Banks have invested plenty of time and money into legacy systems powering the heart of their business, but that same investment has created a dangerous overreliance on platforms that may no longer be fit for purpose.
Over the years these workhorses were maintained, repaired, modified, renovated, and connected to a web of subsidiary functions. All these changes have occurred in reaction to new modes of banking in the world – from the first online banking portals to the ubiquity of today’s mobile banking apps.
Yet building on top of these legacy systems is an inherently dangerous practice. Banks, stuck in a cycle of renovation, are often unable to adapt to emerging technologies which more agile competition is adopting wholesale.
This is the point argued by Stessa Cohen, strategic technology advisor and former Gartner Research Director, in a newly-launched Pismo whitepaper.
Innovation demands that banks be able to identify both emerging customer needs, niche markets and the hidden tribes of customers, she writes, whose financial services go unmet as well as the technologies that can help the bank support these needs.
Stuck in the mud
Renovation projects have reduced customer-facing friction in apps and online banking. 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 to collaborate with new partners, and it inhibits the bank’s ability to build an open ecosystem that supports continuous innovation.
From both the “front” and “back” sides of the architecture equation, the bank is stuck in the mud of its legacy architecture. They can’t stop renovating. To support innovation and create truly transformational and disruptive banking and payments products, however, core banking systems must be able to do what they are good at: transaction processing. Traditional core banking systems are not adept at removing friction from these processes, integrations and collaboration.
Look for low friction
In the report paper, Stessa argues that financial institutions need to assess their services through the lens of the Low Friction Bank Framework, which prioritises a reduction in the time and pain it requires for a bank to connect, engage and adapt to the requirements of any one customer or participant.
A bank looking to provide a low-friction service, writes Stessa, must look to meet some of the following criteria:
- An architecture that supports customer delivery
- Boundaryless processing and provision of services
- An ecosystem of open partnerships
- Flexible deployment
- Core banking coordination
Innovation and customer demands require that the bank move quickly to adapt to a constantly changing business environment. Utilising the above characteristics in tandem will help banks to create innovative products for their digital-native customers and clients.
To discover more about the Low Friction Bank Framework, and how banks can shift away from a mindset focused on legacy technology, download our whitepaper.