Bank of the future
Surf on the tsunami of disruption and get ready for the new paradigm
Banks are currently facing major challenges, such as compliance with new regulations, reducing costs, becoming more agile, providing a compelling client experience, and so on. But this is nothing compared to what lies ahead: the threat of disruption, embodied by fintech companies and other specialised service providers. Are banks ready to survive?
While banks are still transforming their information systems to cope efficiently with current requirements, new technology-backed entrants are putting even more pressure on incumbent operators to rethink their business model and banking platform to survive in the new disrupted economy.
Banks have always invested significantly in their legacy core systems, either by custom-building them or by buying them from banking software providers. Due to a lack of vision and architecture planning—and also a lack of experience given that software engineering is a new science—it often results in the stacking of software pieces and the creation of monolithic, rigid, and costly banking platforms, preventing changes at reasonable costs, slowing time-to-market, and hindering innovation.
To become more agile, reduce costs, enable new functionalities, or work with new entrants, banks have already started to modernize and rationalize their legacy information systems.
Different approaches are possible:
- Revamping the legacy systems through software reengineering
- Replacing the legacy systems with banking packages
- Replacing the legacy systems with pure cloud solutions, such as Mambu
- Externalizing part of the process to external business process outsourcing (BPO) service providers One size does not fit all, and banks, especially large ones, realize that replacing their legacy core banking systems with all the satellites around is not a case of a simple switch. Indeed, it is a long journey. It calls for a lot of investment, bears a lot of risk, and is barely manageable without the proper organization. So, is it really reasonably feasible?
Now, the fintech companies are on the radar, threatening to take over the banking business while a lot of banks have not even begun their transformation. But are they really a threat? Or are they simply an opportunity to transform faster and be ready for the future, when fintechs will inevitably be in the business ecosystem anyway?
How can banks transform, not be left behind, and already have a foot in the future all at the same time? One way of doing it is to fragment the information systems and combine the best of what exists internally with what is best on the market. One bank may choose to focus on what it excels at or how it differentiates itself and leave the rest to the specialists, using the threat of new entrants as an opportunity to operate more efficiently and to white label innovative products that will attract new clients—or at the very least, retain the existing client base.
Inside magazine issue 10, October 2015
Inside is Deloitte’s quarterly magazine offering an exclusive insight into best practices, trends and opportunities faced by our clients across all industries.
Inside focuses on the main hot topics relevant for the market (Asset management, Banking, Insurance, Public sector, Healthcare, Private equity, Real estate, TMT, Manufacturing and consumer business, Transport and logistics).