De-risking Digital Transformation in Banking

It's a strange world we live in as Banks are offering Insurance products while Insurance Companies are selling Banking products and FinTechs + BigTechs are offering both products in one way or the other. Are these the fruits of digital transformation that we are witnessing?

Need to ponder what is rally important for your business in short, medium and long term? Is it digital transformation? Are we clear on digital-first customers and what it takes to achieve that milestone of innovation, major risks involved? It is crucial to focus on that and avoid using the term 'Digital Transformation' as an excuse to upgrade the technology stack. Digital Transformation is a relative term and is directly connected with the organization’s business strategy, products, security, technology and most importantly the customer expectations thus influencing the cost and risk management policies of the institution.

My experience of 20+ years in the financial services industry taught me that technology transformation in the banking world has always proven to be a bumpy ride, especially for the larger complicated banks.

Jurassic Banking

Why just automate the current antiquated processes without bringing any improvements and disruptions?

Traditional banks = managing transactions x Future banks = managing customer expectations

Managing transactions = debit, credit, accounts x Managing customer expectations = Customer needs such as shopping, education, car, house and other commodities

Customers now don't expect bank just to provide them loans and accounts they expect banks to provide them services cater to their requirements fitting their lifestyles.

Banks must innovate and adapt otherwise be ready to left behind. Existence of decades old technologies is a hindrance for becoming customer friendly bank. New technologies such as Cloud, Composable Banking, Extensibility open-up new avenues for the banks to explore and expand.        

When you implement digital banking products in a traditional banks to do basic transactions without meeting customer expectations by using same old processes then you are not going anywhere and even risking your reputation. You need better information on customers in order to make smarter and quicker decisions. Timing is money!

Nonstandard Applications Across Nonintegrated Platforms

Major risk!!! It's a nightmare for any financial institution. The combinations of legacy and new technologies including cloud by multiple software and hardware contractors such as Core Banking Application Vendors, IBM, Microsoft, Google, Oracle, Amazon, SAP and the open systems community, have created spaghetti of issues including compatibility, integration, infosec and compliance. For any CIO, CTO, CDO and CISO, the shadow systems, data redundancies, multiple vendor contracts and data privacy related issues and complications due to the nonintegrated platforms running nonstandard applications, create nuisance and unnecessary hindrance.

Banks vs FinTechs vs BigTechs

This is getting interesting! BigTechs such as Google, Microsoft and Amazon are going to pose greater threats to Banks in the future as the dividing lines between their underlying business models are getting thinner day by day. The technology giants have gained much greater knowledge and prowess in the infrastructure, cloud and more importantly the auxiliary systems that FIs harness to provide their services to their clients. Now this is an addiction that majority of banks have been hooked on the BigTech's abilities to provide technological capabilities and a pathway to their customers.

Fintechs have achieved some success in challenging banks but mostly in the areas of payments and wallets but had a comparatively less disruptive impact on overall services. They are still struggling with the brand awareness, customers loyalty, product gaps and very limited FinTechs to FinTechs joint efforts.

People, Process and Technology vs Data, Regulation and Technology

What is beyond PPT? Are we still quoting PPT in every situation and if PPT based models are anymore useful?

Consumer data expansion and digital technologies have transformed the banking landscape. The focus is now much stronger on data and privacy concerns of the people. FIs are getting increasing pressure from the regulators that they need to address privacy concerns based on the organizational, international and regulatory frameworks.

The increasing reliant on BaaS, IaaS, PaaS and SaaS on Cloud is decreasing the dependencies on the people and the associated complicated processes. To avoid technology and reputational risks, FIs have been forced to select Cloud computing (advantage over their local servers) to enable on-demand computing resources including infrastructure, applications and environment instead of hosting everything on their Data Centers and dependent on plethora of resources including people and designing processes for them.

Banking Landscape (traditional) = People + Process + Technology (PPT)

Banking Landscape (future) = Data + Regulation + Technology (DRT)

The Rise of Composable Banking and Extensibility

The increasing reliance on the Data, Regulation and Technology gave rise to the paradigms of composable banking and extensibility. Composable banking is a flexibility that Banks are looking for to address their business architecture. There is a misnomer that only the core and digital banking application should be adaptable but that will not serve the purpose if the whole environment on which the application is hosted such as OS, Networks and Infrastructure are not adaptable. It's a whole platform and package. Extensibility is basically expanding on top of the existing technology stack to become more relevant to the industry.

Customers now demand from bank that they provide them continuously evolving applications and services that can be stitched and composed together to benefit them. Only way this possible is through cloud-native approach with open APIs and use of microservices framework to transform FIs into forward looking agile enterprises instead of the conventional banking vehicles.

Conclusion

New banking technologies are helping Banks in providing configured to fit solutions for their clients and limiting the risk of failures. Before jumping into the digital transformation wagon, banks should consolidate their multiple systems, distributed databases and disparate operations to improve their agility to serve customers. They further need to work towards creating operational efficiencies in technology to exploit synergies available through an expanded enterprise using cloud, extensibility and composable banking strategies.

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