Banking Systems: Finding a Needle in the Haystack

  • Banking
  • 15.10.2021 03:30 pm

Historically, IT and tech infrastructure at banks has never been focused on the customer. The design underpinning these labyrinthine networks was centred on the delivery of distinct outputs and functions relating to different financial products. These individual products, whether they be credit cards, current accounts, mortgages or indeed any product relating to family life and responsible adulthood as we know it, were designed to be managed in siloes.

These product-based siloes were helpful during a time when banks were just beginning to refine and expand their offerings and analyse the effectiveness and profitability of, say, home insurance versus this once ‘new-fangled’ thing called an ISA.

By contrast, data on the individual customer was (and largely still is) not easily identifiable, as customers ‘live’ in various parts of incumbent banking systems, according to how many accounts or products they hold with the bank. These disparate parts cannot ‘talk to’ eachother easily, if at all. 

In addition to the focus on more easily quantifiable products and business units, there was a distinct lack of concern among early banking architects, with the ‘financial life’ of the customer. The ‘personas’ discussed in fancy branding workshops today were unheard of or at best, such activities were regarded as too costly and frankly unnecessary; during a time when banks’ customers had less choice.

As far as the consumer (I’m including corporate banking clients in this description) is concerned, there is a broad frustration with how banks interact with them, borne out of a misunderstanding of how banks organise – or not – customer profiles. Such frustration has contributed to the increasing popularity of neo banks such as Revolut, who hit the 10 million customer mark in February 2020. For traditional banks to keep pace with such aggressive, venture capitalist-backed growth in this sub-sector, they must achieve customer-centricity.

Banks are already mostly convinced about the importance of being or at least coming across as, more user-friendly. The real change won’t happen because of pretty wireframes and good user interface, however, but as a result of the explorations that are happening right now in order to achieve more customer-centricity within banking. This exploration is a team effort, a meeting of the minds and skills of dev teams within banks themselves, some external consultants, those with working knowledge of the original mainframe systems and beyond, to first of all analyse the incredibly complex architecture that is rendering the customer almost invisible within the ‘haystack’ of systems.

Incumbents are museums of technology

A ‘mega bank’ could have a master framework of between 30-70 core banking systems plus hundreds more sub-systems that pertain to each. While some banks have started to build customer-centric layers into this master framework, so that individual customer transactions are allowed to ‘live’ for longer, this isn’t always the solution. While this approach has improved the customer experience, the architecture became even more complex and costly and remains siloed by product.

For most banks, a single view of the customer still does not exist. Rather, customers live as fragments, scattered across their siloed systems. Again, the will to change this for better does exist, but is being hampered by outdated systems that are difficult or impossible to modify.

The journey to personalisation

The rising threat from neo banks and fintechs – many of which were built with the customer in mind from their inception, has intensified during the pandemic, which saw banks closing branches with increased veracity and accelerating their existing digital transformation processes.

We must bear in mind that these legacy systems were created with a 9-5 mindset, during a time when shops were closed early and certainly on a Sunday. The consumer of today expects much more convenience than this and any relatively new bank today will of course be built with a 24/7 mindset, for the mobile-first user.

The raw materials, such as the troves of personal data they’ve collected over time, and the will to become more customer-focused, are present among banks. So, what are the tangible steps they must take in order to cut through the current, product-focused set-up and to move the explorations to a productive conclusion?

What do banks need to do?

  1. Partnering with third parties: To solve the problem of bank architecture being product-centric, more conversations need to take place between the banks themselves, developers (from both the neo and legacy eras), mathematicians, quants and the like. These partnerships will only be as impactful as the levels of trust between the banks and these groups. One breakthrough in this vein would be for tacit knowledge from legacy tech providers to be shared with banks and fintechs alike. An example of how this type of relationship works is the venture between Lloyd’s Banking Group and Thought Machine. The two are working to transfer data on 500,000 customers to a new core system and exploring the possibility of transferring all of the group’s customer data over the next few years.
  2. Building new platforms: For many incumbents, one solution has been to create new, smaller platforms that operate on cloud-based systems designed to serve a specific strategic need. These platforms often operate separately from the larger institution, using their own infrastructure and deploying new technology solutions as needed. This keeps investment under control and quarantines risk to some extent.
  3. The total shift to cloud: Cloud technology should be considered for upgrading bank systems as a whole, as it has the potential to transform an institution’s operational efficiency and negates the need for further investment in hardware.

Final thoughts

As banks are currently so siloed, they need to spend more time in understanding their legacy infrastructure, which can be done by hiring in-house to plug knowledge gaps, rather than rely on the protected knowledge of external consultants and transient project managers.

The goal of unification of systems as well as customer and product is more achievable than ever before, thanks to the tech and innovators at our disposal. Untangling systems to provide a better service for customers and improve personalisation is a process still in its infancy, but with a thorough approach to this current discovery phase, that haystack will certainly become a lot easier to navigate.

Related News