Beating the banking disruptors with digital decoupling

TIBCO Software’s head of Financial Services UK & Ireland, Richard Price, gives much-needed insights on how traditional banks can keep up with the times.

Today’s consumers of financial services know what they want—a customer experience that is both fast and frictionless. If they can’t get this from traditional banks, then there are a number of digital alternatives out there ready to deliver this service. 

Banks understand the nature of this challenge all too well. They do not need to be told that unless they can adapt to the changing competitive landscape with technology innovations of their own. They face, at best, a loss of market share and, at worst, an agonising drift towards obsolescence and ultimate demise. So, what’s stopping them?

The problem is inevitably rooted in the huge quantity of legacy technology that traditional banks rely on. It served them very well in the era before open banking was developed and services are designed to be accessible from any smartphone. However, the technology that was once the cornerstone of their success is now starting to hold them back. Indeed, one of the biggest inhibitors of banking innovation is the inertia created by existing large systems.

However, it a lot trickier than just ripping out all the legacy tech and replacing it with something that matches like-for-like what the challenger banks use. The appetite for this kind of “big bang” modernisation project has greatly diminished following many stories about the painful chaos that inevitably ensues. Plus, chief information officers can expect resistance at senior management level to the idea of junking something that costs so much in favour of a digital alternative that feels untried and untested and might take years to bed in.

So, is there a way for banks to have their cake and eat it? To retain some of the benefits of their historical investments whilst achieving much needed agility with the addition of new functionality? There is such a way forward and it is called digital decoupling.

As an alternative to replacing all legacy technology in one painful hit, banks can gradually decouple their existing systems, migrating the most essential functionality first. This means taking certain elements of legacy IT, for example the bits that support revenue growth and the delivery of value to customers, and switching them over to modern service-based platforms. Meanwhile, the more commoditised and easily maintained aspects of the legacy tech are retained.

If done right, digital decoupling is a way for banks to respond to market forces and technological trends, becoming more agile and, at the same time, keeping costs steady and disruption at a minimum.

A process of ongoing, continuous modernisation avoids the horror and expense of a wholesale migration of legacy systems. With each function that gets decoupled, the bank is moving closer to the day when core banking systems can finally be retired. The aim of digital transformation will have been brought a big step nearer at minimal risk and for a manageable outlay.

Examples of new technologies that digital decoupling brings on board include data lakes, open Application Programming Interfaces (APIs), Agile DevOps, cloud migration factories, micro-services, and Robotic Process Automation. 

Once underway with digital decoupling, banks will soon find they have opened up a treasure chest of new opportunities. By connecting at the level of APIs, for example, they can enable new types of partnership and new ways of collaborating, deriving mutual benefit in the process. Relationships with third-party service providers will allow them to create new digital customer journeys beyond what’s possible with their existing offer. By being able to collaborate with fintech partners, banks can accelerate time to market for new services and explore new revenue opportunities.

It is all about the data

Digital decoupling offers a way for banks to solve some of their greatest challenges, ones they have been puzzling over for years. Like what to do to get the most from the extensive quantities of data at their disposal. Why does this matter? As consulting firm McKinsey identified last year: “High-performing organisations are three times more likely than others to say their data and analytics initiatives have contributed at least 20% to EBIT.”

Banks know they have to do more with data management, data access, and meeting the challenge of Big Data. Digital decoupling takes them a big step closer to resolving that issue, and without having to do it in the form of one huge and risky project that encompasses the entire enterprise in one hit.

Decoupling let banks take on data challenges on a bite-size basis. They could opt, for example, to take a ring-fenced approach by decoupling at a divisional or geographical level, or perhaps try it out on one segment of their customer base rather than on every customer in one move. Added to digital twinning, which I have described in a separate article, this approach allows banks to test out new ideas for effectiveness at little or no risk.

By successfully dealing with the dead weight of legacy technology, banks can set about revolutionising the centralised and decentralised structures at the heart of everything they do. They can begin to take full advantage of other innovations currently stifled by reliance on old systems. These include improving operational resilience, which was also covered in this article. Digital decoupling can play a role in expediting a bank’s cloud migration strategy too.

It is not just a matter of streamlining the back end. It is about customers too, improving channels to market and addressing challenges around meeting customer expectations. Illustrating this point, SIBS–Portugal's leading payments processor–applied a forward-thinking strategy using a unique API infrastructure, creating a differentiated customer experience. The result was the SIBS' API Market platform, a revolutionary marketplace where banks and other third parties can find new services and share their apps with millions of customers. The open banking platform provides a seamless transaction experience and gives users access to more third-party solutions that can help them to manage their finances.

Decoupling also has a part to play in meeting regulatory challenges and improving data security. It can be the first step in the implementation of a single dashboard, which allows end to end visibility of everything that is happening within the business, both internally and externally.

What bank would not want to reach more markets and more customer segments by expanding their digital offerings, all without a comparable expansion in IT or marketing budgets? Who would not want a better way to give existing customers a better experience, but also collaborate more effectively in order to take advantage of fresh revenue streams?

Whilst this approach isn’t necessarily a new concept, the applications necessary for this architecture/approach have advanced to the point that the scale, speed, and integration required for a successful delivery, are now readily available. If you have not considered exploring manageable ways out of the closed loop of legacy IT, then now is the time to be talking to someone about it.