Barclays - where a £1.6 billion quarterly loss is a sign of transformation progress

Profile picture for user slauchlan By Stuart Lauchlan July 30, 2017
Barclays has just turned in some ugly numbers for its second quarter, but it's the price that has to be paid to shed baggage to move towards a technology services-led future.

A timely reminder of the cost of re-invention came from Barclays late last week when the UK banking group turned in a quarterly loss of £1.6 billion ($1.8 billion) as it sheds corporate baggage to focus around its core business, with technology services a key component.

Barclays turned in that hefty second quarter loss compared to a profit of £677 million for the same period a year earlier. A large part of that fall is down to the cost of shedding the bank’s interests in Africa. While the loss is huge, CEO Jes Staley reckons he now has the bank structure that he can build on and that the restructuring is at an end:

The foundation of the efforts is in our service company. This is the hub within which we deliver group-wide operations, technology and functional services in a unified approach that is massively simplifying and standardizing our processes and creating synergies in shared services.

One example of that among many is how we have integrated no fewer than 10 separate fraud handling departments, each with different approaches and resources into just one. This has reduced duplication of effort and cost while at the same time delivering a consistent and improved experience for our customers and clients.

If the restructuring pain really is at an end, then the focus can now shift to digital transformation. Staley affirms that this is a priority:

The group continues to invest in innovation to ensure we are at the forefront of next-generation product and services in banking. Our mobile banking app continues to be recognized as the UK market leader and we’re excited to be the first UK bank to enable voice payments for our customers with a lots of CRE (Commerical Real Estate) payments next month.

I think that our iMessage payments are now live, allowing iOS 10 users to send and receive money between friends easily via iMessage. And the recent deployment of a contactless cash featured on Android phone allows the customer to withdraw up to £100 simply by tapping their android device on an assisted service counter at a Barclays branch. This innovation agenda enhances the customer and client experience, making it simpler, faster and more cost effective to do business with Barclays.

Long game

But it’s not just ‘front of house’ where technological investment is taking place. Underway now is an initiative to overhaul the banks back-end systems. Staley cautions that this is a long game in terms of seeing ROI :

We are working hard to modernize our technology architecture. I have talked repeatedly about why I regard [this as] a crucial competitive advantage for any the bank hoping to prosper today. That does mean some upfront investment as we increase automation, ramp up the use of the cloud, simplify the platforms for data, improve resilience and security for customers and clients and deploy innovative technologies. What it leads to are structurally reduced costs over time and permanent efficiency gains across all businesses and functions.

The bank intends to push further into the cloud, highlighted by a big commitment to Microsoft:

We’re currently engaged in updating our entire desktop software platform to Office365, it’s a big move. We are in a process of moving majority of our data to the cloud, which will help cyber-resiliency.

Other tech-related initiatives include a desire to have far fewer third-party consultants floating around, impylying a recruitment drive to build up a stronger in-house skills base. Data center consolidation is also on the agenda:

We have embarked on a major initiative to reshape our real-estate footprint as a company. We are currently spread across too many sites and in too many locations for the size and strategy of our business today. Over time, we will concentrate our people and equipment in a small number of strategic locations which will lead to fewer real-estate IT equipment data center and management costs.

One good example of where we are delivering on this approach is in our recent acquisition of a campus in Whippany, New Jersey, where we will bring together the majority of our back office operations and function currently located across multiple sites in Manhattan and we’ll do this by the end of 2019.

But while the overall technology refresh may play out over a longer time frame, there are early wins that can be chalked up, adds Staley:

A great example of this will be implemented from next month when we begin the migration of 90,000 small and medium enterprise customers to our new acquiring platform which weeds out bPaid. bPaid delivers a new single billing and settlement platform in new merchant onboarding solution and a new case management and agent servicing desktops to our Barclay card business solutions customers around the world. It is more resilient and can integrate directly with the client’s own systems.

The rollout of bPaid will see us replace about 80% of the back-office domain in our merchant acquiring business and we will retire 14 separate legacy systems in the second half of 2018, some of which have been around for 30 years. The efficiency and effectiveness gains from a program like this which has been three years in development are obvious.

The mortgage portfolio is another place where the technology investment is beginning to play off. We rolled out a whole new technology platform for brokers across United Kingdom to process applications for new mortgages with Barclays UK and that has resulted in record numbers of applications being processed in any given day. So that’s another case where technology is getting the business.

My take

I gave up on Barclays a few years after having banked with them since my university days because I finally became fed up with apalling levels of customer service and what seemed a shoddy deployment of new technologies. The saga of how long it took to get my internet banking working for my business is a story that doesnt bear re-telling for fear of bringing on a nervous migraine! For all that, I hope that Staley’s vision for Barclays does translate into a successful re-invention built around services and technology.