How banks can adapt

The landscape surrounding institutional banks and their customers has changed drastically over the past few years. If traditional banks are to survive in this new environment, they need to rethink how technology fits into their future, writes Herb Kersten of low-code provider Mendix.

Customers are looking for accelerated digital client journeys due to the rapid development of technology during the pandemic. They are looking for a better e-commerce experience, more reliability and more ways to manage risk and uncertainty, such as supply chain issues or collection cycles.

Bridging human and digital experiences is more important than ever for Australia’s institutional banks.

While quickly adapting to evolving customer needs is a relatively simple task for digitally-led fintechs that don’t have to deal with the burden of legacy systems and processes, the same cannot be said for traditional banks. Legacy banking systems operate on a 5-day-a-week business cycle, which won’t cut it in today’s 7-day-a-week world.

In other words, customers want the digital journeys they already get in industries like retail, but banks and their platforms can’t get to that level.

To meet this challenge, many banks are working to build slick, mobile front-ends to deliver constant and immediate value. However, this requires connection to batch-driven systems. Such systems need to complete a number of tasks simultaneously in a continuous, sequential order, which requires middleware, increased complexity and cost.

The evolution of the institutional banking customer

We are witnessing a shift from traditional banking to access to online banking. As institutional banking clients become more sophisticated, so do their needs. Today’s customers demand payment connectivity through application programming interfaces (APIs) because they can be easily integrated with their software of choice. APIs are great for triggering, tracking, and monitoring, all of which provide feedback that can be instantly retrieved.

Real-time payments require not only a real-time processing system, but also new ancillary systems and processes to address and prevent the risk of fraud. Having the software infrastructure to support all of this is quite a rarity, even for large banks.

Connecting through technology

As banks work to exceed the needs of their customers, they should focus on updating their technology. Most industries are built on mainframes. While mainframes can provide a lot of performance, they are unable to scale up or down according to current needs.

The future state of banking is not batch-driven monoliths. Instead, it should be a compartmentalized ecosystem of microservices. This means using automation to increase the agility, capability, and composability of central processing units working on programs, functions, and systems.

For example, Uber, which accepts small dollar payments in high volume, uses API-connected systems to deliver payments and value to Uber immediately, rather than at the end of the day. This is what the customer demands and anything else puts the organization behind the competition.

Bringing it all together with data and analytics

Banking revolves around data manipulation. However, older systems often lack basic validation of data fields (garbage in, garbage out) and the systems themselves were built with the idea that the center of the world is the line of business instead of the customer. The solution was to create data “lakes”. Data “lakes” allow structured and unstructured data to be stored in a centralized location where they can be easily retrieved.

New advances such as cloud-native technologies seek to rapidly process data stored in “lakes.” This is most effective in conjunction with a microservices architecture provided via APIs, reducing the effort required to connect to internal and external systems. With all these pieces, a bank’s technology stack is starting to look less like a bunch of classified systems and more like a thriving connected ecosystem.

Turning trends into solutions

The future state of enterprise software is cloud-native, producing reliable data and integrating microservices and APIs. It’s also a trend towards composability and ecosystems, which low-code does really well.

Additional management: Low code emerging as the foundational technology for digital transformation.

While technology will undoubtedly make it easier to meet customer needs, it also means that financial institutions must enable constant change across the enterprise at an increasing pace to remain competitive. To achieve this goal, plans need to be changed and communication between departments needs to be improved.

This is where the concept of “fusion teams”, enabled by low-code technology, can connect deadlocked departments. Fusion teams can be multidisciplinary, made up of developers, users, and business leaders with little or no coding experience, yet build applications with IT-approved technology. Having great technology without the right people and processes or vice versa is ineffective. This is where the citizen developer comes into play, connecting those who understand the customer with IT.

Changing the paradigm of institutional banking

Banks must understand the challenges of their customers and act decisively to satisfy them. Technology and people are essential to solving this problem. Banks that leverage all of this can shift their conversations from “here’s what we’d like to do” to “here’s what we’ve done,” a powerful place to look at the future of banking.