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The banking landscape is in a state of flux. Emerging financial technology companies have created new services and offerings that put the customer experience front and center, providing a flexibility and speed that traditional banking institutions struggle to match.
Fintechs are carving into the essence of what regional and community banks have done for generations, and they’re doing so by thinking more like software vendors than financial institutions. These disruptors have no history, infrastructure and trust of regional and community banks. But equally, they do not have the burden of antiquated legacy technology.
This powerful combination of agility and technical know-how has seen the fintech segment more than double its value in a span of four years, and this growth shows no signs of stopping anytime soon. Analysts are predicting nearly 20% annual growth through 2028.
be bold first
In the face of such success, how can regional and community banks — institutions that don’t have the large IT budgets of national bank brands — hope to compete?
The answer is that community financial institutions should be fearless. This means rethinking established and potentially encompassing processes and beliefs while embracing input from existing customers, partners and other business stakeholders. They must build a modern IT infrastructure that enables them to quickly develop, iterate and deploy digital banking applications that are on par with fintech offerings, or risk losing additional market share.
Oppose half-measures. Adopt new technologies. Don’t be afraid to imagine a new scenario. Inevitably, the landscape is changing.
Exactly what the new landscape of financial services looks like will be unique to each bank. However, there are several important technology infrastructure elements that virtually every regional and community bank must consider as they aim to modernize and compete.
an incremental approach
First, it is important to recognize that fintechs do not necessarily have all the chips in their hands. In fact, traditional banks hold several key advantages over their fintech rivals. Chief among these is their reliability and consistency of service – qualities that customers still value highly.
This lineage is an edge that regional financial institutions must carefully maintain. Therefore, it is essential that they continue to offer their existing services during any digitization process. Destroying reliable and trusted offerings and systems in order to pursue exciting new technologies should be avoided at all costs.
Rather than throwing the legacy banking baby out with the bathwater, any digital platform should iterate and expand on existing capabilities. In other words, banks and credit unions should try to add value to customers rather than reduce services in order to innovate.
extensible and open platform
Implementing a new digital banking platform, launching a new mobile app or even a new digital-only product are all initiatives with discrete start and end points. Developing IT infrastructure is very different. This will include the above individual projects and more, and will require constant monitoring and maintenance. A modern IT infrastructure is something that tends to remain in service and must be gradually expanded and improved over years – perhaps more than a decade – at a time.
For this reason, any banking deployment platform should offer two things: high extensibility and open integration. Extensibility focuses on the ability to quickly and easily add new capabilities or functionality to any existing platform. Integration extends this capability by enabling connectivity to other IT platforms and systems within (or outside) the financial institution. McKinsey Many describe this as a move from “closed systems to ecosystems”, a core shift in mindset from the application silo approach commonly deployed in recent years.
In fact, it is possible for this pervasiveness to include partnerships with the very fintechs that traditional financial institutions are concerned about. As mentioned, smaller banks have several advantages that fintechs would love to access, such as bank charters and recognized compliance capabilities. These can be used in partnerships that allow the banks to offer new services, tap new markets, and expand both businesses.
Remember, extensibility and openness don’t just mean that a platform is easy to modify or integrate from a purely technical perspective. It must also be flexible in the face of new business demands and changes in the market. If the past few years have taught us anything, it is that we can never be fully prepared for the challenges of tomorrow. Therefore, from the very first planning stages, banks and credit unions need to measure how easily they can build on a potential platform and how much effort it will take to achieve the desired result.
iterate and improve
In some industries, any device being slightly behind the curve in terms of providing a cutting-edge experience is an annoyance that can result in some bad online reviews. When it comes to banking, however, holding off on upgrades and security fixes could spell imminent doom for both the platform and the business.
Business-critical IT systems and platforms must accommodate rapid iteration and evolution to avoid creating digital monoliths that are unable to adapt and evolve. Legacy systems don’t help in this situation. Coded in dying languages like COBOL (now over 60 years old), IT applications are difficult to extend, require specialized programming skills and don’t integrate well with other applications.
Modern banking technology platforms combat these challenges in several ways: They are developed in modern programming languages using cloud-native concepts that enable scalability, modularity, integration and overall flexibility. In addition, no-code and low-code development tools give everyday business users the ability to quickly configure the solution just what they need, without the need for training or specialized knowledge. No-code/low-code tools expand the IT platform and expand the pool of employees who can enhance the system beyond highly skilled software engineers. This capability allows financial institutions to experiment and adapt faster and with greater agility – if they choose to.
For many banks and credit unions, reform is not just a technical question but a question of broader business philosophy. The speed at which an organization needs to innovate is faster than ever, which means the IT team can no longer be responsible for owning and enhancing the IT platform alone. The bank’s overall team should be able to scale existing offerings quickly, easily and with minimal technical requirements.
Without this ability to iterate, any banking or IT platform runs the risk of becoming a serious strain on its operations. This could have a costly impact on banks that need to invest significant human and financial capital in their digital transformation efforts.
It is also striving for customers who have started relying on new offerings and services. With brand loyalty steadily declining, it is safe to assume that those customers will not hesitate to look to other banks that offer up-to-date products and better user experience.
Embrace change now, avoid customer crunch tomorrow
Banks are, by nature, cautious institutions. Indeed, for some customers, an aversion to risk can be an advantage. But this caution can sometimes manifest as a resistance to change and a reluctance to invest in new technologies and ideas.
For banks and credit unions that are still using systems designed in the 1980s and 1990s, moving to a new IT infrastructure can be challenging. However, this step is more important than ever for these institutions.
As more financial institutions begin to lean towards digital services, there is a real danger of being left behind. Research and consulting firm Gartner estimates that banks will spend $623 billion on technology in 2022 alone. If you are not in the group of organizations investing in new technology, you can be sure that your competitors are.
jason burien Vice President of Product knowledge lake, He 15 years’ experience in helping customers solve Automation and Document Problems, And does full management Pproduct AleLifecycle including research, design, requirements, execution, competence and launch.
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