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Banks Need to Learn What Big Tech Teaches

In the banking industry, the core system contains vital records for the business. It is the beating heart of the operation, so its “life expectancy” had better be built for the long haul. McKinsey estimates that about 70% of banks are reviewing their core platform to enable real-time processing and remain relevant in a digital world – but with the pace of change always accelerating, is a new core simply a legacy system in waiting? Not necessarily, provided new technologies and deployment models ensure the core is updated continuously to remain future-proof. In this blog we’ll look at disruptive technology and what it means for the future of banking.

Digital Has Arrived, and Consumer Expectations are High

The majority of banking interactions are now digital. Customer expectations are high, based on experiences way beyond financial services. It’s fair to say that consumers are fickle and demanding – studies show that a majority of customers would consider switching banks for seamless online access and digital advice. To attract and retain customers, traditional banks need to make some bold changes.

Take a Cue from Digital-First Pioneers

Companies like Apple, Tesla and Netflix redefine what’s possible with technology, while Amazon and Google take customer service to a whole new level. Each is a digital-first pioneer and disruptor, and master innovator, largely unencumbered by legacy technology. They essentially started with a blank slate, which can be a competitive advantage. They embrace technology not just to do the heavy lifting but just as importantly to define, deliver and enhance the full spectrum of the customer experience.

Tech advancements can be revolutionary. Let’s consider the case of the smartphone – be it iPhone or Android, a smartphone is essentially a group of services packaged together in a physical phone. Those services put an amazing amount of power and capabilities literally into the palm of your hand. Software updates occur frequently (talk about a rapid pace of change), yet users are supremely indifferent – and often unaware – of which version operating system they are using… regardless, they welcome new features that are delivered as part of nonintrusive upgrades that are installed while they sleep or at whatever time they specify.

Similarly, smart-equipped cars such as Tesla regularly receive over-the-air software updates that add new features and enhance functionality. No one asked for the addition of Tesla’s Sentry Mode (not even Tesla) when the car was designed. It was an afterthought (albeit a brilliant one), delivered as part of a continuous upgrade. Now drivers can monitor their Tesla wherever it’s parked and receive alerts whenever a security incident occurs.

Then there’s Netflix, the largest video streaming service in the world. The Netflix delivery model is predicated on personalization and an excellent user experience. With over 160 million subscribers, Netflix invests heavily in R&D and uses machine learning to automate millions of decisions based on user activities. Without bespoke recommendations, users would have to page endlessly through literally thousands of movies and TV shows.

These disruptors show the distinct advantages of a digital-first approach, and are relevant to banks seeking to update a legacy core: New technologies and methodologies mean that a bank can transform to a modern core – once – and then embark on a journey of continuous, future-proof modernization. How will this happen? Continuous and non-obtrusive delivery of software updates, enhancements, and innovations will be key.

The Power of Continuous Delivery – A new dawn for banking services:

An end to stovepipes. Modern technologies, Agile development methods, and continuous delivery enable solution providers to decompose larger applications into leaner, agile components. Over time, a bank can migrate away from a siloed architecture to a flexible, conversational infrastructure. The ubiquity and orchestration of application programming interfaces (APIs) allow applications to harmonize and share data across the bank and with third parties – a central principle of open banking. One day all software may be written this way.

Cloud computing. As banking technology moves out of the back office to be at the front, back and middle of all that a bank does, there is a need for massive computing power. After some initial reticence, cloud is becoming mainstream in financial services. While not synonymous with continuous delivery, cloud offers unlimited scale, elasticity and availability to implement continuous development confidently in an uncertain world. And, by migrating to the cloud, banks are spared the burden of owning/running a physical data center, something few would miss.

Boosting the bottom line. With modern API technologies, banking services can be separated into individual constituents, which can be monetized, marketed and exchanged. Ultimately a bank may choose not to run its own core banking technology and instead subscribe to a Banking as a Service (BaaS) platform that is regularly updated to keep pace with changes in regulations and market practice. In this way the bank is insulated from technology change and can focus on its customers.

New technologies and methodologies are redefining many industries, and now it’s banking’s turn. While some commentators suggest that banking digitalization is almost done, in practice it has only just begun. Harnessing the power of continuous delivery, banks can become truly agile and avoid becoming a shuttered Blockbuster outlet in a thriving Netflix age.

 

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Andrew Beatty

Andrew Beatty

Head of Global Next Generation Banking

FIS

Member since

17 Sep 2018

Location

Toronto

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

Banking Strategy, Digital and Transformation

Latest thinking in respect to Banking Strategy, Digital and Transformation. Harnessing our collective wisdom to make banking better. Ambrish Parmar


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