Building a smarter, more agile bank

When financial institutions start planning to overhaul their IT systems, the biggest step is resisting the temptation to postpone the change.

When you picture a bank in your mind, what do you see?  It’s most likely the traditional brick and mortar branch. There’s nothing inherently wrong with this picture, but it obscures the fact that a bank’s core product is digital.

When you apply for a mortgage or open a checking account, you don’t get a physical good. Instead, you get a digital product, and the driving force behind that digital product is millions of lines of code and processes layered onto each other that enable banks to offer the products and services that customers want.

These legacy codes – many written in the final three decades of the 20th century – can often be clunky, a reflection of the business processes and products of their time. Today’s customers are looking for quick and easy access to modern financial products, so this technology legacy and its accompanying monolithic processes make it difficult for banks to quickly scale their businesses to match the digital transformation happening across banking and other industries. Banks know they need to overhaul their systems at some point, but transformation can be expensive and complex, and many banks decide to put off change to some point in the future.

Sign up for the free BAI Banking Strategies newsletter and get industry insights delivered to your inbox.

As we watched the pandemic disrupt consumer behavior and the way consumers interact with banks, we saw that being able to quickly adapt and drive change and scale is a huge advantage.  Banks least impacted by the pandemic were those that had a model in place that allowed them to quickly adapt to customers’ expectations for on-demand, digital-first services. That model is rooted in nimble, cloud-native technology and constantly updated in so-called “CI/CD” pipelines that give customers easier access to their financial products and services, thus allowing banks to be “always on” in a cost-effective manner.

True digital transformation can be expensive, as it means stripping away the tried-and-true processes that banks have long relied upon. Instead of simplifying through digital transformation, banks have been essentially gluing new fixes onto the existing code, and with each glued-on update, the code becomes more complex and harder to change or adapt. Ultimately this is what leads many to stick with the old code and related business processes.

While banks know that they can no longer afford to operate on the old code, transforming into an agile IT organization is extremely difficult when they are hindered by internal silos, disconnected channels and legacy operating IT systems.

To move past these obstacles, banks should leverage API-driven, micro-services architectures that enable ecosystems of connected technology and business partnerships that can help them leapfrog legacy infrastructure and bring together existing systems with future-ready options. Such ecosystem partnerships on common, cloud-native architectures allow critical operational components to be modernized in parallel with advancing a bank’s technology roadmap and more cost-efficient.

Part of building a more agile bank is understanding and anticipating the needs of customers. Future-focused transformation requires cross-channel data analysis, along with the previously mentioned cloud-native technology foundation. This can allow a bank to quickly offer an enhanced consumer experience that can scale on demand. The right approach can keep the bank’s focus on the financial products without having to worry about the impact on legacy codes or algorithms. It makes operations management more agile and efficient, since new resources or infrastructure will not have to be created from scratch.

Once banks break from the traditional, channel-centric approach that often stifles innovation, they’ll be able to offer dynamic digital ecosystems that match customers’ need for the “always on” solution. In a post-pandemic world where financial technology companies have disrupted the expectations that customers have for their financial products, having an infrastructure that is future-ready and can serve complex consumer journeys will determine who wins the war for the financial services generations of the future.

The question shouldn’t be, “How much will it cost us to become a smarter, more agile bank,” but rather, “How much will it cost us to not become one?”

Michael Engel is vice president for banking software at Diebold Nixdorf.