Digital transformation work for banks is well into its second decade. It has been stop/ start for sure and progress hasn’t been linear or steady. But progress has been made.
Every financial institution has some digital capabilities now and a plan of varying ambition. But each of these institutions has a very uneven estate internally: state of the art containerised architecture sitting alongside mainframes older than me (and let me tell you, that’s too old for a piece of critical tech infrastructure). Maintaining an estate of ever-increasing complexity in an ever-accelerating market is tough. And expensive.
Unshackling yourself from “legacy” is complicated because of technology, governance, budgets, and humans. But each year sees us a little closer to making the hard decisions needed in this direction. I don’t expect a stampede immediately. But I do expect this theme to continue picking up pace and speed, and hard decisions being made closer to the heart of the business.
This is not easy work and it’s not fast, but we do see it happening. And to achieve that, you need to start from where you are, not where you wish you were.
The focus is shifting from experience-led technology to the pipes that enable it
Decision-makers looking at their own estate will see a combination of brand new things they’ve bought, built, and partnered with over the past five years, alongside systems they’ve inherited from the Seventies. They have a very uneven landscape of technology compounded by organizational and governance complexity wrapped tight around it all. Digital capabilities were first built where they were most visible or less risky and increasingly went deeper and wider where there was a combination of regulatory pressure and market opportunity. That means that a lot of the invisible estate underpinning and connecting these systems is often decades old and that comes with understandable limitations.
You may have an all-singing, all-dancing app for your current account, but you don’t have a single view of your customer across that product and the savings or lending services you offer them. You may have a shiny payments infrastructure, but your liquidity management is creaky. The functionality that rests on multiple systems playing nice with each other is the next frontier for banks, but to get there a true overhaul of the invisible plumbing of the institutions is required.
Patchworks and workarounds won’t fix this one and the banks know it. The work will always feel gradual and inconsistent across the estate but that’s part of the journey of putting one foot in front of the other until the end state is reached. And where that journey will take a lot of organizations is deeper into their estate and in the spaces between systems.
‘Talk to me bro’
Open banking is not new. “Data is the new oil” is not new. But the plumbing that allows data to flow freely so that it can work like magic has been a work in progress. Again, we are seeing acceleration in the theme of connectivity both inside institutions and across them. As open banking and open finance in general are maturing, people are getting creative fresh ideas of the art of the possible, from account aggregation and “have you thought about buying a house in the areas where all your leisure spending is done, because you can afford a mortgage there” to dynamic collateral management. To do that, human creativity has to meet... pipes. Systems that are designed to talk to each other both within and across organizations. And those systems have been long in the making. Sure we are not done yet but as with many other long-term trends the change doesn’t come when the work starts but when the tipping point is reached.
Hyper-personalization and true user-centric (or industry-problem-centric) design will be increasingly possible as systems and regulatory frameworks have fostered an environment that allows people to creatively embrace the art of the possible.
Start from where you are
Transformation is complicated work, and it takes time. And the hardest thing to do in the midst of complicated, long-term work in a fast-paced environment is to remember that you don’t start from where the competition is. You start from where you are. You will have some unfair advantages. You will have some heavy legacy. Working around those made sense at the beginning. But now it is time to work with and on them. Taking a long and realistic look at where you are (warts and all) is key to accelerating the work especially as “legacy” isn’t just COBOL code. It is also partnerships, clients, a balance sheet, knowledge of the market, and a whole host of advantages, not just burdens.
The banks that look at their history, their legacy, and their estate and say, “OK, this is where I am and I know where I am going so this is what I will do next”, are the banks that will truly accelerate to the finish line now that the low-hanging fruit has been reaped.
Nobody is standing still
Pre “FinTech”, banking was not static. But it was stable, change didn’t move as fast or go as far, and banks (rightly or wrongly) felt much more in control of what they would choose to do to and what they wouldn’t, especially in terms of technology. A combination of regulatory overhaul, a very competitive landscape disrupted by challengers and technology, and, of course, the evolution of a digital economy around banks, means that a lot of the decisions are made for the banks, be it because the regulator or the economy demands certain things or because technology evolution sets a pace that doesn’t wait for you to complete your strategy.
That is a given and has been for over a decade but that is not the whole story.
We speak of the incumbents as if they were an undifferentiated mass, but they are not. Some incumbents have done much better and gone much further on their digital journey than others. And they create real competitive pressure for each other. Although the challengers and the neo-banks have long been looked at as the real innovators changing the landscape, what we are seeing is some incumbents learning fast, and combining the hard lessons they have learned on this journey, the inspiration they got from the challengers, and their own competitive advantage (be it scale, their brand, customer base, or their fortress balance sheet) to accelerate their own journeys: to build capabilities fit for the new economies powered by new learnings and old tricks. There is a reason why we call it an “unfair advantage” and the banks that reflected on what theirs is and realized it was not their legacy technology will be making waves this year.
Hope: Banks will operate with intent
My final trend is more of a wish, and it’s intent. From what I can see, it’s finally happening now.
A lot of banks ditched projects under the pressures of COVID-19. Experiments
and even incredibly ambitious 10-year transformation projects fell by the wayside because people needed to make budgets work, deal with the real crisis at hand,
and support their customers, teams, and communities. Now, we’re seeing first-hand that recognition of the critical nature of useful technology, matched with the need to deliver under tight financial resources. Looking forwards, I trust and hope banks will retain this focus and show real intent as to what they want to achieve next.
The journey hasn’t been easy this far and some of the hardest work is still ahead of us. Not doing it is not an option. But doing it half-heartedly, sadly, is always an option. And it’s a terrible one! So, the winners will be the ones that bring vision and intent to the rest of the journey.This article is an extract from our e-book "Making Banking 10x Better". Download the full e-book via the button below.