Banks with legacy architectures will not match the agility of fintech and big-tech companies unless they go digital-first and modular.
Banking in Southeast Asia is on the cusp of a mass rapid adoption of digital solutions to be rolled out in the region. This is on the back of the digital economy that is poised to flourish and grow at an unprecedented rate towards 2025.
Yet, in this gold rush to serve the highly digitally-savvy market, many Chief Technology Officers of banks find themselves facing the mammoth task of driving digital-first initiatives within the bank as legacy infrastructure exists on rigid monolithic applications. These applications have programmatic limitations that do not allow the flexibility and speed that fintech startups and Big Tech companies (such as Google, Facebook, Grab) have.
This legacy stifles the ability to create or improve customer-first digital experiences, in spite of the resource and data advantage that banks possess over the new tech companies. Legacy infrastructure exists to ensure that the bank’s products and services are delivered in a safe, secure and reliable manner within a familiar parameter of expectations.
While this set of expectations has been exceeded and expanded in the age of disruptive digital innovation, the systems on the backend have not similarly transcended. With the great task of digital transformation set on the CIO to bring the bank to the next digital gold mine, how does one go about approaching the movement in a strategic and cost-efficient manner?
Think Lego infrastructure
When we think of a Lego project, we know that it is made up of hundreds or thousands of tiny pieces put together to form a structure. If an error is spotted, the modular parts can be removed and re-attached to correct the imperfection. The creation and adjustment processes are reversible and will not cause permanence in the state, thus preventing the need to start over and so saving time and effort. This modular plug-and-play approach, where parts of the infrastructure can be shifted, adjusted and implemented, can similarly be used by banks via a cloud platform.
Fintechs and big techs are built on cloud systems that are agile and work in block components, which allow the same capabilities to be shared across processes using standardized exchange principles. By swapping around different modules as needed, it is possible to customize offerings, or add new features, without large deployment efforts that cost immense amounts of resources and time.
Modules are created once, reused and can be combined in an infinite number of ways, creating a fluid structure that can be used to respond to the continuously shifting demands of customers.
Agile in processes and distribution
Banks have already started to decouple the various organizational layers, which is a step in the right direction, but they are still encumbered by the potential risks associated with trying to change monolithic infrastructures. However, in this new competitive environment, banks need to go further. Decoupling the front and back end may provide a bit more flexibility, but in the broader competitive environment, it does not enable the bank to move at the much-heralded speed of digital.
A modular set-up, supported by a Lego-style block architecture, paves the way for faster, more agile ways of working. It is possible to create and alter processes, products or channels as needed, without severe repercussions to the overall infrastructure. Changes are easily made, by small business teams, with minimal disruption or impact on the business.
Traditionally, when banks create a new product, they launch it via existing channels. This has not guaranteed acceptance in the market and many have paid the price with wasted resources and advertising failures.
Customers in the digital age are pampered in all directions with a long list of choices specific to their needs. Hence, the delivery has to be customized according to the customer’s choice of channel for a personalized approach that would yield much higher results.
With agile, modular architecture at both front and back ends of the bank, product adjustments and distribution channels can be adapted, deleted or added as the market demands. The fixed costs associated with traditional distribution formats are replaced with the lower variable costs of streamlined, digital-ready and personalized channels.
Austrian bank Raiffeisen successfully implemented an agile process and distribution by working with digital banking platform, achieving launches of new features to market quickly. The advantage is that resources are released for continuous improvement and added value, while significantly reducing the risk of looking at any infrastructure overhaul. Banks can start to focus on what matters to customers— value-adding by innovating new products and services—while saving money and boosting revenues.
Innovation at scale
The Googles and Facebooks of the world constantly introduce clever new innovations and features, quickly and at scale. They are agile enough to exceed customer expectations without any major implementation, upheaval or cost implications. Banks now have the ability to replicate this agility seen with tech companies, and go further.
With a modular architecture in place, it is possible for banks to innovate in the same way—fast and in line with customer needs. A modular architecture changes the game for banks to take a pre-emptive approach at serving what the customer wants, empowers a bank to transform from responding to market realities, to actively creating them.
For example, the Bank of Philippine Islands has achieved this innovation sweet-spot since implementing such a modular infrastructure, and their teams have seen increased capacity to innovate new digital products. With a more agile foundation in place, combined with their exclusive hard-earn data and resources gained through customer trust over the years, they can really start to innovate for competitive advantage.