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Banks Must Lose Their Baggage to Enable Innovation

The changing needs and preferences of customers, coupled with the recent rapid pace of digital innovation, have raised the bar on the levels of service that customers expect from their banks. The increased popularity and adoption of social, digital and mobile channels have transformed the banking space, particularly in retail banking, and created an opportunity to provide a broader, more innovative, customer-centric set of banking products.


Driving that transformation, opportunities related to IT spend are also clearly visible on the horizon. According to Ovum, a London-based consultancy firm, in Western Europe and North America, the largest markets for IT spending, growth is predicted at 2.9 percent and 4.8 percent, respectively, over the next five years.


However, despite a backdrop of customer growth, increased innovation and greater IT spend, the banking industry still struggles to fully take advantage of the digital revolution. Customer expectations from digital and mobile applications have moved away from the simple eBanking services that most digital banking products encompass today. Additionally, plagued by system glitches, mobile application outages and online failures banks continue to fall short of delivering the seamless customer experience associated with many of the more tech-savvy, popular, consumer brands.


The primary reason for this is the banking industry’s back office baggage.


Most banks operate with back office infrastructures that were designed – and some built – in excess of 30 years ago with multiple layers of integration, customization and modification providing cheap quick fixes to solve short term problems rather than long term goals. Their core banking systems, traditionally designed around internal users, are no longer fit-for-purpose as the new breed of immersive and responsive digital customer solutions requires a back-end which can keep up with the responsiveness and real-time needs of the front-end.


The new digital customers of today expect 24/7 delivery, real time execution of transactions and uninterrupted availability of their services. Many bank products however are delivered to customers with a digital façade that sits over legacy banking technology intended for banks internal users and not designed for end users to interact and transact with bank systems directly.


Additionally, the back office is often seen as a cost center, making it difficult to quantify the savings that can be achieved by re-building back office systems. This is particularly acute in an environment where management tenures and purchasing cycles are much shorter than the benefit of IT overhauls being realized, so the incentive for change is small.


Focused more on processing transactions than innovating around the customer experience, retail banks have been slow to weave new customer-facing technologies into the core of their operations. This is a mistake.


Increasingly, customers expect all of the companies they do business with – including their banks – to know them as individuals, anticipate their needs and actively involve them in developing tailored solutions. Many retail and consumer brands have failed to step up to the digital challenge, proving to be the death knell for their business models as they succumb to more nimble newcomers to the market.


The banking industry is no different. New, innovative firms are increasingly squeezing many of the traditional, high-volume services offered by banks. To combat this, banks must take a more disciplined approach to adopting greater levels of customer oriented back-end technology in their businesses. If banks are going to remain competitive they must address the underlying problems within their back offices and invest the time, money and patience required to re-vamp and re-design their back-end infrastructures to be more customer aligned and geared towards the end-user.


This is done most effectively with technology partners who can provide solutions and services that enable banks to untangle and streamline their core systems, and create a consistent, rich digital backbone without starting from scratch. Only then will banks be able to provide true omni-channel capabilities that meet the high expectations of consumers and business users who, having experienced sophisticated digital experiences through on line shopping, music, and app store channels, won’t settle for less from their bank.



Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 25 June, 2014, 12:03Be the first to give this comment the thumbs up 0 likes

The problems with legacy systems are well known. Despite that, banks have introduced several innovative products:  

Why Banks Can't Transform Legacy Applications - Part 2

In my everyday interactions with various types of service providers, systems from banks trump those from utilities, MNOs and retailers. They're far from perfect but their areas of improvement are unrelated to legacy backend. But, mine could be a one-off experience.

Can you list 3-4 specific features of immersiveness, realtime, uninterrupted, etc. that are demanded by customers but can't be fulfilled by banks due to their legacy baggage?

Balazs Fejes
Balazs Fejes - EPAM Systems - Meilen 27 June, 2014, 14:56Be the first to give this comment the thumbs up 0 likes

Thanks for the feedback - always interesting to hear other perspectives. We see from our customers the challenges are around customer centricity. In many Retail businesses like some of the big UK supermarkets the solutions have been build around building a picture of the customer and being able to beetter underdstand and foresee offers, preferences and purchasing trends that enable them to build affinity, trust and confidence amongst their customers.

This is not the way core banking systemes were developed and mean that Banks are always dealing with multiple systens and 'joining the dots' is not easy'.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 27 June, 2014, 16:31Be the first to give this comment the thumbs up 0 likes

It's not my bank's business what I do with my retailer and, by the same token, it's not my retailer's business what I do with my bank. With that basic premise established, I've received good targeted offers of banking products from banks (e.g. my comment on, bad ones of retail products from retailers (e.g. my posts titled Loyalty Or Disloyalty Programs? and 
Beware Of Losing Sales With Bad Loyalty Programs on my company blog, hyperlinks removed) and none of telecom products from MNOs (e.g. Whither Upselling With eBills?).

As a technology marketer, I'd love it if all service providers used cutting edge technology to build affinity and do all those nice things. But, as a service provider or customer, why should I care if the service provider uses legacy technology or open systems or no technology at all to do the same? Whether it's easy or hard, banks have a better track record of delivering results in this space than other industries.

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