The financial services industry is facing a future of continual change, as new market entrants threaten the balance in what was historically a fairly settled industry.
Ten years ago, banking start-ups were relatively rare, but now they are the epitome of entrepreneurial opportunity. Competition from fintech start-ups (or tech focused banks as I prefer to call them) has put pressure on traditional banks to innovate and given traditional banks a snapshot into the future – enabling them to plan now and act quickly to survive.
But that’s easier said than done.
The culture and makeup of traditional banks enables them do what they do best: manage huge amounts of money across highly secure infrastructures whilst employing thousands of staff to deliver their services. The problem is that what these banks ‘do best’ is not where the future is headed, and they are now looking at how they can leapfrog product development timescales and transform into a more flexible and agile way of operating.
In retail banking, digital transformation is the term du jour as banks deploy mobile and web services to encourage increased engagement with customers – in a way that suits the customer, rather than the bank. Gone are the days of heading into bank branches to move money around – customers expect to have access to intuitive web interfaces where all of their information is easily accessible, transfers can be seen in real-time and data can be exported into their chosen formats. Yet, this change is not necessarily simple to deliver.
Banks have historically tried to avoid offering too much access to consumers, due to the sensitive nature of the information they handle. But our attitudes to security have changed, and as consumers we now see data security issues as a balance between accessing the services we want (i.e. a mobile banking app) and achieving the levels of security we need.
A recent interview by the BBC (1) highlighted the issue perfectly: many banks have systems in their datacentres which date back to the 1970s, so even launching a simple mobile app – an activity that would be relatively straightforward for a start-up, could be an incredibly difficult task for a bank with legacy systems in place. Aside from security considerations, banks have to tackle their in-house IT complexity first.
Corporate banking is also recognising the need to change in order to develop or retain a competitive advantage over other players – a task that is getting more and more difficult as the opportunity to differentiate between traditional banking services narrows.
New breed of banking
Most fintech start-ups are not banks. They are tech companies, with a financial angle. Their business is software development first, it just so happens that the software delivers a financial service.
This is how traditional banks must perceive their competition. Fintech start-ups’ entire makeup is different – they are born in the cloud and operate in a completely digital world. Their services are designed to work perfectly online, rather than being designed to operate in branch and then be retrospectively developed into an online solution.
Fintech start-ups also don’t have all of the traditional constraints ‘enjoyed’ by well-known banking institutions, mostly down to the lack of regulation governing many start-ups – such as how much capital they hold; a factor which contributes to their flexibility.
Set for the future
In order to compete effectively, traditional banks need to change their entire businesses, not just their IT. It has to be in their DNA to be tech-focused and digitally minded. This is because the change they are undertaking isn’t really about technology. It is enabled by technology, but the focus is all about becoming customer centric. Newer start-ups are making headway because they are addressing needs that customers have at such a speed – with developments such as being able to make payments on mobile devices, or analyse spending habits and create recommendations that encourage saving behaviour.
To do this, banks must act quickly. They need to bring their services and new products to market with speed – as they can’t afford to spend 4 years developing a mobile application for it to be redundant the moment it is launched. This is why we work with organisations to speed up that time to market, helping enterprises launch services in months rather than years. In simple terms, it’s about getting businesses to act with greater agility and speed so that banks can quickly respond to new customer requests as market trends evolve.
The view from Carrenza
Within our own IT environment we constantly look at areas that can be automated – and it’s what we advocate to our clients too. This focus on automation has seen us take the build and deployment of new services for one client from three weeks to just three hours. In a retail banking environment where 100% uptime is critical, being able to spin up entirely new servers and applications following a critical site failure in hours and not weeks could mean the difference between a business surviving or floundering.
Automation also reduces the risk of human error – standardising actions into a consistent workflow that can be followed over and over again, instead of being reliant on IT staff to perform basic, repetitive tasks.
The way in which banks develop and test their new systems is also on track to change. We need to move away from quarterly or even six-monthly software releases, which combine hundreds of fixes into each release, a methodology that can increase the opportunity for errors, as one bug can have a knock-on effect that proliferates throughout the whole release.
Instead, financial organisations need to move to a lean method of developing; delivering small releases at greater frequency. Although intuitively it can feel riskier to release updates to systems on a daily or weekly basis, there is in fact less potential for risk as problems can be contained quicker and issues are easier to target as the IT team isn’t having to figure out which errors within their annual release pack is at the root of the problem. It’s a fail fast, resolve quickly mind-set. I like to think of it like building a house. It is risker to demolish a house and rebuild it from scratch than it is to replace an individual window and then assess what has been solved and the issues that still exist.
This approach to development is pretty standard in start-ups, where time-to-market urgency dictates smaller and more frequent release dates. Traditional corporate organisations now need to use this lean methodology to support their technology transformations; developing and testing solutions at speed in order to be more agile in their customer service delivery.
Carrenza: Delivering in partnership with HPE
Carrenza is a HPE Silver PartnerReady Service Provider, delivering hosting and cloud services to customers across the UK and Europe. Powered by HPE products and technologies, HPE Service Provider partners deliver a wide range of services, including dedicated hosting, hybrid cloud hosting, managed hosting, application specific hosting for mission-critical applications. HPE supports Carrenza in delivering its unique, UK based Multi-Cloud solution through joint go-to-market initiatives and sales engagement.