Today, competition comes from not just existing players and digital-only challenger banks, but also tech giants like Amazon, Alibaba, Google, and Facebook. As it stands, banks must act swiftly to stay relevant else they risk becoming mere commodity providers going forward.
While different banks have adopted different approaches to go about digital transformation, most of them could be broadly categorised under four streams:
- In-house solution development
- Custom solution development with a technology partner
- Rely on core banking solution provider to develop extended solutions
- Niche digital banking solution provider
In-house solution development
Developing in-house solutions is probably the first approach most banks would consider for the most obvious reasons; they feel they’d have better control over the development environment, meticulously factor all the requirements that need to be addressed, and effectively manage project costs.
But in reality, there are several challenges that this approach entails. First off, digital transformation starts with a mindset transformation. For a long period of time, financial institutions have been averse to risk and under the current circumstances, they would spend a lot of time deliberating new business models with the legal and regulatory framework in place. This might lead to a long drawn out approach for solution development which is contradictory to the agile approach that leading institutions follow.
One trend that has gained a lot of traction due to digital transformation is disruption and this has led to a technology landscape that is undergoing constant evolution at breakneck speeds. A decade ago, being a leader meant that incumbency was guaranteed for a couple of years at least. Today, the period of incumbency has come down from a few years to even a few weeks in some cases. Under these circumstances, in-house teams often find it difficult to keep pace with the latest technology trends and come out with a solution that is consistently relevant.
Issues with core legacy systems are another snag in-house development teams would come across. When developing digital solutions, one of the first challenges a bank tackle is seamless integration with multiple backend legacy systems. In addition, regulatory and compliance bodies around the world are forcing banks to adopt a framework that includes easy integration with several third-party systems as the way forward. Lastly, factoring in all third-party systems a solution would need integration capabilities with, would be a daunting task that ends up taking a lot of time.
All these aspects make the approach of in-house development very expensive and time-consuming in many cases.
Custom Solution Development with a Technology Partner
When it comes to developing custom solutions with a technology partner, in several cases, a bank can leverage the subject matter expertise of a partner in developing digital solutions. However, it must be noted that the onus of solution development lies with the technology partner and most projects start from scratch. This results in a lot of effort being spent in defining, conceptualising and delivering the solution. In addition, there will be an overhead in managing and maintaining the solution to keep pace with the technology changes and trends.
Moreover, ‘disruptor’ is a status symbol that established as well as start-up technology companies want to achieve today. However, they may not have the right technology platforms and the required domain expertise to deliver and sustain differentiated offerings. This implies that every player out there is trying to develop solutions at a pace that makes it difficult for it to keep pace with, once a digital solution goes live.
Rely on Core Banking Solution Provider to Develop Extended Solutions
Relying on a core banking solution provider to develop extended solutions sounds like a logical approach. This is because the bank assumes that solutions being developed come with pre-built integration capabilities that perfectly map with existing legacy systems since both are being developed by the same vendor. However, the reality is that there is no perfect bank-in-the-box available in the market and there will always be multiple systems that need to be integrated with. Hence, pre-built integration capabilities only address a part of the problem.
Another aspect that needs to be factored in that the solutions being built using this approach are simply an extension of the existing core banking systems. This means that it is highly likely that banks would face the same issues they once had to overcome when it came to customising or upgrading their core banking systems. And in an age where a constant upgrade is an absolute mandate to stay relevant, this would prove as a huge bottleneck for banks.
It should also be noted that most core banking solution providers already have a solution for the web channel and they would need to build new solutions to cater to other channels that are gaining prominence. This essentially implies that a bank would end up having distinct solutions for each channel to cater to its omni-channel requirements and hence, defeating the main purpose of digital transformation in its entirety.
Niche Digital Banking Solution Provider
And finally, a bank could consider selecting a niche omni-channel digital banking solution provider. These solution providers are abreast with cutting-edge technology and the latest trends because they exist for one reason only – disruption of the status quo.
To begin with, most omni-channel solution providers tend to be FinTech companies that aren’t scared to take risks and have an open mindset about the constant state their target sector is in. They follow an agile approach that focuses on continuous innovation and hence able to quickly respond to new changes that are constantly reshaping the business landscape.
It is also interesting to note that a lot of omni-channel solution providers build their own digital experience platforms to ensure that they have full freedom and flexibility in building solutions exactly the way they see best without compromise. The platform-based approach also enables to bring new features and technology trends at ease. They also have pre-built customisable solutions developed using the platform that is most commonly requested by many banks. This equates to very quick time to market since the digital solutions don’t need to be built from scratch but only customised to specific requirements. This immensely helps in enhancing and maintaining the solutions over a sustainable period of time.
For omni-channel vendors to stay in business it is important for them to deliver solutions that an end user would find appealing to use. Hence, a lot of research goes into developing user interfaces and engineering user experiences that leverage the latest design principles to ensure delightful and convenient usage of an app.
When it comes to integration capabilities with third-party systems and new regulatory / compliance recommendations, a FinTech company is ever-ready to be at the forefront of change. Hence being abreast with the latest trends and bring automation for integration as they focus on building solutions that are future-ready at all times.
Apart from all of these factors, most FinTech companies come with a lot of experience in working with banks and financial institutions that make them an expert when it comes to understanding the minute intricacies that are unique to banks. This translates to building digital solutions that are contemporary as well as futuristic. And when it comes to addressing channels, omnichannel is the only way FinTech companies follow as these are the latest technology trends and they have no legacy to deal with.
While these options are available, it is observed that many successful digital enabled banks to work with niche digital banking solution provider, who follow a platform-based approach to build and deliver solutions.
(Views expressed in the article are a personal opinion of S. Sundararajan, Executive Director at i-exceed.)