meet peak-level workload demands, such as increasedtransaction activity during paydays or seasonal shopping, and enable resources to bedeployed elsewhere during off-peak periods. Smarter Computing’s cloud capabilitiesfacilitate the deployment and implementation of new processes and models thatgive managers a unified view of a bank’s business architecture. By being able tocapture all available data for advanced analysis, a Smarter Computing infrastructurecan help managers predict customer preferences and behaviors, develop improvedrisk profiles, and make decisions accordingly. Importantly, the approach gives CIOscontrol over capital and operational expenditures because existing ITinfrastructures can be transformed and need not be completely replaced. SmarterComputing can help turn banks into lean, agile competitors, while helping ensureadherence to regulatory compliance objectives.

Banking Organization Transformation

Increase Flexibility & Streamline Operations

• Detailed View of Business Architecture

• Detailed View of the IT Architecture

• Create Agility in Core Banking Processes

• Staged Transition of Core Banking LegacyApplications

Create a Customer-Focused Enterprise• Customer Care &

Insight• Multichannel

Customer Experience• Develop a Single,

Enterprise View of the Customer

• Cross Channel Campaign Management & Targeted Marketing

Optimize Enterprise Risk Management

• Integrate Finance and Risk Data

• Monitor Real Time Transactions

• Automate Risk & Regulatory Compliance

• Institute Proactive Risk Management

• Detect , Report, & Prevent Fraud andOther Financial Crime

Drive Innovation While Managing Cost

• Process, Manage, Measure, & Monitor Consumer & Commercial Payments

• Integrate Horizontal Payments & Treasury Capabilities Within a Bank

• Enable Cash Management & Supply Chain Finance

• Rapidly Adapt to New Risks & Regulations

Business Imperatives

Process Automation Business Process Management

Data Warehousing Customer Intelligence Business Intelligence Transaction Processing

Data Storage, Sharing, & Management

Physical World Interfaces (Channels, Branches) & Data Acquisition

DESIGNED FORDATA

WORKLOADOPTIMIZED

CLOUDENABLED

Real-time Detection of Fraudulent Activity

Customer-Specific Offers and Outreach Activities

Lowered Cost of Operations Through Virtualization and Consolidation

SMARTER COMPUTING-BASED IT INFRASTRUCTUREBusiness

Operations

Business Value

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Increase Flexibility and Streamline Operations

A bank increases its business flexibility and agility, and streamlines its operations bytransforming at its core. This requires a CIO to understand the businessarchitecture at a component level, and then optimize the IT infrastructure from asimilarly componentized perspective to support it. It also involves designing ITsystems that can efficiently process, manage, measure, and monitor high volumes oflow-value payments from customers, while also managing critical payments frombank to bank, bank to clearinghouse, and from country to country. Finally, it entailsintegrating horizontal and reusable payments and treasury capabilities across allpayment products within a bank.

Banking CIOs can use Smarter Computing to streamline an IT infrastructure byvirtualizing and consolidating applications and operations in a cloud computingmodel. They can also apply advanced data warehousing, analysis, and managementtechniques to develop authoritative and dynamic records. At the same time, they canuse IT components and systems optimized for transaction processing to integrate andmonitor deposits, payments, and other transactions across multiple channels.

Smarter Computing can help bank CIOs gain additional business value by:

• Fostering a component-level view of the business model on which a CIO canimprint the bank’s strategic imperatives and determine which areas of theoperations need attention to deliver on the overall strategy.

• Modularizing the IT architecture into fundamental building blocks, enabling corearchitectural transformations quickly and with more control, without businessdisruption or unanticipated costs.

• Supporting adaptable and efficient processes for account opening andmanagement, product bundling, and dynamic relationship pricing to help bringproducts and offers to market more quickly.

