The financial services industry continues to haul in massive profits and grow its business, even though worries about bad debt, rising rates, poor security and ‘fat cat’ profits continue to dominate the headlines.
This continued rise in the fortunes of financial services organisations is in no small part due to the effectiveness of the heads of IT and their teams in this industry sector.
They have had their work cut out over the last five years, and this shows no signs of slowing down. Regulatory concerns like the Markets in Financial Instruments Directive, which comes into effect in November and aims to unify financial services across Europe and ultimately cut the costs of doing business in other countries, continue to focus the sector’s mind, and IT is at the forefront of this.
Consequently, anyone with the relevant IT skills in this arena is being snapped up by the sector, often for big salaries reminiscent of a different era.
Worries over data security
Outsourcing and data security worries also continue to focus the IT department’s attention. Several highly publicised breaches in security, including stolen laptops with customer account details on them and high-profile security breaches at offshore data processing units, do not help. Recent figures for fraud in the UK have been put at £20 billion a year by a recent police survey. Although this figure includes fraud across the economy and accounts for £330 for every person in the country, the financial services organisations are in the front line. IT functions also are continuing to support the mixed delivery channels that banks now have to offer a large segment of their customers.
Supporting all this while still controlling costs is a constant challenge. The online element of this is another security risk.
Internet banking concerns
Last year, a government banking watchdog advised banks to do more to help customers remain secure when they use online banking. Several of them rolled out two-factor authentication and anti-virus software to reassure customers about the safety of online banking and all financial services companies concentrated on educating their customers about safe online banking.
This year banks and credit card companies came under fire from the Office of Fair Trading for overcharging customers who defaulted on payments and told them to halve to £12 their fees for failing to pay bills on time.
HBOS revealed that it would lose £60 million in income this year as a result. Interestingly, some customers have tried to take their banks to court to recover penalty payments.
All the cases have been settled out of court, presumably because banks are unwilling to reveal exactly how much it really costs to administer things like late payments. However, with curbs on how much banks charge for missed credit card payments and with new investigations into payment protection insurance sales activities, most industry commentators believe it is likely that banks will begin charging annual fees on credit cards and on bank accounts in order to make up the shortfall of income from lowered fees and sales. The move to take on the high penalty charges that banks have imposed has been driven in part by online consumer campaigns and this has illustrated how another IT-based phenomena – social networking – could have an impact on the financial services industry.
Social banking fights back
Social banking, led by disgruntled online entrepreneurs who set up Zopa and Fair Finance, are claiming 100 per cent growth month on month, and a default rate on loans of only 0.05 per cent. Calling themselves ‘marketplaces where people meet to lend and borrow money’, they offer good rates and a feel good factor that the UK’s leading financial institutions can only dream about.
In keeping with the last few years, the IT functions of all the financial institutions will continue to be called on to produce more service delivery and support for less operating cost over the next 12 months. For those organisations with a global operation the situation will become even more demanding, as they look to increase growth outside the UK and reduce their bad debt risk