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Tech infrastructure design doesn’t need to be difficult

It’s become a cliche, but the pandemic has accelerated a decade’s worth of change into just a few short years. But it’s already time for entrepreneurs, business leads and tech teams to look ahead to the next decade of challenges in financial services. 

The big challenge ahead for traditional financial institutions however, is that their infrastructure is just too out of date to keep them in the game much longer. Many financial services companies today are operating on technology stacks that aren’t up to the challenge of today’s market. Some banks are even operationally dependent on technology that was installed in the 70s or 80s.

Global growth and opening up of economies will help the payments sector thrive again post-pandemic, but it’s only those with the right infrastructure in place who will be able to seize these opportunities. It’s become a cliche, but the pandemic has accelerated a decade’s worth of change into just a few short years.

Underlying this is the perception that creating and buying infrastructure is a risk heavy decision. Afterall, it’s the engine room of your bank’s operations. That can make it all too easy to stick your head in the sand and leave changing it as a decision for another day. But that only creates bigger and bigger problems down the road. Eventually your current infrastructure will meet a challenge it can’t handle - and you’ll end up with bad headlines and an appointment with the regulator. 

Start here - what do my customers expect and what’s my business model?

When faced with social changes, a raft of digital-first competitors, and regulatory pressures, understanding your positioning in the market landscape is critical.

The financial institutions need to figure out how they can appeal to new consumer expectations, and turn them into a sustainable revenue stream. The success of this generation of banks has been fueled by changing expectations of a new generation of end-users. With more trust placed in the internet, digital only offerings have been able to flourish. 

Banks are facing pressures on their business models. Many are struggling to make money the way they used to, with pressure from falling interest rates, current account revenues, managing branch footprints and loan losses amongst others.

On top of that, new regulations like the European Payments Initiative means technology must be geared towards adapting to the new challenges and opportunities created.

Five principles for better decision making 

1 - Build for longevity 

  • In December 2019, not many people were planning for a pandemic. No one was predicting the scale of the challenges the industry was facing. If you look back 10, 20, 30 years we have seen complete shifts in technology and consumer attitudes that most in the market at the time would have found it impossible to predict. You can’t build for specific future events. There’s just too many unknowns. The journey you embark on to change your payments infrastructure has to see you through the next two decades of business. The only thing you can be sure of in that time period is uncertainty.

2 - Build for business priorities and technical realities

  • Financial institutions have to make decisions that meet the needs of a suite of decision makers. The customer teams, technology teams, security teams and business teams rarely align the first time you sit down to build a product. Payments infrastructure must therefore reflect how aggressive the business is on payments within the business model. The needs of a global bank and a small building society are very different.

3 - Build for your business model 

  • The cost of putting your infrastructure in place won’t be sustainable if it doesn’t reflect the business model that the world of finance operates under. Fully anticipating the cost of building, licencing, and running your payments infrastructure is an essential step. We know that payments are a volume-sum game. You need infrastructure programmes that reflect that reality.

4 - Future proofing

  • If we look even further into the future, disruptions from the likes of Blockchain and AI could bring further, more dramatic change to the industry. While they are still very much in the early stages of development and roll out, a CTO must be able to anticipate the change that these, or other unknown technologies, might bring - and be in a position to react and adapt. Technology leaders must be able to keep pace with the new products and services that technology will introduce. And do it efficiently. 

5 - Meeting regulatory requirements

  • Financial businesses will need to work closely with regulators, especially as new rules develop to manage how technology works with consumers. A big part of a successful payments infrastructure is understanding how to quickly adapt to new regulatory changes. The other part is how you can quickly pull and provide regulators with data they need. If a regulator introduces new requirements on you tomorrow, you need to be confident that you have a system that can be adapted.  

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

Digital Bank Transformation

This is a blog group for all topics related to Digital Bank Transformation, from incumbents to start-ups, to Wholesale and Investment banking. Technology is advancing like never before...this is a group for ensuring best practice is celebrated and shared.

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