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How collaboration in the cloud can help banks innovate

One of the biggest problems banks face today is innovating the new services and products expected by their customers. In the digital age, which is dominated by the likes of Google, Apple, Facebook and Amazon (GAFA), consumers demand convenience in all aspects of their lives, so the imperative to innovate has never been so pressing.

Unfortunately for banks, innovation cycles are severely impeded by cumbersome legacy systems, from which new services and applications must be created. It’s not as simple as just ripping and replacing these systems, as any new applications must communicate with them. But if banks are to remain competitive, a new approach must be sought.

One approach is to adopt collaborative, cloud-based platforms, such as those pioneered by GAFA, opening up proprietary systems to communities of eager collaborators who can create value for customers.

Changing legacy

Historically, developing new applications to sit on top of legacy systems involved working with new file formats, programming languages, and standards. The consequence of these incremental additions is that many banks now find themselves with an intricate framework of isolated and undocumented solutions that require constant maintenance to ensure mission-critical systems are always on – at great expense.  

Great care must be taken when creating new applications, as a day’s outage could cost billions of dollars and cause significant reputational damage, yet banks must also not sacrifice innovation for  stability. This is why collaborating with smaller, more agile technology providers such as Fintechs – who do not have to contend with the problems of legacy – is an effective way to achieve faster innovation cycles.   

If the recent explosion of Fintechs and new challenger banks proves anything, it’s that areas in which established banks once dominated, such as loans and payments, can no longer be taken for granted. Open Banking has the potential to loosen the grip banks have on the customer relationship – so if they fail to create new value, they risk losing the relationship entirely.

Be cloud and proud

The benefit of a Platform-as-a-Service model (PaaS), which is fast becoming the financial services industry’s biggest trend, is that it meets the challenge of innovating services for customers, without creating new isolated solutions that require ongoing in-house maintenance.  

Crucially, a platform-based approach allows banks to benefit from modern development techniques and speed of deployment. Approved Fintechs and ISVs can communicate with banks’ legacy systems via open APIs, without the risk of altering them or causing costly outages. This means they can build upon pre-existing applications, accelerating the innovation cycle and delivering real-world value for bank customers at pace. 

Evolving through collaboration

It is often assumed that Fintechs are out to compete with banks, but this is not the case. Most are looking for a distribution channel and the banks, who already have the customers today, are the fastest way to get that. Fintechs are also often at the cutting edge of new technology, meaning they are able to rapidly experiment with new customer solutions.

Platform-as-a-Service provides banks with the facility to innovate from the outside, utilising the skills and technologies of these agile third parties, while also retaining control of their proprietary systems. This gives banks the opportunity to gradually evolve their systems over time – rather than risking outages with a total systems revolution – while delivering new products and services that improve the customer experience and meet the innovation challenge head on.

 

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Eli Rosner

Eli Rosner

Chief Product and Technology Officer

Finastra

Member since

13 May 2018

Location

London

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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