4 Keys to Banking Transformation
To position themselves for the future, banks can follow four principles for creating a nimbler reference architecture.
by Venkataraman Balasubramanian
The key to enabling transformation in today’s banking industry is to develop a nimble and efficient reference architecture.
At a strategic level, a reference architecture determines the best delivery method for specific technologies within an institution’s IT infrastructure. It documents the hardware, software, specifications and configurations needed to deliver IT resources in the most efficient manner, and it provides the standard for change.
An effective and up-to-date reference architecture reduces integration complexity and aligns business goals with IT. And, when continually revised and updated, it can position a financial institution to better address new regulatory demands and unlock additional revenue through an improved customer experience.
To achieve this, banks should follow four key principles:
Embrace an outside-in perspective
An outside-in approach — a corporate mindset that first looks outside the enterprise for inspiration, expertise and innovation — can provide a critical forward-thinking perspective to a bank’s transformation initiatives.
While inside-out practices will never fully go away, the key is to blend in-house capabilities and best practices with an openness to emerging outside-in possibilities. To do this, a bank’s reference architecture should be consistent and enterprise-wide, allowing all relevant areas of an organization to benefit and share the information and advantages that outside-in technologies and best practices can provide.
Be open to the utility model
Over the course of reworking a reference architecture, you may determine that certain non-core functions are better off outsourced or performed by a utility. Very few institutions in any vertical excel at everything.
Operational tasks that are not core competencies can be outsourced to third parties that specialize in a given area. This can help streamline operations and release additional resources for core functions and for innovation.
Take advantage of new data
With the rise of ubiquitous connectivity and the increasing use of social media, more personal information is available about consumers — much of it freely accessible in online databases. By tapping into this information, banks can improve the way they interact with their current and potential customers.
Turning data into actionable intelligence is far from easy; companies in all industries struggle with this task. But with the right architecture, banks can turn consumer data into insight that can be used to inform and support intuition and innovative decision making.
Start your transformation now
It can be easy for banks to simply follow the path of least resistance and leave old systems in place, untouched. But in a market that requires true transformation, this kind of “if it ain’t broke” mentality is no longer acceptable. Instead, banks must start the process of evolving their purpose-built systems to improve efficiency and match today’s accelerated business requirements.
No one evolutionary path is right for all institutions. Some systems may be best switched out, while others may benefit from more gradual improvement through an outside-in approach that ultimately leads to delivery as a service. Those in the earlier stages of transformation may benefit from external consulting and commercial off-the-shelf software, which can often replace proprietary legacy systems. Others might be ready to move to cloud infrastructure or even native cloud applications and outsourced business processes.
The battle in today’s banking industry is for control of the customer experience. This software-enabled interface layer is where value and profit margins now reside. To gain control of this layer — and, by extension, of the customer experience — banking institutions require a new business strategy and a revised reference architecture that aligns IT resources with new business goals.
The process must begin soon, if banks hope to win against an increasing number of competitors.
VENKATARAMAN BALASUBRAMANIAN is chief technology officer for the banking and capital markets industry at CSC.