[Editor’s note: This Advisor is an excerpt from the book Disruption: The Future of Banking and Financial Services — How to Navigate and Seize the Opportunities.]
Technological obsolescence is rife in today’s banking environment. Many regulators have woken up to that fact, even if all banks haven’t. Those not paying attention to end-of-life hardware and software situations will find themselves looking into a funding abyss as they scramble to replace their tired IT infrastructure with something more fit for purpose.
Effective adoption of next-generation technology is the road to greater customer engagement; faster product development; better operational management; and improved compliance, efficiency, and growth. It will also enrich the customer experience through stellar, hyper-personalized service. Shifting to new technology obviously necessitates the writing off of old systems and software, but this is a cost that must be accepted. Fortunately, the cost of IT continues to fall, and the adoption of cloud-based services can dramatically cut infrastructure costs.
Banks must also become technology agnostic by using architectures for front-, middle-, and back-office processes that allow easy integration with third-party solutions and reduce dependence on legacy IT solutions.
For some banks, this is a huge mountain to climb. We were vividly reminded of that while writing this. What happened? A very large international bank, a household name, asked for confirmation of a transaction to be sent by fax!
How many offices still possess fax machines, let alone private individuals? Rather than asking for a secure means of communication (e.g., a PDF in which information is embedded), the bank was happy with a document into which one could copy and paste anything, sent from an unverified phone number that could have belonged to anyone.
From increasing productivity and cutting costs to reaching previously inaccessible market segments and enriching the customer experience, technology makes it all possible.
Of course, given the pace of change that technology brings to every sector, predicting the future of any industry is a highly speculative venture. Who knows how emerging technologies will impact the banking sector over the next decade? Just because there’s no clear or immediate picture of how this might happen, there are no guarantees that they can’t or won’t have an influence.
With such breakthrough technologies continually appearing, staying at the forefront of a banking segment is a challenge for even the most innovative financial institutions. Banks will have to work hard to carve out a niche through innovation and then protect it with an unrelenting commitment to high levels of service and efficiency improvement. In other words, identifying emerging technologies and using them to lever an advantage must become an iterative process.
This is no longer about adapting old tools and products with a new wrapper; it’s a complete rethinking of the bank and how it operates. Going head to head with competitors that offer a lower-cost product when you have slow, obsolete systems and processes is an impossible task. Legacy banks can’t compete because their outdated software doesn’t allow it, and the historic web of cross-subsidies (in which profitable products prop up the unprofitable) just can’t be disentangled.
[For more about digital transformation in banking, see: “Banking’s Point of Arrival: 11 Questions to Consider for Long-Term Success.”]
