Seeking Stable Modernization

By: Tyler Brown

SEPTEMBER 10, 2024

Modernization strikes a delicate balance between the risks of change to banking technology and the perils of inertia when legacy systems and processes are in place for too long. A financial institution’s (FI’s) technology modernization plan sets standards for features and performance based on what’s needed to support the institution’s strategy, current customer persona needs, personas of the target customer as defined in the institution’s strategy, the related risk of doing a modernization of technology, and the risk of not doing it.

In a modernization strategy, legacy systems have a role but aren’t the vehicle for innovation. Customers never touch backend core systems, but modern infrastructure must provide flexibility and futureproofing to support them. This is crucial across all lines of business, but the risks need to be defined and mitigated — and doing nothing or kicking the can down the road is a bigger risk than moving ahead. A modernization strategy built as a migration reduces that risk to bite sized, digestible phases over time.

As we’ve noted, 75% of respondents to our 2023 US Banking Study said they would prefer a phased-migration approach. But a successful modernization plan needs to be specific. To execute a migration, FIs need a comprehensive roadmap supported by a well-thought-out tactical plan to ensure continuity of the business, support customer needs, integrate with existing technology, and have the resources or the partner to support it.

A modern tech stack can be either on-premises or cloud-based depending on the institution’s needs. With an open architecture, FIs can achieve flexible, scalable, and technically resilient infrastructure. This approach accelerates time to market and allows for the most cost-effective launch of new products and services.

Effective risk management during the transition requires meticulous planning, including a thorough assessment of operational risks from legacy systems and processes. This involves evaluating architecture, infrastructure, applications, processes, governance, workflows, and performance, and balancing the risks of implementing changes. Senior management must commit to a long-term modernization strategy and mitigation plan, recognizing that the journey is long, and that many obstacles will draw focus from the ultimate goal.

Maximizing the Branch’s Value

SEPTEMBER 12, 2024

By: Tyler Brown

Channels and Account Opening

According to a recent Q2 and Harris Poll survey, 65% of Gen Zers and 58% each of millennials and Gen Xers/baby boomers (combined) said they would open a new account in person. These results matter because of the sheer overall demand for in-person account opening and the especially high demand from Gen Zers. The number for Gen Z could once have been chalked up to that demographic’s lack of experience with banking and its need for advice. But as Gen Zers age, that story may not stick.

Gen Zers, now aged between 12 and 27 years old, include millions of consumers who have been legally able to open a bank account for years. Changes to banking channel use, including mobile’s growth into the most frequently used way consumers manage their bank account (as we’ve covered), haven’t erased legacy channels’ value to acquiring, engaging, and retaining customers. Financial institutions (FIs) must invest wisely in front-office features and functions with the most value to their customers, both in digital channels and in person.

When consumers use a channel for a focused range of tasks, it deserves attention — channels that do everything all the time are probably bloated. To make the right investments in channels, FIs must understand what customers will want, when, and where’s they’ll want to get it. In the context of account opening, it’s about what they’ll buy next — Gen Zers, for example, will need more non-depository products as their financial situation and life stage demand it. The FI where they first opened an account has an opportunity to make that sale, but so does any other bank with attractive products and a competitive account opening journey.

As we’ve written, physical channels and digital channels should complement one another. FIs need an omnichannel strategy that anticipates their customers’ behaviors, expectations, and needs over time and in any context. While a branch may be the preferred channel in general to open an account, it may also be part of an omnichannel journey. It could touch mobile or online banking, the branch, or another channel — between a customer’s research phase to starting an application, submitting an application, and getting it approved. It’s important to be able to pick up this journey from one channel to another.

A branch with the strongest business case likely focuses services on customers’ primary use cases. With mobile’s dominance in day-to-day banking, in many cases branch strategy should emphasize certain types of in-person interactions (like account opening, according to the Q2/Harris Poll data) and continuity with digital channels. A branch that’s attractive and efficient for customers who use digital for day-to-day tasks has long-term value. Bankers should think about how to design branches so that they’re best suited for tasks other channels aren’t well-equipped to solve and calibrated to customer demand.