Create a Customer-Focused Enterprise

Creating a customer-focused enterprise in the banking industry means (1) creatingenterprise-wide capabilities to enable and support informed judgment and decision-making, (2) adopting a client-centered perspective, and (3) using these capabilities andperspective to drive profitable growth. The key to realizing this imperative isunderstanding customer buying behavior, gaining a deep insight into their profitabilityand risk, and using this intelligence to develop the right offerings, to the rightcustomers, at the right time and place. Savvy bankers will house this intelligence in anauthoritative single view of a customer across all of their account relationships withthe bank, their transactions, and their service requests and inquiries.

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Bank CIOs can use Smarter Computing to transform their IT architectures toharness the wide variety and massive volumes of customer data, and to applyadvanced analytic engines to develop new streams of intelligence. They can usecloud-based models to renovate and extend channel IT architectures andconsolidate services to provide a common customer experience across all channels.By the same token, they can use a Smarter Computing architecture to developtailored offerings and manage cross-channel campaigns. Optimized systems can thenhandle spikes in customer response and activity, such as when a new campaign islaunched, as well as provide high levels of transaction security across all channels.

Additional value from applying Smarter Computing to develop new intelligence canbe in the form of:

• Increased revenue from customer-focused offerings and promotions thatincrease cross-sell and up-sell opportunities

• Improved customer loyalty and retention rates

• Extended customer touch points, including mobile banking and social media forums

Optimize Enterprise Risk Management

Even as a bank becomes a financially lean and agile competitor, it must achieveregulatory compliance objectives, mitigate operational risk, and fight financial crime.A Smarter Computing approach can enable integrated risk management capabilitiesto deliver compliance across voluntary and mandatory requirements. Workloadoptimized systems can be used to monitor real-time transactions, and to apply fraudanalytics to the data streams to predict and detect fraud, proactively controlling abank’s risk exposure. Smarter Computing infrastructures can also automatetransaction and business processes tracking and reporting to help ensure compliance.

Smarter Computing can provide additional business value in integrated riskmanagement initiatives by:

• Supporting continuous, comprehensive risk monitoring and analysis

• Enabling real-time risk monitoring and reporting, while automatically detectingfraudulent activities

• Ensuring more accurate risk profi l ing based on authoritative , s ingle viewsof customers

• Increasing profitability by reducing nonperforming loan ratios and loweringcost-to-income ratios

Competitive Banking

Drive Innovation while Managing Cost

In a competitive environment, a bank’s capability to innovate in its core paymentsand transactions services is an asset. The business processes underlying bringingnew services to market, and transforming legacy services into cost-effectiveservices, are based on an agile and efficient business infrastructure. The SmarterComputing approach can help establish the IT foundations to support theimperative to drive innovation while managing cost by using workload-optimizedsystems to process, manage, measure, and monitor high volumes of low-valuepayments from individual consumers. They can also be used to handle paymentsfrom online or mobile phone channels, and scale to meet increases in these typesof transactions. Infrastructures using a designed-for-data capability can capturecritical data from commercial customers to help make payments more efficient,including cash management and supply chain finance.

Smarter Computing can also return value to the organization by:

• Framing payment operations restructuring to comply with regulations, and beinherently adaptable to address new risks and regulations as they arise

• Enable integrated, horizontal, and reusable payment and treasury capabilitiesthat can be used across payment products offered by a bank

THE BUSINESS VALUE OF SMARTER COMPUTING IN THE BANKINGINDUSTRY

Banks are facing an unprecedented set of challenges that are forcing changes intheir business models. The aftermath of the economic recession is spawning newregulations on liquidity requirements and risk mitigation. Newly empoweredbusiness and consumer customers are starting to demand more from banks. At thesame time that traditional revenue sources are closing down, banks are searchingfor new revenue streams based on a stronger focus on their customers, rather thanon products. Competition among banks for this business is increasing, and thesuccessful firms will be those that consistently deliver a superior and smarterbanking experience to their customers. Commercial success will also depend ontightly integrated risk management, and smarter and more efficient operationsAll ofthese factors are driving banks’ IT departments to transform their ITinfrastructures to adapt to the imperatives of today’s environment and be morecompetitive to win customers’ trust and loyalty. Some progressive organizationshave embraced the Smarter Computing approach to direct their transformation tomeet these imperatives and are seeing benefits.

