Wearing the “new black” with style, even with old boots!

No matter who you talk to in the retail banking business it seems that Omnichannel initiatives are the height of fashion when it comes to responding to the digital transformation in the industry and giving customers the service they want. Accenture’s report “The digital disruption in banking” confirms this saying that banks need to “become truly Omnichannel by seamlessly integrating the customer experience across in-branch, assisted and digital interactions.”

Facing a slew of new industry players and a generation of customers that never knew the Internet without Facebook, traditional retail banks quite rightly worry about winding up on the back foot. Many fear waking up one day in the situation of Nokia or Blockbuster: being studied by London Business School MBA students for all the wrong reasons. Omnichannel is widely seen as the best way to prevent this from happening.

However as Finextra community members have pointed out before, the desire for Omnichannel is already there. The stumbling block has been the daunting task of moving beyond ‘silo monolithic legacy IT systems,’ as one Finextra commenter put it. The slick customer experience on the front end depends on considerable technology overhaul and ‘dirty’ integration work behind the scenes.

And herein lies the problem. If Omnichannel is the ‘new black’ how do you make that stunning outfit look sensational, if you have to wear it with your grubby old boots? Most of the core banking systems that are running in the back end are seriously retro, dating back from the eighties or even the seventies. Before long they’ll have outlived most of the IT people who have to maintain them! This is not just impractical, but costly.

According to two thirds of the participants in the IBM survey “Attitudes to Core Banking Transformation in Europe” of IT leaders at 27 European banks, “The European banking industry has to spend a disproportionate amount of the total IT budget simply to maintain its core banking platforms.” The problem is that with so much spending going towards maintaining legacy IT systems, it’s becoming increasingly hard for banks to fund critical new IT initiatives, like Omnichannel.

It’s not just cost that throws up stumbling blocks, but also security. If there’s one thing you can say in defence of the old siloed systems, they do create a natural security layer for banks operating in a highly regulated industry. No wonder so many IT professionals are loathe to overhaul whole systems, preferring instead to invest in small projects. As the IBM survey revealed, “The strategies of the bank leaders focus on small steps that address the most immediate needs through in-year investment.”

Instead of ‘analysis paralysis’ many banks are paralysed by a failure to analyse, particularly when it comes to the costs involved with introducing Omnichannel. According to a benchmark report from Bain & Company, “half of the benchmark banks have yet to fully understand the cost of digital change for their business. Having a budget and a plan for building Omnichannel capabilities would seem a prerequisite for the transformation, yet about 41% of our benchmark banks do not even have a budget.”

So the Nokia and Blockbuster scenarios become more and more likely to play out. When you keep kicking big, important initiatives into the long grass, you only find resources to fund them when you reach crisis point - and by then it could be too little, too late.

In my sequel to this post, I’m going to share a much more optimistic view. I will challenge the premise that omnichannel requires a complete technology overhaul, making it too expensive and lacking in the same level of data security as the old siloed system. Omnichannel can actually take advantage of most or all of your existing IT and data infrastructure. So just because you've decided to introduce the latest open standards technologies like Hadoop, Cloudera, MongoDB into your IT architecture, doesn't mean you have to ditch Oracle, Netezza or IBM. New technologies can be gained for a relatively low incremental cost and risk compared to proprietary.