In the world of private banking, an increasingly complex market is driving firms to uncover new ways to deliver cost efficiencies, writes Peter Gould, associate partner at Orbium.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Private banks are fundamentally rethinking their cost base. Disruptive firms with niche products, agile workforces and smaller overheads have created a situation where established businesses with broader offerings must update their legacy technology to compete, but that doesn’t come cheap.
One area where banks can make savings is in the essential but typically costly process of testing core banking platforms. There are three principle ways to do so – reduce labour through automation, reduce the cost of labour through off-shoring, or free up resources through outsourcing.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataAccessing greater automation
Automation is undoubtedly more efficient than manual processes, but the automated testing tools available to private banks historically were too generic and required a considerable amount of configuration.
However, the emergence of testing software specifically designed for individual core banking platforms has opened up the possibility of greater automation. Increasing complexity and growing system sizes mean that automation is more than justified. Whilst there is still a small amount of upfront configuration, private banks can achieve a greater return on investment and avoid duplication of resources by using pre-defined, ready to use test cases.
Crucially, these automated testing tools come with a library of pre-defined, ready-to-use test cases, which can be reused across multiple, similar testing environments – avoiding duplication of resources.
The rise of off-shoring
Onshore resources can be a big expense. Off-shoring is a known option for reducing the cost of labour, but data security is a major concern.
For adequate testing, private banks need to use realistic data sets, test as many scenarios as possible and use data to accurately represent a maximum number of situations. Real data is the most reliable but banks are understandably nervous when sensitive customer details move outside their own walls and in some cases, regulation restricts the movement of data altogether.
To overcome this hurdle, private banks have two options – synthetic or anonymised data. Synthetic data is created with the objective of being as realistic as possible, while anonymised data removes sensitive details. Both approaches result in realistic data but lower risks of confidential information leaking if the data is intercepted.
Another challenge is that a high turnover of specialist staff can negate the benefits of off-shoring, especially when off-shore centres have simply extended their existing development teams to cover testing. However, centres designed from the ground up with core banking testing in mind can be sure to have the techniques and career development in place to retain the testing experts.
Time to outsource
A third option for reducing costs is to outsource testing to a third party. This allows banks to hand over the bulk of the work, although they can’t relinquish responsibility.
Private banks using this option will often go down the Business Process Outsourcing (BPO) route. This way they can shape their processes to fit an off-the-shelf core banking platform and outsource to a specialist third party. The outsourced centre can then pool test cases across multiple banks using the same platform – and the banks benefit from the resulting efficiencies.
A combined approach
On their own, each approach can make a big difference, but the biggest benefits are experienced when private banks combine the three options to suit their particular set up. Whichever they prefer, the end goal is the same – reduce costs. What’s clear is that competition will continue to increase and new regulations will inevitably arrive.
Forward thinking banks have chosen to confront the challenge head on and others will need to follow. With the arrival of more options for testing, banks of all sizes have a growing armoury at their disposal in the race to stay ahead.
