By Anugopal Venugopalan
Banking is in the middle of a flux. The world has changed, especially since the pandemic, which accelerated the pace of digital transformation around the world. It is now a digital society, consumers are plugged in, and expect the businesses they work with to be personal to their lives.
Likewise, in banking, consumers expect personalisation, and banks must respond. The banking industry should reconsider the practice of consistently launching products designed for a broadly defined audience, a tradition that has endured for many decades. Banks that embrace agility through their technology stack to give personalisation with speed to their end consumers will win, and others will lose. There is no doubt about that.
In the dynamic landscape of global banking, modernisation stands as a major challenge. Faced with evolving business paradigms, financial institutions are investing in focused programs to navigate this terrain. The demands of customer expectations necessitate a level of technological agility and functionality that cannot be understated. Customers’ expectations for choice, trust, and transparency coupled with the surge of fintech innovations and stringent regulatory mandates amplify the urgency for this transformation.
An important aspect of this transformation process is transforming the core, or core modernisation. Core banking systems are the backbone of a bank’s operations. They are critical for ensuring the accuracy, security, and efficiency of financial transactions. These systems perform operations like customer and account management, deposits and withdraws, loans and credits, customer relationship management etc., depending on the design and scope of the core.
One prominent core modernisation strategy gaining traction in the past 12-18 months has been centred on simplification as opposed to full core replacements, which is a mammoth task and could lead to service disruption. Banks are strategically decoupling embedded capabilities from their core infrastructure. Consider for instance the domain of product and pricing. In simplest terms, this could mean creation of banking products for the end user and fees and rate definitions. Through this segregation of product and pricing capabilities from the core, a journey towards a service-oriented architecture unfolds, concurrently fostering a strategy. This approach disentangles various core systems from customer-facing channels, facilitating simultaneous operation and experimentation.
A notable example of industry collaboration in this endeavour is offered by the Banking Industry Architecture Network (BIAN). Comprising members with a wealth of industry experience, BIAN operates on service-oriented architecture principles. Their comprehensive model offers a future-proofed solution for banks, promoting seamless collaboration within the sector.
The Coreless Bank initiative aims to promote a more efficient and effective approach to modernising banking software. The collaboration between initiative partners will make it easier for banks to source and adopt new business services. This will solve the perpetual challenges presented by legacy core infrastructure and allow for faster and cost-effective development of services that are more relevant for today’s digital-first customers.
In the realm of technology, the cloud emerges as a pivotal player. By migrating select workloads to the cloud, banks reclaim their focus on delivering unparalleled customer experiences, while eliminating the need for on-premises infrastructure. Leveraging cutting-edge technologies such as Confidential Computing to safeguard vital core data, cloud-hosted solutions for product and pricing empower banks to remain agile and responsive to evolving customer preferences in the digital age.
This juncture in the banking world requires forward-thinking strategies. This hybrid narrative is not merely an option, but an imperative. As banks fervently pursue agility, uphold global standards, and maintain an unwavering client-centric focus, they forge the path for a transformative era in banking. Another fitting example of how a bank can achieve a better customer and employee experience is the ANZ bank digital transformation. It is a useful case study of the need to continue core modernisation and transformation to enhance product propositions and customer experience.
It is noteworthy that some banks today are opting for core replacement rather than core modernisation, which represents a more capital-intensive and riskier approach when compared to the phased modernisation of their technology stack. The advantages of embarking on a modernisation journey include the ability to retain functional core system elements, improve cost and time efficiency, and minimise disruptions.
The potential for business disruption poses a significant risk with the potential to harm a well-crafted brand image in a matter of days, particularly if it impacts the consumer experience. Core modernisation presents banks with a viable path to modernise while minimising risk.
Looking ahead to 2024 and beyond, emerging technologies promise to further reshape the banking landscape. Blockchain’s potential for secure and transparent
transactions, AI’s ability to revolutionise customer service and risk management, and augmented reality’s potential for immersive financial experiences are influential forces that will redefine how banks operate and how consumers experience banking. By embracing these innovations, banks can fortify their position at the vanguard of technological progress.
The need for modernisation in banking is a vivid reality. By harnessing the power of technology, collaborative industry efforts, and forward-thinking strategies, banks which are attuned to the new digital age are poised to usher in a new era of banking excellence. Those who are not will miss the proverbial bus.
(The author is Co-founder and global COO, Zafin) Views are personal