Breaking Down Digital Banking Transformation: Why It's Time to Revise the Traditional Rules

The digital banking revolution is not going to slow down and wait for banks to catch up. A rigid, siloed banking platform hampers innovation and presents an opportunity for competitors to gain the upper hand. How you choose to build or reinvent your bank depends on your transformation goals and can be hindered by your legacy infrastructure.

 At the start of the digital banking journey, there are simply two strategies:

• Strategy 1 (Traditional Banks) – Break away from legacy core banking to become digital-ready by adding technologies/modules as channel enhancements emerge for customers and bankers.
• Strategy 2 (Challenger Banks) – Start with smaller, cloud-ready core components to create a superior digital channel experience, then scale OPEX based on growth while adding essential components.

The vast majority of traditional banks are married to Strategy 1. Your existing core banking engines and other specialized process systems (loan management, credit cards, trade finance, etc.) have all been built upon the decades of work creating your unique products, processes, risk management, and security.

First and foremost, it’s important that you and your team find the balance of what you need to re-architect, how much to re-platform, and how much to retain while maintaining the bank’s core capabilities.

Why? Because just as Icarus, who escaped peril in the Labyrinth with his wings of wax and eventually fell to his death by flying too close to the sun, you can reinvent your way to failure. The idea that a traditional bank must suddenly become a disruptor with a wide array of new products and services is a fallacy.

You need to know who you are as an institution and what your core capabilities and values are—and then honor and maintain those foundations.

Rooted in reality, not vaporware

While transforming your systems of records, engagement, and experience, your goal should be to achieve seamlessness and interoperability across your support systems. Getting there requires adherence to open standards and adopting the right amount of open source in your technology stack.

Digital banking transformation should also be adaptable to future expansion of new products and systems, with proven interoperability patterns. That can be a difficult with legacy systems and decades’ old technologies that operate as walled gardens.

Start by tearing down the walls and finding the right balance between cost of platforms, vendor lock-in, re-using open systems, projects, and integrability of technical tiers.

But, as you already know, if it’s too good to be true, it probably isn’t – the excitement and inertia to continually try and adopt unproven platforms is likely to hinder long-term equilibrium and enterprise security.

Going beyond omnichannel

Banking from anywhere is a minimum expectation, but digital banking transformation goes beyond simply offering a mobile channel.

It’s going beyond the limitations of omnichannel, where here is the same as there, to the next level-opti-channel-the right transaction surfaced to the customer via the right channel based on their need at the moment. Wearables, peer-to-peer payments over social media, voice-driven account access and operations, chat-based originations, QR code transactions – options and interactions that go far beyond surfacing traditional online banking on mobile.

At the same time, next-gen banking customers expect premium services like personal wealth and cash management as well as investment options suited to their tastes. Once the bastion of high net worth individuals, these are the expectations of the aspirational as well.

Therein comes the role of embedded AI/machine learning and robotic process automation – continuously evolving and learning cognitively from the patterns of users.

Core Digital Banking Innovation

Key to this next level of digital banking transformation and opti-channel banking is building a system of records architecture that is simple enough to support externalized innovation. You should not attempt to build in all the “innovations” in the modular transformed core but rather pave a culture of trying and testing (“adoptive”) ideas externally using a simple-but-robust core.

Such DevOps processes allow for sandbox innovation that should pave the way for an effective digital factory for the bank where the assembly lines are not blurred by complexity.

Breaking up a technology monolith such a legacy core results in a myriad of architectural and design choices that have to be made, which can dramatically impact the form and function of the bank. Identifying the most pertinent questions for design best practices and evaluating the architectural patterns against them is the key. There is never a big enough whiteboard, so a DevOps sandbox is a great environment to (in)validate your big ideas.

Focus on Tomorrow’s Potential, Not Today’s

Building a bank, the right way, means using the right architecture for your design, from day one of your project. This requires having a realistic point of view for the future of your operation and needs, especially in terms of the technology you want to consume in terms of upgrades and add-ons as well as an idea of potential parallel products and market channels.

You must balance your viable business model, or as far of a horizon you can envision for one, with an equally long technology vision. Key to doing this successfully is to focus on the customer rather than the product lifecycle, centering your model of growth and maturity around the additional functionality and intimacy you want to add to the customer relationship, not simply how many more accounts you can sell them. Functional richness is more important than the current buzz around emerging or next big thing technologies.

Undoubtedly, no matter your asset size, you will face the challenge of data integrity and governance in a highly distributed business model. Proper care is needed to evaluate how an orchestration layer would ensure integrity across the data architecture for transactions as well as how to maintain atomicity, quality and consistency of data after Create, Read, Update, Delete (CRUD) transactions.

Cloud Considerations

Cloud has become the default option when a traditional bank plans for digital transformation. Whether it’s private cloud/non-regional multi-cloud/hybrid cloud, parallel cloud bursting kind of designs, it is important to assess strategies based on how they add to, rather than simply support, your long-term business/functional model.

Chief among your considerations should be reasonable scalability and measure addition of functionality that helps your organization progressively and securely move to the cloud.

At the end of the day, your enterprise cloud strategy should follow your digital banking transformation plan, not the other way around.