Banks across the world are navigating their way through a period of change and uncertainty. Banks are busy readjusting their forecasts for what they envisaged being a year of recovery and growth in 2012 – with current market conditions, they will be battening down the hatches and preparing for another tough 12 months.

The global issues facing banks today are considerable. Historically low interest rates, increasing risk, higher capital requirements – partly through increased regulation such as Basel III – and competition are all putting huge pressure on margins. Increased efficiency and reduced cost will continue to be prominent features of the future banking landscape. This will be even more challenging in 2012 because easier cost savings have already been made in the years following the 2008 crisis.

Low hanging fruit
Banks are now realising the scale of the issues they face and cumulatively the effects they will have on the business. Now it’s about putting the measures in place to help them weather the storm. To do this effectively banks need to know where their inefficiencies lie. But do they have a true picture of this? Business intelligence tools will continue to play a key role in helping banks to identify and monitor operational efficiency and profitability and use this insight to lay the strategic foundations for improved performance.

Sovereign debt issues will cast a cloud of great uncertainty over Europe, with inevitable knock-on effects for the rest of the world. Regardless of the outcome, banks will need to have sound levels of agility to best react to subsequent changes and have to manage in a continuing environment of higher risks and higher borrowing costs.

Cost savings are going to be core in helping banks ride out the tumultuous times ahead. Since 2008, most have addressed the issue of cost reduction within their business and dealt with the low hanging fruit, i.e. improving capital structures, assessing asset performance and looking at ways to cut the cost base without impacting productivity. However, there are now other areas that banks need to examine.

Increasing visibility
We will see increased focus on standardisation, particularly among tier one communities as the industry moves into the next phase of understanding the role of software componentisation, openness and renovation. This is already evident in the increasing visibility and buy-in to the Banking Industry Association Network (BIAN), which has acquired six new tier one bank members recently. Banking architectures will also become increasingly linked to the cloud as banks will realise the inevitability of cloud processing in the future. Research conducted by Temenos this year supports this view, with only 29 per cent of bankers confirming they would completely rule out running applications in the cloud, compared to 41 per cent in 2009. In the long term, we will see larger banks requiring standardised technology components in the cloud.

Mobile banking has been a buzz phrase on the lips of bankers over the last couple of years and mobile banking apps will steadily increase as we move into 2012 – it’s widely predicted that over the next 18 months, 80 per cent of banks will have some sort of mobile banking offer. But there is still limited understanding of the power of this channel. Many banks today are not seeing this channel as a real differentiator but we are beginning to see a perception change here and more banks will build growth strategies around mobile. Security will remain a key factor in people’s attitude towards mobile banking, which will call for banks to formulate and implement strategies that are underpinned by sound security features. Over time we will see the mobile channel handle more and more transactional banking – with the web being used more for advice and product selection.

Up until 2006, mobile banking adoption stalled, but now with the explosion of apps, the industry is reporting a 30 per cent year on year growth. The same can be said for next-generation online services. Online technology that helps financial institutions to get insight into their customers’ behaviour, further engage their existing customers, attract new ones and improve cross selling across the board will help banks to maintain their competitive edge.

Banks need to move and move quickly or they risk losing the war in this lucrative industry. 2012 really will be the make or break year for financial services companies.

Mark Gunning is director of banking solutions at Temenos