“Every generation needs a new revolution,” Thomas Jefferson 

Digital banks are popping up everywhere. Many of these upstarts are the offspring of grown-up banks that may be careworn and lacking in agility. How will the older and wiser cohabit with such youthful exuberance? In this blog we consider how to close this “banking generation gap” before the chasm gets too wide.

The digital age promoted technology from the back office to be at the front, middle and back of all that a bank does. Having the right technology is essential to deliver a satisfying customer experience that is personalized and based on data rather than guesswork. With margins always under pressure, new technologies are essential to align costs with revenues.

Banks recognize this, but many grapple with unwieldy and entrenched technology stacks that have evolved incrementally along traditional product lines. This makes doing new things difficult, and makes doing things differently impossible. And if that’s not enough, banks also face a bewildering array of challenges that include the rise of mobile; new and complex regulations; rising customer expectations; and increasing competition from both new and established sources. All banks must transform to address these dynamics, but how? 

Challenging the Parents

Some banks have decided to start afresh by building new digital banks on greenfield sites. These new “challenger” banks purport to challenge the market, but in practice they may also challenge the parent bank. The most successful challengers will deploy modern technology, new business processes, and fresh approaches, while leveraging the learnings of the incumbent banks with an all-new bank footprint to transform.

The truth is that digital banking heralds much more than a new generation of technology. Bank transformation is as much about shifting culture, expectations and attitude to a new paradigm. A generation gap is evident. How can it be bridged?

Moving to Microservices   

At a time of unprecedented turmoil, moving to a microservices environment is critical to boost business agility and to insulate the bank from future change. While this may appear to be about technology renewal, in practice, adopting microservices is a major catalyst to overall bank transformation. A microservices environment heralds a new dawn in development methodology – a break from traditional “siloed” architecture, with a powerful new lens that focuses on the customer.

By adopting microservices, a bank can become more agile, responsive to market needs, and productive. Tech giants like Amazon, Google and Netflix have shown how to build a dynamic business from scratch, while consistently exceeding customer expectations. Banks can do this too.

Farewell to the Development Lifecycle

As well as perpetuating product siloes, bank technology development has often been characterized by incremental change and scheduled software release windows. The adoption of new and agile methods, with microservices as a driver, facilitates continuous delivery. This can be transformational on multiple levels. Key attributes include:

Delivery – Using agile methods, the “build, test and deploy” cycles are dramatically shortened. New versions of software can be deployed quickly and confidently. 

Reliability – A fault within a microservices environment only affects the microservice, while a fault within a monolith may cause an entire system to fail.

Availability – New versions can be released with little or no downtime, enabling continuous delivery of new features.

Scalability – Microservices can be easily scaled (for example using clusters, pools or grids), making them an ideal complement to cloud elasticity.

Ready for Launch?

The number of digital subsidiaries that have launched – and continue to launch – shows how easily an incumbent bank can launch a digital footprint quickly and with little capital investment.

However, many digital upstarts are light on functionality, offering only a limited range of account types and products. While many have attracted large pools of customers, some generate meager revenues and struggle for profitability. So, what’s the point?

Like all journeys, bank transformation begins with a single step. Launching a digital bank demonstrates progress to a market with pent-up demand for new, exciting banking experiences. And there are internal benefits too.

By Your Pupils You'll Be Taught

Working with new methods and technologies is incompatible with a culture that is entrenched in legacy software and methods. A fresh start is needed, and many of the upstarts have shown their legacy parents just what can be achieved in a very short time.

But, sooner or later, digital subsidiaries must call upon the banking knowledge and practical know-how of their wise elders to address complex financial instruments, products, and regulations. If digital subsidiaries are to match the functional coverage of their parent banks, there is a huge knowledge transfer requirement to fulfill. How can this be achieved?

Componentization – Bridging the Banking Generation Gap

Knowledge transfer is a two-way street. A parent bank can build a sequential roadmap to digitalization based on the overall business strategy and priorities. With a componentized approach and modern technologies, a digital subsidiary can learn from this, without mimicking entrenched processes and workflow. As Margaret Mead tells us, “Children must be taught how to think, not what to think.”