Some people are super enthusiastic and passionate about the possibilities of new Tech. In many cases, however, they will be asked if it is proven technology. Which competitors use this new Tech already and what are their experiences? In short, the need for certainty is quite common. Yet what about innovation, to distinguish you from competitors and certainty for the future? Does the requirement to be “proven” even make sense?
Most traditional banks have cutting their operational expenditures high on their list of objectives. The cost-to-income (CI) ratio needs to be lowered to have more financial resources to cover risks, to be more competitive and innovative. Competition and internationalisation are increasing rapidly. The differences in operational cost ratios, and user experience, with Fintech’s are huge in many cases. Where Fintech banks perform with CI-ratios as low as 30%, most traditional banks are double or even triple of that ratio.
Traditional banks should consider worrying less about Fintechs (like N26, Holvi and Revolt) and worry more about Techfins (like Amazon, ANT, Apple, and Google)? These huge Tech companies conquer international markets fast. The ambidextrous organisation is where you’re focusing on the past and the future. If you want to focus on the future, you need to experiment a lot more with new business models and new solutions to make sure that you’re always ready to switch focus. Is that possible with proven technology?
What is proven technology? In the end, most Tech is based on the same (or similar) principles and programming languages. So on that ground: is all Tech therefore proven? On a business level, is tech proven if it is fully running at a dozen competitors? Perhaps it can be considered proven if the tech is used within similar and country specific situations? In general, there is no proven tech solution on the market that is perfectly suitable for each situation. For that matter, is your custom built software proven? Implementing proven tech, or a newer version of existing tech, or a migration to the cloud is also risky. Is the requirement for Tech to be proven meaningful?
Each bank is different. The chance that a proven all-in-one banking solution will fit is near zero. Proven technology often looks like an easy choice. For example, implementing a new mid-office solution to process banking products for clients can be done with several off-the-shelf solutions. For regulatory tools, it is the same story. Using proven technology that is being used by a dozen competitors gives little, if any, distinction in operational processes compared to competitors.
Banks dislike the dependency of releases with tailormade changes. Changes that are available in the next release by the vendor are also available to your competition!
Driving innovation with composable banking Most important is that your Tech refresh is driven by the mission and vision of your bank, client demand, and competitor’s offerings. Increasing (temporarily) IT budgets to significantly lower the operational costs can be a logical part of the solution. Due to complex internal interconnectedness, a decent Tech refresh business case is a difficult task. Steering on clear business goals is needed to really move to a more digital bank. That makes the change proven on business terms.
With a composable architecture based on orchestration, banks can renew and upgrade parts in their environment easily. Connecting the core with a variety of bank functions, connected by interfaces (APIs) and the use of (micro)services. Swiftly built using low-code and configured in no-code SaaS, resulting in a shorter time to value at lower costs. With this setup, powered by the flexibility of the orchestration (architected in a continuous improvement process, you remain ready to change. It also enables you to try-out new functionality that is connected to the entire landscape while ensuring the existing operational processes can preserved.
In summary, with the right mindset, the right approach, and the right Tech (proven or not), banks can achieve their financial objectives and delight customers at the same time. Banks become more agile and thereby fit for the future. It is not about the Tech. It is about people, objectives, and differentiation to serve your clients the best way. Is it time to drive innovation with the right motives, regardless if the Tech is proven or not? It is all about having an open attitude toward how to achieve your goals. Written by Aernoudt Bottemanne and Gerwin Woelders
Contact Aernoudt Bottemanne Director Technology & Innovation E: aernoudt.bottemanne@igh.com
Gerwin Woelders Manager Digital Banking E: gerwin.woelders@igh.com