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Bilbao Bizkaia Kutxa: Smarter Banking in Spain

The global economic collapse caused banking regulators across the world to takestrong steps to ensure the health of their national banking systems. In 2010, theBank of Spain mandated that several of the county’s smaller regional banks mergeand combine their assets to be stronger, and to create a more competitive bankingsector. This presented an attractive business opportunity for some of the strongerbanks, which could expand their scale and develop a new, more competitivebusiness model. However, substantial challenges from heterogeneous regional taxrules, labor issues, and governance guidelines needed to be addressed before thebanks could seamlessly merge with each other.8

Bilbao Bizkaia Kutxa (BBK), headquartered in the Basque region and being one ofthe larger regional banks in Spain, saw an opportunity in this new environment. BBKis the country’s third largest savings and equity bank, and it decided to acquireCajaSur, another regional bank almost as large as BBK itself. BBK realized thatbecause its recent growth outstripped the capacity of its IT architecture to keep upwith expanding data volumes, the prospect of integrating CajaSur’s operationsmeant that it needed to upgrade its IT architecture to pursue its acquisition. Notonly would the bank’s IT systems need to handle larger volumes of differing typesof data, but they would also need to guarantee security, resiliency, and efficiency tomeet regulatory and operational requirements. BBK’s IT management decided topartner with IBM to apply a Smarter Computing approach to support its newbusiness model and put it on a more competitive footing.

The main goal of the initiative was to use as much of BBK’s and CajaSur’s existingIT architectures as possible, while ensuring that the new workloads could behandled efficiently. BBK also had to keep the total cost of computing low, optimizingcomputing resources across the combined companies’ operations. The project teamdecided to replace two older servers with two new mainframe systems, built witha number of specialty engines to handle data and transaction processing workloadsfor the bank’s business intelligence, enterprise resource planning, and customerrelationship management tasks, as well as advanced security and encryptionapplications. By applying components into the architecture that are tuned forspecific tasks, the system was designed to help free up general computing capacityand lower the overall total cost of computing for these critical operations.Moreover, the BBK and IBM teams decided to deploy a virtualization layer across allof the servers running the BBK and CajaSur desktop computers, enabling bothbanks’ systems to be managed side by side in the cloud. This helped BBK avoid theneed to purchase new PCs and keep the administrative burden low.

By implementing a Smarter Computing approach to supporting BBK’s acquisition ofCajaSur, the bank was able to save more than €1 million that would have beenneeded in equipment and management time had the bank gone with a traditionalapproach to its IT architecture. In addition to the capital cost savings, BBK also was

By implementing aSmarter Computing

approach to supportits acquisition of

CajaSur, BBK wasable to save €1

million in IT capitalcosts and 20 percentin operational costs.

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able to reduce its IT costs by 20 percent annually and boost staff productivity by30 percent.9 With a Smarter Computing-inspired architecture in place, the bank hasa highly scalable, resilient, and secure IT system that can support future growthopportunities in the competitive European banking environment.

Zürcher Kantonalbank: Using Smarter Computing to Meet Some of theWorld’s Most Stringent Regulations

Swiss banks face some of the world’s most stringent regulatory requirements. Longknown for setting the standard in the banking industry, big Swiss banks havetraditionally been subject to layers of rules that exceed international standards (i.e.,the “Swiss finish”).10 Because the banking industry is so important to Switzerland’snational economy, Swiss banks take regulatory adherence extremely seriously.

Zürcher Kantonalbank (ZKB) is a diversified “universal bank” providing private,retail, and commercial banking services in Switzerland and worldwide, as well as agrowing practice providing investment and asset management services to its clients.ZKB is also the largest “cantonal” or Swiss government-owned bank in the country,which carries a great deal of responsibility to ensure that it meets or exceeds thecountry’s stringent regulatory demands. To meet these regulations, ZKB mustmaintain flawless workload management practices and process massive amounts ofcustomer record, transaction, and other data on a daily basis. All of this depends onthe strength of ZKB’s IT systems.

