Banks identify digital customer experience as a top technology priority
by Ben Poole
A research paper commissioned by Virtusa and conducted by Finextra has highlighted key shifts in banks’ approach to their IT platforms over the past 18 months.
Against the backdrop of an increasingly digital world, banks are facing growing competition from non-traditional players such as fintechs and challenger banks. This has put greater emphasis on the need to innovate and transform while keeping an eye on the bottom line. The effect of these imperatives on banks’ IT systems, infrastructure as well as go-to-market strategy is further complicated by regulatory compliance - particularly around opening-up market access to enable greater competition, such as KYC, AML, and PSD2.
The paper, titled 'Top Global Banking Technology Trends', was generated with inputs from more than 100 banking executives in 25 countries across North America, Europe, and the Asia Pacific. Respondents included C-level executives, vice presidents, and directors from global banks, regional banks, and fintechs.
Key findings from the study include:
- Digital customer experience (79%), innovation (45%), and cost reduction (46%) are the top priorities for banks.
- 27% of respondents said that their institution has a mature API-enabled services programme while 19% of respondents said they had a mature microservices programme established.
- 37% of respondents said their mobile channel proposition is marketed under a different brand to other services.
- 36% of respondents said they are maintaining the number of branches they have but transforming them.
- 42% of respondents to the survey have adopted private cloud while only 6% have adopted public cloud solutions for critical applications.
The use of Application Programming Interfaces (APIs) is the accepted means by which financial institutions compete and offer products and services to each other, and increasingly share data. The use of APIs is not a new initiative but regulatory and compliance have driven their wider adoption. Banks are embracing their use to meet the expectation of their customers and match the competitive offering of new entrants. Some 87% of responders who said that their institution is evaluating or has already launched API services.
The technical challenge of linking a bank’s existing legacy infrastructure with innovative propositions provided by third-parties can only be addressed by theuse of APIs. Sixty per cent of survey respondents confirmed the launch of or an evaluation of a programme to support their API network strategy.
The mobile phone/tablet-based delivery channel is now of prime importance to banks in both the personal and, increasingly, in the SME / corporate markets. However, banks are divided in their development approach to their m-channelstrategy, with responders to the survey confirming that 50% of their institutions are building out from their existing internet channel whereas 50% are utilising a new, dedicated infrastructure. Although only 37% of institutions use this separatelybranded m-channel approach at present, it is a growing market trend among incumbent banks, enabling them to take advantage of open banking without the dependency on further developing their legacy platforms. It also helps enable them to compete with the new digital-only challenger banks such as Fidor in Germany, Atom and Starling in the UK and Simple in the US. This new brand approach also allows banks to target specific markets (eg consumers or SMEs) with specially branded m-channels.
The use of microservices can provide enhanced security (critical when dealing with new external partners such as fintechs), simpler integration of a bank’s newAPI layer with its existing, legacy systems and, hence, the speedier development and launch of new products. The strategic importance of the use of microservices within banks is demonstrated by the results to the survey, whereby 56% of responders confirmed that their banks are already working on their implementation with a further 31% in the process of establishing a programme to this end. Only 13% of responders said that their institution had no plans to initiate a microservices programme.
The threat of disruption is no longer viewed as a competitive battle between incumbent banks and emerging fintechs. Rather it is a question of how the two co-exist culturally and technically, and collaborate to collectively innovate and distinguish themselves from others. Bank and fintech partnerships are emerging and although there are challenges in working together the survey results record 70% of respondents have 1-4+ solutions in production.
Banks benefit from working with fintechs in many ways, not least of all inimproving their customer experience, managing data digitally and launching services more timely and frequently. The issue they quote as a challenge is moving from a sandbox environment where fintech solutions are tested in a controlled manner to putting them into production and scaling them. This in part explains why the volume of solutions in production is still low (only 17% of responders said their institution had more than four fintech-based solutionslive), but they are growing.
Blockchain or distributed ledger technology (DLT) is a powerful and secure technology that has been of considerable interest to banks for at least the past three years. Its ability to record and validate every transaction it processes and present a single view of the truth to multiple users in a highly secure environment has created significant interest for banks globally. With payments being a prime use case of blockchain for banks, it is no surprise that many institutions are looking at blockchain-based solutions in this area. The survey results show that 54% of responders viewed blockchain for international payments as being of either the highest or high priority; 44% was the similar figure for domestic payments.
The topic of trade finance and supply chains comprising multiple parties and types of document - buyers and sellers, banks, logistics and shipping companies, purchase orders, invoices, bills of exchange, customs declarations, etc. - is an area which has always been believed to lend itself quite naturally to ablockchain-based solution. This is demonstrated by the survey results in which responders said that trade finance was their highest priority business area for blockchain, at 37%. The first cross-border, blockchain-based supply chain solution was launched by IBM and Maerssk the 2017.
Similarly, the business areas of securities trading and asset management also feature the involvement of multiple parties in a single transaction - buyers and sellers, brokers, stock registrars, securities depositories, stock exchange, banks etc. - and so would also seem to be ripe areas for the development of blockchain-based solutions. While the survey responses had securities trading and asset management as the least important business areas for blockchain - with 46% and 52% of responders, respectively, saying that this area was only of low or the lowest priority - they represent potential areas for development.
The acceptance and use of cloud-based solutions has become pervasive inrecent years. Some 86% of respondents to the survey have adopted cloud, with a high amount (38%) adopting hybrid solutions. The data shows banks recognising the benefit of migrating core processing from traditional legacy data centres to cloud solutions, which can lead to reduced costs, improved resilience and being able to support innovation in a secure manner.
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