FEATURE – The banking sector is floundering in the face of heavy regulation and increased competition from fintechs. So what can banks do? The author suggests they embrace lean IT in order to change their ways.

Words: Marie-Pia Ignace, President, Institut Lean France

In April, Orange announced the acquisition of a 65% stake in Groupama Bank, a move that will allow the French telecommunication giant – which has some 30 million customers in France – to launch a 100% mobile banking service in early 2017.

It is hard to imagine what the implications of Orange’s entrance into the banking market will be, but what’s certain is that banks around the world have been experiencing mounting pressure.

I believe there are three main challenges for them:

• First of all, negative interest rates are costing banks considerable revenue. Their default response – cross selling (think of insurance products, for example) – however, is hardly enough to counter the problem.

• A second, critical challenge banks face is the increasing amount of regulation they need to abide to. As a result of the 2008 financial crisis, regulators want to ensure banks are protecting their customers – which results in new rules being introduced on a regular basis. A new European Union regulation known as KYC (Know Your Customer), for example, introduced new provisions for the identification of customers and the verification of their identity – this forces banks to interview each customer before selling them a product, to ensure they are aware of what they are buying and know their way around money and banks. When you have one or two million customers, however, carrying out individual interviews becomes an incredibly time-consuming and taxing endeavor. Banks will have to find a way to fulfill regulatory requirements without sacrificing their ability to operate day after day.

• The third challenge, to which I have already hinted, is increasing competition – a result of the digitalization of the financial industry. More than ever before, margins are found in the distribution of a product (rather than its creation and management). For startups and fintech companies, acting as an interface between the customer and the bank is very easy, which puts them in a great position to quickly erode the market share that traditional financial organizations have enjoyed so far. Moreover, the Orange example shows that it is not only tech-savvy startups that represent a threat to the very existence of the industry.

In the face of these problems, there is only one thing banks can do to avoid reaching the point of no return: taking on lean IT.

SO, HOW CAN LEAN IT HELP?

1. IMPROVE THE CUSTOMER EXPERIENCE

When you ask customers who are opening an account in your bank to sign 18 sheets, are you really creating value for them? I think it is safe to say, “No.” In fact, I think that, if asked, most customers would tell you that they see the process as a colossal waste of time. The same is true for a lot of the processes that currently take place in most banks.

So how can lean (and lean IT, more specifically) help to tackle this and the other challenges I have mentioned?

First and foremost, lean teaches organization the invaluable practice of “going and see” – visiting a call center to listen to the queries and complaints customers have, for example, is a useful exercise that can help an organization understand demand and the problems that need solving. Banks don’t do enough of it. I recently had a discussion with a team in charge of the release of an application used to buy and sell stocks. They had lots of ideas about the app, but no clue about users’ expectations. In the end, the project leader remembered that, months earlier, he had received a file with all the requests/questions the users placed with the call center of the bank: when he opened it, he found 430 topics. With so many items to complete, the team did a Pareto and selected 18 repeated expectations – an approach typical of a “GAFA” company [GAFA is an acronym commonly used in Europe to refer to Google, Apple, Facebook and Amazon] but quite unusual for a bank.

As Dan Jones and Jim Womack explain in Lean Solutions, you’ll win if you remove the waste in your customer experience. This is the first way in which lean IT can be of help.

2. SPEED AS A COMPETITIVE ADVANTAGE

Another contribution that lean IT can give to the transformation of banks is making their processes speedier and more efficient. Much like in a lean manufacturing environment the product continuously moves on the line, with value added to it at every step of the process, so IT departments in banks should aspire to make uninterrupted flow their way of operating (in a bank, IT is the equivalent of an operations department, and no transformation can succeed without going through it). Instead, their work is currently mired with delays, and a lot of waiting. When it takes a bank up to a year to enable a simple feature that requires no more than 10 days of work, customers will be compelled to turn to fintech firms that use continuous delivery to incrementally innovate their products – and who could blame them? Financial organizations need to find ways to facilitate the delivery of value in a digital world, and that can only be achieved by introducing flow and lean in their IT departments. For an example of how BNP Paribas managed to reduce the delay of an IT process by 20% using lean thinking, check out this video:

3. FIND BETTER WAYS TO MAKE DECISIONS AND MANAGE THE WORK

Another challenge we talked about is the fulfillment of an ever-increasing amount of regulatory requirements. Using an obeya room is one of the things banks can do to make daily decisions more quickly and manage the workload in a way that will keep costs low, while minimizing the negative impact on the back office (which, being normally overburdened, is a common source of delays). I recently witnessed a discussion between two French CIOs on how they handled the introduction of a new, automated declaration – the DSN, déclaration sociale nominative – as part of the DADS (every year, companies must share with the government the data relating to their employees – like salary paid to each of them): it cost the bank using an obeya six man-years to complete the transition (the DSN was introduced by a 2012 law), while the other, which managed the project in a traditional way, worked at it for a 100 man-years – 16 times longer.

It is obvious that a leaner system that creates real value for the customer, lets value flow across the value stream in an uninterrupted fashion and encourages the customer to pull is going to have a positive effect on a bank’s bottom line. Lower costs can also counteract the effect of negative interest rates.

In conclusion, banks are still fairly new to the use of lean IT, but until they embrace it fully the obstacles they are currently facing will remain impossible to overcome. There is potential for a revolution in the way banks operate. The question is: will they pursue change or be too shortsighted to see how necessary it is?

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