ZKB partnered with IBM to evolve its IT architecture according to SmarterComputing principles, which enables it to meet the bank’s regulatoryresponsibilities. ZKB’s architecture is designed for handling critical data around aset of data marts, fed by a sophisticated data warehouse that captures current andhistoric data from more than 100 branches and distributes it to individually tailoreddata marts. These data marts ensure that each bank counter at each of ZKB’sbranches has the most current data every morning to meet their needs. The focuson data integrity not only helps the bank provide a high level of customer service,but it also helps maintain advanced safety measures through several layers ofsecurity and security analytics capabilities. ZKB’s IT architecture is also built onSmarter Computing’s Tuned to the Task principle, which allows unused systemresources to be allocated to other functions, preserving overall system efficiencyand enabling new functionalities to be added without expanding the system

Designed according to the Smarter Computing approach and using componentsbuilt to handle specific tasks, ZKB’s architecture helps ensure that customer servicelevels and regulatory adherence are consistently met. Smarter Computing is clearlyhelping ZKB remain competitive in Switzerland’s demanding banking environment.

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Banco Pastor: A Customer Focus Improves Retention Rates

Banco Pastor S.A. is the oldest bank in Spain, and one of the largest, and has usedSmarter Computing to develop new intelligence about its customers. The bankconcentrates on offering savings and loans to consumers and small and medium-sizedbusinesses. This is a highly competitive segment of the Spanish banking market, makingit difficult to retain valued customers. Banco Pastor understood the challenge in itsmarket, but it also saw an opportunity to gain an advantage over its competitors. Thebank initiated a strategy to sharpen its focus on its customers using a foundation ofdynamic customer insight. Teaming up with IBM to implement a Smarter Computingapproach, Banco Pastor installed an advanced server system loaded withsophisticated analytic applications to turn the large volume of customer data ondesired services, risk levels, and predictions of future behavior into detailed,customer-specific profiles. These profiles were then used to plan, automate, andexecute targeted marketing campaigns that presented offerings tailored to individualcustomers. By using Smarter Computing, Banco Pastor has cut its time to analyze anddevelop customer data from a matter of weeks to a matter of hours—a 95 percentimprovement. This gives the bank a time-to-market advantage over its competitorsand can help it improve retention rates, which the bank anticipates will be at least 20percent higher compared to its traditional marketing approach.

TMB Bank: Proactive Analysis Reduces Risk

TMB Bank Public Company Limited (TMB Bank) used a Smarter Computingapproach to improve its risk management capabilities. As Thailand’s economycontinues to grow, its consumer and business lending market is expanding, and itsbanking regulatory environment is modernizing and becoming increasingly morecomplex in response. As one of Thailand’s largest banks, TMB Bank needed totransform its IT infrastructure and improve its risk management capabilities tocomply with the more stringent requirements. The bank decided to work with IBMto take a Smarter Computing approach to transforming its IT systems to morerigorously and efficiently capture, store, and process customer data and risk profilesfor its 6 million customers. Using a system specifically designed to process riskfactors and reduce risk exposure, TMB Bank’s Smarter Computing solution breaksdown old structural silos in the bank by automatically reporting risk analyses acrossall of the bank’s business units and applications. The bank has a new level of agilityas a result and is able to manage its risk far better than before, reducing itsnonperforming loan ratio from almost 13 percent to just over 8 percent. Itssolution also makes it more competitive by helping it to be more responsive to itscustomers, reducing loan processing time from months to only two weeks.

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BUILDING A COMPETITIVE BANK ON A SMARTER BUSINESSINFRASTRUCTURE

Banking industry CIOs and IT managers are under constant pressure to ensure thattheir IT infrastructures enable their banks to be lean and agile in the increasinglycompetitive banking environment. Customers are becoming connected and empowered,and demand consistent levels of personalized service across a number of channels. Atthe same time, banks are balancing regulatory adherence with revenue pressure. Tosucceed, banks need to reinvent their business models to develop new customerintelligence and generate new revenue sources, while ensuring regulatory compliance.

