When one doesn’t have that I’m-ready-for-my-closeup feeling, a nifty photo filter can be a go-to tool. But while it may help in cooking up a cute social post, it’s not going to clear up that skin that’s been giving you fits. For financial institutions (FIs), it’s a bit akin to putting a slick UI atop a brittle legacy core. Surface level aesthetics may seemingly boost appearances, but they’re not going to make customers happy when real-life experiences don’t live up to the hype.
Today, Fintechs and challenger banks are looking to technology that allows flexible product configuration, accelerated time-to-market and scalability to support a fast-growing customer base. Larger organizations want this too but often rationalize patchwork fixes because they worry, understandably, about risks that modernization missteps could introduce – from reputational risk to revenue loss, and more. Still, customers continue to want gorgeous, frictionless, relevant banking experiences that outdated mainframe systems can’t support.
This highlights two technology truths for FIs of all types – 1) Doing nothing is not an option, and 2) Predictability is crucial. So, how can FIs ditch the filters and leverage new banking technologies in a way that corrals risk, promotes profitability, and delivers customers the enhanced experiences they need and want? Below, we examine a few options:
1. Starting Small.
Starting small is simple to say, but what does it really mean? If we’re talking skin again, it may be switching to a face wash that’s better for my skin type. For many FIs, it means starting with one or a small set of products for which business cases have already been built. Buy Now, Pay Later (BNPL) is a great and profitable example where a FI, using the right technology, can quickly configure and launch a solution that is red-hot in the consumer market. Focused products and speed of development like this are usually easier to sell internally, can be implemented quickly with a subset of customers, and may serve as a phase one and Launchpad for broader and continuous renovation and transformation.
2. Ensuring Executive Sponsorship.
Whether starting small with a single product or embarking on a complete transformation of legacy infrastructure, executive support is a must-have ingredient. Like that friend who’s always got your back and picks you up, leadership should be 100% behind each project to remove barriers and empower teams. As projects get underway, decisions will need to be made quickly. Ensure that proper governance is in place to support momentum. It’s important too for executives to not cast any project as simply a one-off initiative but to see each more broadly as a demonstration of how quickly and controlled a successful and profitable product can be configured on the new stack.
3. Getting a Handle on Data.
While not typically a huge hurdle for Fintechs and challenger banks, data migration tends to be a massive challenge for larger FIs. Ordering, standardizing, and cleaning data is indeed a significant undertaking, but one that must be addressed before a transformation journey begins. Data challenges in larger banks often stem from uncertainty about how to access and break the data down and cleanse it. For example, how will accounts where the customer resides in the US and has an account elsewhere in a different currency be handled? How do you successfully migrate account centric to customer centric? For answers, organizations can lean on expertise from partners like Temenos who have helped others address the very same issues.
Just as using too many skincare products can introduce irritation, unwieldy product portfolios can introduce problems for FIs. For example, a cumbersome product catalog found one client with over 450 different types of deposit accounts. By focusing on the products of the future, they moved to a more focused and relevant product catalog that enabled parent/child product inheritance relationships where terms and conditions can be easily tweaked as needed. The result was less than 30 deposit account types that simplified management yet still met the unique needs of their customers. Refining what they were going to market with also allowed leaders to be more focused on understanding which products are and are not profitable.
4. Standing Up a Separate Instance.
Fully migrating data and moving from one core to another in one fell swoop isn’t an option for most organizations. Many though are finding success in standing up a new stadium next to their existing one so that it works in parallel to offer a product or products that would not be possible with their legacy infrastructure alone. This approach eliminates disruptions to core systems and provides a path for the new technology stack to prove itself before implementing it further across the broader book of business.
Real Change and Removing Risk
The clever Snapchat filters that place a halo of flowers around my head or make me appear unnaturally flawless may make for some in-the-moment fun but the change, alas, is not real. Today, financial institutions of all sizes and types can bring about real change, however, and move their technology forward safely and successfully. Whether used in introducing a new lending, DDA, term deposit, or other product, thin-core solutions designed with purpose-built and flexible APIs and microservices are making it possible.
Doing nothing in response to customer demands for better banking experiences is not a sound business strategy. At the same time, a rip-and-replace approach to modernizing infrastructure can be a recipe for too much risk without certainty of success. Avoid the pitfalls associated with revolution and opt for impactful evolution that new technology promises by starting small, ensuring executive sponsorship, getting data in order, and standing up a separate instance to show a project’s merit and ability to scale.