Reprogramming banking infrastructure to deliver innovation at speed

Ricardo Diniz, vice-president and general manager for UK and Southern Europe at WSO2, discusses how banking infrastructure can be reprogrammed to deliver innovation at speed

In our modern competitive environment, the phrase ‘digital transformation’ is not just an aspirational goal — it is critical to business success. That’s because essential business processes and interactions with customers, partners, and employees increasingly depend on the ability to innovate solutions at speed that deliver personalised experiences. But how are banks — built for stability, security, and trust — looking to stay relevant and thrive in this rapidly evolving environment?

Three stages to digital transformation

Most enterprises today have already undergone some form of “digitisation”. They have moved from analogue data management processes to digital ones and while this is a necessary first step, it does little to create new value propositions. The next step of “digitalisation” is when the organisation connects those digitised assets, both internally and with their value chain.

Digitalisation, according to Gartner, “is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities”. For example, you digitise mortgage statements, but you digitalise mortgage approvals. And this is the point where an institution might tackle a fully-fledged digital transformation, where they build personalised and timely new experiences for customers, partners, and employees at speed. Therefore, digital transformation is the last of three stages in an enterprise’s emergence as a future-ready institution. It generally comes after digitalisation, which comes after digitisation.

Digital transformation is not a straightforward project that gets developed, tested, and placed in production. It’s a journey. While it is important to establish a clear, concise scope at the outset of the initiative, it must be understood that the job will never be completely done, but will continue to evolve.

Compete, or become irrelevant

According to Cornerstone Advisors, only 11% of mid-sized banks and 4% of credit unions in the US won’t have launched a digital transformation strategy by the end of 2022. Competition is therefore fierce, not just from other banks, but also from Fintech firms and neo banks.

Fintech firms typically apply digital technology to processes those legacy institutions find difficult, time consuming, or costly to undertake, and they often focus on getting a single use case like payments, or alternative lending right. In contrast, neo banks, or challenger banks, deliver their services primarily through phone apps that often aim to do many things that a bank can do, including lending money and accepting deposits.

A key advantage for both is that they don’t have to spend time, money, and organisational capital to transform into something new. They were born digital. Likewise, they both claim convenience as their prime value proposition. However, while customers want convenience, many still see banking as a high-touch service. If their bank has survived decades of consolidation and has served a family for generations, familiarity can be a bigger draw than convenience.

That said, the COVID-19 pandemic has accelerated the online trend. More and more of us auto-pay our bills and buy our goods as well as our entertainment and services via e-commerce. Additionally, today no country exists in a vacuum, and every business in every sector is under increasing competitive pressure as digital services that see adoption in one economy, mushroom quickly across others.

Pilot With a non-core operation

As a result, most established banks have already started implementing digital transformation in some shape or form. Those yet to start should select a straightforward, non-core operation as a pilot. Once that operation has been transformed, an enterprise can then take the lessons learned and roll out more broadly with confidence. However, it is important that security, reliability, and high availability are all part of the implementation, and are not bolted on later.

Successful transformations often start with the institution’s ability to orchestrate its own in-house teams working with a short list of vendors who provide databases, design tools, integration connectors, and monitoring or security tools. Likewise, top management support is also key. Any strategic initiative requires leadership backed by commensurate amounts of budgetary priority and executive attention, which isn’t always as easy as it sounds.

While executive and business buy-in is critical, digital transformation remains a technology-centred initiative, and there is a whole litany of talents the organisation will need to deploy depending on their business goals and plans. This being said, time and again, it has been proved to be successful. Any transformation should encompass the entire business ecosystem.

Bank security is paramount. The organisation should not underestimate secure communications, the customer experience and benefits of mature digital ID management, fraud detection, or any other element of overall security. They should implement a unified or integrated business platform with tools, standards, governance processes, business models, and communication channels.

Where to start your transformation

When getting started, work simultaneously on the front and back end, ensuring constant communication between the two work streams. If one stream needs to move ahead of the other, it ought to be the back end as this is where the APIs are and where true digital transformation happens.

From a back-end perspective, start with an API inventory: look at what’s strategic, what’s ancillary, what works, what needs improvement, and what needs to go. Understand and build towards cloud-native computing technology and practices. Accept that eventually, as technology, security, availability, and pricing evolve, virtually all processes will move to the cloud. A main driver of any cloud service agreement is to exchange fixed costs for variable costs, so organisations should make sure they are contracted for adequate amounts of computing units and have the budget to handle inevitable peaks.

Finally, determine when to develop no-code, low-code, or full-code apps. There are trade-offs between user-friendliness and robust development. Some users might be unaware of their limitations. Take the time to determine if mobile-first is the way to proceed. It works for Fintech firms and neo-banks, but there are branding, customer relations, and other concerns for established banks.

Recognise that you have both external and internal customers

On the path to digital transformation, most organisations concentrate on their internal customers first. But whatever the approach, it is important to identify and periodically reassess functions that can be streamlined as AI and cloud computing matures.

Customers today are much more open to looking beyond the size of the institution, or its age, or its pedigree. They care less than before about assets under management or how many branches the institution has. What they care about is their own, personal experience. Therefore, the bank that delivers the newest innovations quickest is the one most likely to win the competition for a customers’ deposits and their loans in the future.

Written by Ricardo Diniz, VP and GM, UK and Southern Europe at WSO2

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