Banks and financial institutions shouldn’t rely on modern apps, websites, and interfaces to cover the problems at the heart of their technology infrastructure, argues Stessa Cohen in a new whitepaper.
Cohen, independent consultant, former Gartner analyst, and an expert on the digital transformation of the global banking industry, says banks must use a low friction approach to properly create a foundation for innovative services their customers demand.
“Sixteen years ago, I bought a stone house that is now 100 years old,” she writes. “Since then, I’ve spent time and money repairing mortar, painting, replacing roofing, sheetrock and elderly appliances.
“A couple of years ago, I decided to replace the thermostat with a ‘smart’ thermostat. My handyman attempted to install it and failed. Why? Although my house can be renovated and upgraded in many ways, the house as-is cannot support a smart thermostat.”
Cohen says that plenty of banks find themselves in the same position: they have legacy architecture and infrastructure in which they have invested significant time and money. These banks then maintain, repair, replace, and renovate this architecture to deploy new and better customer experiences.
However, the same architecture is still in place after decades. “Like my 100-year-old house, legacy bank architecture has its limits,” says Cohen. To successfully deploy digital technologies, institutions must be able to lower the amount of friction between their systems, she adds.
Failing to do so could result in competitors gaining the upper hand when they turn to newer, more capable infrastructure and providers, able to provide not just a new core banking system but an agile system as a whole.
Changing a digital strategy
One major tool to reduce friction will mean the removal of siloes in the digital banking strategy. As channels have multiplied, banks have had to deal with the challenge of delivering products and transactions to customers across several avenues.
Institutions tried to meet these demands by rolling out mobile and digital banking quickly to improve customer access and satisfaction. Often these are engineered and employed by separate teams and run by distinct bank segments.
This eventuality can only lead to even greater friction across an institution, especially when trying to deploy new services and products to meet challenges or customer needs as they arise.
“Renovation projects have reduced customer-facing friction in apps and online banking,” says Cohen. “But they conceal the friction in the internal banking architecture hidden behind an improved customer experience in mobile apps and online banking.”
This friction makes it impossible for the bank to move rapidly, whether to create new products and services or collaborate with new partners, and it inhibits the bank’s ability to build an open ecosystem that supports continuous innovation.
To unleash banking and financial services innovation requires a new approach to the core that actively works with customers’ needs, transactions and data as an integral part of the bank’s digital strategic architecture.