The pace of change in the financial services sector is such that traditional business models are no longer viable, and firms that have stood the test of time must adapt in order to survive. A recent Gartner report found that by 2030, 80% of heritage financial firms will cease to exist, become commoditised or achieve “zombie” status (i.e. those that are unable to cover debt servicing costs). The metaphor here is quite apt: dead yet ostensibly alive, sluggish and prone to cause people to run away. While many will point to examples of digital transformation and technological disruption as the drivers of rapid change, in the financial sector, these factors can only partly be held responsible. In reality, the introduction of new and innovative technologies is not the driver of change, but a consequence of existing complexity.
Why technology is often mistaken as a problem rather than a solution
In a heavily regulated industry like financial services, the prospect of more red tape can be seen as just another barrier to the implementation of practices to deliver smoother working and better user experience. PSD2 is a great example where regulations have been pushed or failed to be implemented before the deadline, leading to greater confusion among financial services institutions. PSD2 is a prime example of banks needing to use technology to comply with a changing regulatory environment, one that continues to be influenced by new attitudes toward data privacy heralded by GDPR.
Open banking, PSD2’s spinoff, stipulated that financial institutions must make this data available via the use of open APIs (if they weren’t using them already), but this is just one technology to solve one issue. What aspect of data governance, regulatory compliance and risk will further drive complexity? What technology of the future will we need to use to address it? Unfortunately, there’s no silver bullet to growing complexity – every financial institution will experience different business outcomes as a result of the deployment of a certain technology to address just one aspect of legislation. For example, in order to overcome regulatory compliance issues over privacy, the recently launched payment card service from Apple has taken an innovative position on the handling of customer data. By inserting itself between customer and bank, Apple has effectively become a privacy broker which manages the digital identity of its customers.
What is agile?
The term ‘agile’ relates to problem-solving, through adaptive planning, evolutionary development, continual improvement, and a rapid response to change. Agile works best when there is input from a range of stakeholders across disparate teams within an organisation and can work for any size business. To be agile means to grow your market share, move from a fixed costs model to a variable cost model, personalised services and faster decision-making.
But agile isn’t just a business concept – it can also promote a cultural change. However, these organisations must ensure everyone who will be potentially impacted are ready for change and committed to coaching or training to fully reap the benefits of this approach. As with any major cultural change, it is likely to be met with scepticism. After all, why would businesses invest time, effort and money into an internal product or service, along with additional training just to have it ripped up/out and replaced shortly after? On the other hand, in financial services, where almost everything depends on software platforms, applications and internet traffic, the ability to make rapid and repeated change can be far less disruptive when it comes to the longer-term objectives in the business.
What are the opportunities afforded by software?
IDC’s worldwide report into IT spending within the financial services industry found that growth in the market was “led primarily by strong software spend across all regions.” Software plays a crucial role in growing and diversifying the product and service portfolios of today’s financial institutions and is fundamental for firms within financial services to achieve what they need to in order to enact change. Even to the extent where challenger banks can catch-up with more established banks by offering customers impressive mobile applications and integration with other fully digital services. Banks are leveraging software to deliver greater user experiences and provide real-time updates on transactions that were not long ago only possible through monthly paper notices. Moreover, companies want to push ahead and use technologies like cloud, automation, AI and blockchain to gain a competitive edge in the market, but these technologies cannot be used without the right platform to run them.
What are the challenges?
Technology is just the latest hurdle for financial institutions to overcome, but with a dizzying array of options and unprecedented levels of competition muddying the waters, knowing who and what to ask for can be a battle in itself.
It’s not just about finding the software but building the right software to suit the company. As a result, financial institutions might know they need good software, but don’t necessarily know how to get it, or what will deliver the maximum benefit for them specifically. In addition, enacting change creates a new risk landscape for companies to contend with – migration of mission critical applications from legacy systems to the cloud in particular. Mapping out contingencies and dealing with downtime is costly – further underlining the imperative to ensure quality control and security at every stage. Only through the values of software craftsmanship afforded by agile methodologies can organisations ensure technology has a real impact, solving fundamental problems and achieving real business outcomes, while simultaneously reducing complexity.
What does the future hold?
Innovation is key to financial institutions being able to compete and grow in the digital age. With software being the key enabler of innovation, we’re likely to see a subtle transition in the ways financial institutions are perceived. Banks must become super customer centric by improving customer experiences, respond to security, fraud and compliance needs, and modernize the legacy core systems. Moving to an api first enterprise with a cloud-based platform, built with agility, iteration and experimentation in mind.
Financial institutions will also need technology to comply with ever rising standards of transparency. This cultural change has a knock-on effect of making institutions more open to learning from others, from competitors to players in entirely different industries. No single person or team should be responsible for driving change and innovation anymore.
But most importantly, the banks of the future will have to be more agile. This is already happening through experimentation with new products and services, starting small before scaling up and ruthlessly checking assumptions along the way. However, only through more agile methodologies and practices can financial institutions design the competitive products and penetrate new markets needed to survive the current wave of digital disruption.
SPOT ON: Rabobank
Despite being over 100 years old, Rabobank has proven itself to be ahead of the curve when it comes to new technology. Rabobank the first Dutch bank to launch both an internet banking site and a mobile banking site, and also initiated iDEAL, the most widely-used online payments system in The Netherlands. Today, the innovative applications being developed and launched by Rabobank reflect its continued commitment to translating technological innovation into value for its customers, including digital identity verification using biometrics, an e-Wallet app which allows payments to be made via NFC and an educational app that uses AR to teach children how to save money.
Rabobank currently has over 400 apps currently in service, which process thousands of transactions every second and millions of logins every day – all with almost no major disruptions in the past decade. Its continued success in innovation can be put down to its reliance on Agile and DevOps as practices, with execution made simple for developers thanks to Pivotal Platform (PCF) ability to push out updates, fixes or new services in a fixed, containerised environment.
It is these three elements working in unison which establish a model for Rabobank’s business development that is sustainable, flexible and simple enough to help Rabobank compete and grow in a sector which is increasingly being determined by technology.