The application and operational requirements to realize these imperatives comewith substantive IT workloads, and traditional bank IT infrastructures either cannotcope with these workloads or cannot interoperate between merged entities. Intoday’s austere economic climate and highly competitive industry, bank CIOs havethe additional requirement that their IT infrastructures reduce operating costs, beflexible and scalable to deploy computing resources where they are needed, andenable collaboration across a bank’s business units

The Smarter Computing approach is a holistic solution that can guide banks’ ITdepartments along the path of establishing the IT infrastructure to support theimperatives of a responsive, efficient, and reliable business infrastructure. A numberof banks around the world are beginning to realize the benefits of implementing aSmarter Computing approach. CIOs may wish to investigate using a SmarterComputing approach if they are considering:

• Supporting an innovative service development and marketing strategy aimed atnew customer acquisition and strengthened customer retention initiatives

• Merging with or acquiring other banking entities that may have antiquated ITarchitectures that cannot interoperate with their own systems

• Future-proofing their bank against new regulations and requirements, as well asensuring that their banks can achieve existing compliance objectives

• Creating a company-wide data management system, with shared access tomaster records

Forward thinking banks, such as BBK, TMB Bank, ZKB, and Banco Pastor areemploying a Smarter Computing approach to help them meet the needs ofdemanding customers and succeed in a competitive, cost-conscious environment.

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REFERENCES

1 Anderson, Del; Buehler, Kevin; Ceske, Rob; Ellis, Benjamin; Samandari, Hamid; and Wilson, Greg.“Assessing and Addressing the Implications of New Financial Regulations for the U.S. BankingIndustry.” McKinsey Working Papers on Risk, Number 25, McKinsey & Company, March 2011.

2 Ernst & Young. “A new Era of Customer Expectation: Global Consumer Banking Survey 2011.”February 2011.

3 Spitler, Rick and Kyriacou, Lee. “U.S. Banking: A Challenging Road Ahead,” Novantas Review, July2011.

4 Sidel, Robin and Lucchetti, Aaron. “Banks Deepen Cost Cuts in Push to Juice Profits.” Wall StreetJournal Online,(http://online.wsj.com/article/SB10001424053111904233404576458472190350358.html). 21 July2011, retrieved 28 October 2011.

5 Wood, John and Berg, Paul. “Rebuilding Trust in Banks,” Gallup Management Journal, 08 August 2011.http://gmj.gallup.com/content/148049/rebuilding-trust-banks.aspx#1, retrieved 24 November 2011.

6 Ibid.7 “J.D. Power and Associates Reports 2011 U.S. Retail Banking Satisfaction Study,” press release 21

April 2011. http://www.jdpower.com/news/pressRelease.aspx?ID=2011043, retrieved 22 October2011.

8 Munoz, Sara Schaefer. “Spain’s Bank Mergers Suddenly Drying Up.” Wall Street Journal Online,http://online.wsj.com/article/SB10001424052748704804504575606393486918472.html, 11November 2010, retrieved 02 December 2011.

9 “Bilbao Bizkaia Kutxa Manages a Major Acquisition,” a case study published by IBM. http://www-01.ibm.com/software/success/cssdb.nsf/cs/STRD-8J9EVS?OpenDocument&Site=corp&ref=crdb. 11July 2011, retrieved 23 November 2011.

10 “Swiss Banks get Stricter Rules than Basel III.” Swissinfo.ch,http://www.swissinfo.ch/eng/Specials/Rebuilding_the_financial_sector/News,_results,_regulations/Swiss_banks_get_stricter_rules_than_Basel_III.html?cid=28464958, 4 October 2010, retrieved 05December 2011.

This report was developed by Frost & Sullivan with IBM assistance and funding. Thisreport may utilize information, including publicly available data, provided by variouscompanies and sources, including IBM. The opinions are those of the report’s authorand do not necessarily represent IBM’s position.

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