Andrew Beatty, Head of Global Next Generation Banking at FIS
Last year, the financial services industry went into overdrive to keep businesses afloat and help customers in great need. Digitalization programs accelerated rapidly as innovation and adaptability rose to the top of the bank agenda. As self-development expert Brian Tracy reminds us, “It doesn’t matter where you came from, all that matters is where you are going”. In this first of a 2-part blog series we consider what to watch for in 2021.
Universal Digital Transformation
The pandemic has forced the pace of bank digitalization. Pre-pandemic most banks had plans to transform over time, but now they are pursuing digital with renewed urgency, verve and commitment. The fundamental objectives remain the same (to offer an enriched customer experience that is seamless and secure; to have the flexibility to innovate and adapt; and to reduce operational costs), but now the pressure to deliver is greater.
Customers have high expectations. Banks that are empowered by new technologies and better information will achieve operational excellence and win more customers. With the rise of digital-only banks, distance is no longer a barrier to great service. Digital banks have also redefined (and continue to redefine) bank cost structures and aligned processing costs with business success.
Can a Great Customer Experience Coexist with Processing Efficiency?
Yes. What constitutes a “great customer experience” is somewhat subjective and open to debate; there is no singular definition. However, essential characteristics include:
These are worthy objectives, but the challenge for banks is to deliver a great customer experience in parallel with increased operational efficiency. Once again, there are many schools of thought regarding the particulars. There is, however, some consensus regarding the need for operational excellence to do this sustainably. In financial services, this can almost always be reduced to three key elements:
A unique benefit of digital transformation is the ability to improve the customer experience and reduce costs simultaneously. Nevertheless, embarking on a digital transformation journey is a daunting prospect as it touches every area of the bank, and strategic planning will be required. But there are some universal requirements; for example a quality digital banking experience relies on real-time core processing and event-based marketing, so these offer a good starting point.
Real-Time Core Processing
A real-time core not only offers competitive advantages, it’s also quickly becoming table stakes for banking success. The growing financial ecosystem – in which banks need to participate to stay relevant – is increasingly orchestrated in real time by application program interfaces (APIs). A real-time core is also essential to integrate instant payments and other related services within the bank.
In practice, adopting a real-time core is about much more than processing; it is about people, how work gets done and the business outcomes delivered. With a real-time core, a bank can challenge the mindset of how things were done in past to re-examine, rethink and redesign business processes surrounding such diverse activities as funds availability, exception processing, fraud management, transaction processing and customer communications. The benefits of moving to a real-time core are clear, substantial and sustainable.
Research shows that there is widespread awareness among banking leaders regarding the need for digital transformation, as well as recognized and appreciated sense of urgency, but slowness in the realization of full delivery and adoption lingers. I believe in 2021 we will witness a full “lean into” for real-time core processing across financial services, not only in technology solutions but also for product and service design and delivery.
Banks can harness the power of live “moments in time” data (events) to increase customer engagement by offering exciting digital experiences tailored to customer interactions as they occur. In this way, multi-step processes can be personalized and automated to meet customer needs more closely with minimal customer input.
In this context, an event can be defined as a change in state or an action taken within a system, and an event stream is a time-ordered sequence of events that can become a powerful marketing tool.
An event-driven solution architecture empowers a bank to integrate all data sources and centralize customer events in real time. The bank’s systems can access and analyze event streams and respond to customer events immediately. Coupled with a real-time backbone, a bank can reduce the need for multiple systems to ingest all the data, which can help reduce many of the challenges and costs associated with data warehousing.
More Trends to Watch in 2021
In my next bi-weekly blog, we’ll consider the likely evolution of new business and deployment models, including Banking as a Service (BaaS), Low Code/No Code development, and the pivotal role of APIs in delivering digital bank success.
Andrew Beatty, Head of Global Next Generation Banking at FIS
“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.”
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