What is the background of SOFGEN?
DEMBITZ: We provide consulting services exclusively to the banking and related financial services industries. We are leaders in enabling technology that makes banks work and function. No bank today can exist without a core banking system and complementary system. It would be inconceivable. It is like the central nervous system or the backbone of a human being. The selection and implementation of the system is where SOFGEN finds its place. Banks are made by people, people change, and, by definition, the banking and financial services industry changes. Therefore, the systems that banks had yesterday may no longer be applicable today. There is a constant need for renewal, change, adaption, and adoption. This is conditioned by the products and services of an institution today and also by the vision of a bank over a period of time. Now, that period can be defined in a 3 to 5 year strategy and vision of the bank itself and its customers. These 2 things will determine the IT structure of a bank. SOFGEN does not buy or sell software or hardware. All we do is to make a given environment function. Once we define the functions of the institutions, through discussion and dialogue with their management and board of directors, we then collect the information and help the client understand the current situation of the bank, together with its products and services, or where it wishes to be in a planned period of from 3 to 5 years. We define that into a compendium. This compendium is the so- called â€œRequest For Proposalâ€, where we try to establish the package, or the system, or systems, which best suit the needs of that particular institution. We excel in adapting the IT system to the needs of the bank. We customize it, localize it, implement it, train the users, and manage the passage from the previous IT environment to the new one. That, in so many words, is what SOFGEN does.
Within the banking sector, what are the main innovations that are currently being introduced into IT systems?
DEMBITZ: In essence, it is all down to cost. The banking industry is reeling under the pressure of margins and increases in costs, and this is across the whole industry. Banks used to make 1.5% margins from their commercial and investment activities. It was even more in industries such as hedge funds, which had the catch phrase of 2% management fee and 20% participation in performance. That is a thing of the past. Banks are today under the competitive pressure of having to decrease their margins to much lower levels. If a bank makes half of that today, it is already a good thing. So the overall level of fees generated in the industry is way below what it used to be prior to 2008. As a result of 2008, there are also new regulations that are flooding the market. These are new regulations, imposed by the Central Banks, by the banking supervisors, by the regulators, and by politicians, who hope to never see again the kind of meltdown which the world experienced between 2008 and 2010. The cost for the implementation of these regulations is enormous and will continue to increase. So the gap between higher cost and lower income is widening and this trend will remain unchanged for the next 3 to 5 years, until the banking industry redefines itself. Cost cutting has a great impact and that can be seen in the number of job losses in the industry as a whole. The automatic provision of data and access to funds is reshaping itself, as it can no longer exist in the way it existed previously, when there were bank branches in every high street representing all the major participants in the retail banking industry. These branches were complemented by mortgage providers and by brokers. However, this is changing. Nowadays, many banking activities have been replaced by the Internet. Therefore, people have to be trained how to access their data and how to trade across the Internet, because the banks simply cannot afford to have the same structure as they had in the past. Technology is an enabler of this phenomenon and allows people to have access to the management of their money. That is the basic trend that we are experiencing today.
What are some of the most exciting trends that have taken place in finance related ITÂ infrastructureÂ over the last 30 years?
DEMBITZ: Computers really came into being after the 2nd World War and the banks were naturally set up for their use. Computerized banks created a vast computer centre, with immense machines and an army of people. These people were developing in-house computer systems. So, if you go to any of the major retail banks in Europe, and in North America, and look at the kind of systems they are using, they are complex, enormous, and require masses of computer power just to drive them. There aren't sufficient funds available today to change the system. The people who developed those systems 20, 30, or 40 years ago, have left the bank, have retired, and are no longer available. The quality of documentation that is required to describe how the system works is unavailable, and the cost of maintaining those data centres today is simply horrifying. So large European banks, North American banks, commercial banks, and retail banks, have to scratch their heads now to find a way forward, because they simply cannot migrate from their legacy platforms. This would be too expensive, would take too long, and the roadmap is simply not there. So what they are doing now is replacing bits of their IT environment with the best software readily available. This vast legacy in the banking system will gradually be replaced over the next period.Â In the East, or around the emerging world, the previous issue was less binding, because the banks were smaller and did not have the investment that the western banks had in their legacy systems. So it is far easier to adapt the banks in Asia, for instance, or in Africa, or Latin America. So the trend is away from the legacy systems, which are terribly expensive and terribly complicated, almost to the extent that they are irreplaceable, in favour of packaged systems so that little by little, they become satellites around the core banking system. That is the direction in which this industry is moving.
In which markets do you see the most potential for growth in financial services IT solutions?
DEMBITZ: In the emerging world, the banking and financial services industry it is still expanding. The reason why there is still growth in the emerging world, such as China, much of South East Asia, most of Africa and bits of Latin America, is that people still do not have immediate access to banking. They might have had access to a little bit ofÂ micro-financeÂ butÂ micro-financeÂ is not banking. There are vast numbers of people in the BRICs and in the emerging world who have access to the banking system for the first time. This means that the banks in the emerging world are, in fact, expanding in the way that banks in the industrial world were expanding after the 2nd World War. In some ways, there are contractions in the banking industry on account of the pressures previously mentioned, however, there is still some sense of expansion in the emerging world.
There are vast numbers of people in the BRICs and in the emerging world who have access to the banking system for the first time. This means that the banks in the emerging world are, in fact, expanding in the way that banks in the industrial world were expanding after the 2nd World War.