The banking industry is changing by the day. What once were definitive "table stakes" for the essential software needed to run a full-service bank are now blurring due to rapidly evolving market dynamics. In this environment it can become difficult to discern
reality from myth when it comes to what a bank truly needs to be successful in the digital age. Can we trust that what we read, see, and hear is factual? Do we think critically and question when information seems to be skewed or inaccurate?
This is the first in a series of blogs exploring some of the facts and myths manifesting in today's banking environment—starting with two that are particularly prevalent in bringing a new bank to market.
Myth 1: "All software is basically the same. Any vendor can provide the tools to launch a bank."
This is a common misconception, and an over-generalization. When choosing a vendor to work with, the bank must intimately understand what the vendor can offer in terms of strategic support, their specific technical capabilities, and their track record of
real-world deliveries and successes (or failures). Different vendors have varying degrees of integrated solutions; only a select few offer end-to-end solutions. Both types have their place, and not all banks will need an end-to-end environment. However, in
every case, during the selection process it's crucial for the bank to vet the solution provider(s) to understand the true capabilities and limitations of any alternative being considered, and how that aligns to their current IT ecosystem and goals for launch,
and also for their future plans for growth.
For decades, banking software vendors provided the software needed for a bank to operate in one holistic system. In fact, this is how monolithic, "do-it-all cores" came to be. The approach worked well in its time, but today's rapid advances in technology
demand a new and differentiated business model.
Let's consider retail department stores as a point of comparison. Long-established stores now struggle for survival (think Sears, Kmart, Macy's in the US and Debenhams in the UK) and some have already disappeared (Toys "R" Us). The reasons are many, but
a primary factor was that department stores attempted to "have it all", when in reality, they did not. They also did not evolve their business models quickly enough to take advantage of new technology and changing customer preferences. Meanwhile, online providers
banded together with specialized boutiques and specialized product lines, leveraged cutting-edge technology, and enabled the rapid turnover of products/inventory. Today's most successful retailers are online and nimble. They are experts in designing and delivering
hyper-personalized user experiences.
Visionary banking software providers are adopting new ways to do business better. The outcome of this is software componentization which breaks down formerly monolithic core solutions into discrete components, and introduces many "boutique-like" disruptors
to the industry. Each component contributes a "piece of the puzzle" (for example, a next-generation core transaction engine, a pricing platform, mobile apps and regulatory compliance packages). Banks can "plug-and-play" what they need, and address various
aspects of their overall IT ecosystem on a component-by-component basis. This ultimately allows for true banking transformation—this is a reality that is available today. It's an approach that requires strategy and planning but can meet any bank where it is.
The journeys are unique; the transformation process for one bank may look very different than that for another.
Many software vendors today have become specialized. Some provide an account and transaction engine, or a set of APIs, for very basic banking needs, to keep the offering simple. This approach supports the recommended approach to incrementally replace aging,
legacy cores that can't be easily ripped and replaced. Vendors large and small are providing options for this, as well as hosted services that take the processing load off the bank. There's an abundance of options to consider, and it's important to remember
that not all financial technology vendors are created equal.
Myth 2: "We can launch your new bank in minutes."
The myth isn't so much in the statement behind this claim — it's that the definition of a "bank" varies significantly. While it's certainly possible to launch "a bank" quickly with today's technology, the devil is in the details.
What does one consider to be a bank?
Is it an app that the provider or a fintech built, as a means to acquire accounts and accept funds? Does the bank need to be able to "do" anything with those funds?
What capabilities does the app need to offer customers? What are the back-office needs?
Will the bank need to offer a range of products to grow (such as loans, revolving lines of credit, debit cards and credit cards)? What networks are needed and certified? Who can produce the physical cards for customers?
Does the bank need to be compliant with federal regulations? How will this be accomplished?
Does the solution need to be fully integrated to a customer relationship management system, to understand customers once acquired?
Will you include an analytics component to understand customers' transactional behaviors and construct meaningful offers to them, and to the broader market?
Will the bank need a data warehouse for dashboards and reporting?
How will the bank interface with a general ledger system for balancing?
What target market or customer segment does the bank need to attract to be successful? What is the full list of "parts" needed to accomplish success?
Based on the unique "blueprint" defined for the bank being launched, it's critical that the solution provider(s) work with the institution to clearly determine all the components needed to launch a real, stable, trusted, vetted, compliance certified bank
that is positioned for success. Some banks are complex, others less so. Before jumping into speed to market, it's critical to ensure that the solution behind the bank is appropriate to what the bank is intended to do in the short and long terms.
While it may not always be possible to launch a bank in minutes, take heart in knowing that you can launch a bank quickly – far quicker than was possible before – thanks to today's agile development practices, profound technological advancements, and vendors
that have been proven to successfully turn banking visions into reality. That's not a myth.