Recent years have seen a surge of new entrants into the banking sector – driven by the banking collapse in 2008, but also the advent of technology which has enabled new entrants to deliver innovative products and services at a fraction of the cost of traditional
banks. This new wave of challengers has raised the bar of customer expectations, with a recent report from UK Finance finding 81% of adults say that the
quality of their online banking experience determines who they bank with.
Getting that digital experience right is essential for retaining and growing existing accounts, as well as acquiring new customers. However, established banks have historically struggled to innovate quickly enough to compete with newer entrants born of the
cloud era. While they are often desperate to transform, they are hampered by complex infrastructures that make it costly, time-consuming, and complex to develop and launch new products.
Upgrading without upheaval
Attempting to replace historical systems whilst still supporting thousands, if not millions, of customers would be akin to performing open heart surgery whilst the patient goes about their daily life. Ripping out live systems and modernising on a new platform
wholesale is often not an option – if something goes wrong, the results can be catastrophic.
TSB learned this the hard way during its failed IT migration in 2018, which led to almost two million customers being locked out of their accounts for several days, data breaches and ongoing issues for nearly 8 months. The chaos resulted in a £49 million
fine being levied as well as over £32.7million being paid out to customers. At the time, Philip Augar, a former non-executive director at TSB stated that banks face a challenge of outdated, often complex systems that have “sticking plaster” all over them.
Nick Hammond, ex-global head of networks at Barclays also said the crisis showcased the problems caused by the “sheer complexity” of many banking IT systems and the difficulty in changing them.
For TSB and the UK's banking sector as a whole, the waves are going to keep coming in, and they are going to prove difficult to ride. So how do banks modernise without destabilising their entire infrastructure? Could a coexistence model hold the key to success?
Coexistence to drive modernisation
If banks want to innovate without risking the sudden removal of their existing offering, coexistence gives them the best of both worlds.
Using an API driven cloud native core banking engine to deliver new products in parallel with their existing system banks can derisk the launch of new offerings. This is because coexistence removes the need to fully integrate with existing core systems on
day one. So, banks can swiftly create new offerings to compete with nimble challengers to attract or retain customers.
By giving banks the breathing space to plan their legacy migrations without hampering speedy development of new products, banks can leverage one of their biggest advantages over challengers - their balance sheet. With interest rates on the rise, legacy banks
should use their increased returns on R&D, quickly developing new products and bringing them to market. With this coexistence model of new and old technology running in parallel, banks can swiftly innovate, while still having the breathing space to plan controlled
and tested migration from old systems to new - with little customer disruption and uninterrupted data flows.
Data is key to innovation
To innovate, all banks need real time insights. Accordingly, the most important currency in banking today is data. Banks need access to their own real time data, which can be enriched with external data to deliver relevant products which match customer needs
and provide real value. For this, they need the capability to operationalise that data – to create bespoke data sets that can inform risk and compliance reporting, product and service design, and customer experience. They also need the agility to develop and
launch products in a timely and cost-effective way to meet the evolving needs of customers. However, delivering on these ambitions is not straightforward. This is especially true for legacy banks, who have made incremental adaptations to their technology over
decades - well before the advent of cloud services or even digital services. This has created incredibly complex infrastructures, with webs of legacy dependencies and processes from which it is seemingly impossible to extricate themselves. The end result is
data locked in silos, making it almost impossible to get a single 360-degree view of the customer in a timely and efficient manner.
With a coexistence model, data flows between the parallel systems can also be built to leverage the open architecture of new core banking software, making it possible to build real-time data insights which can help to provide a single, 360-degree view of
the customer. Leveraging this data can enable the creation of bespoke data sets that can be used to track and understand customer trends, unlock trapped value, and deliver hyper-personalisation to increase customer loyalty. With these insights in place banks
can uncover opportunities to grow accounts, increase relevance for customers, and improve customer experience by creating products that meet a real need, based on real customer data.
Coexistence is the key for delivering innovation to customers and growth for financial services whether it be legacy banks, building societies, credit unions or wealth managers. Using new systems in parallel with the old in a coexistence model allows both
speedy innovation and controlled migration of your existing book - no open heart surgery needed.