What would happen if banks had to support the same level of customer interaction as major retail companies like Amazon? If they had to service an exponentially increased number of transactions every day? At GFT, we have been working alongside leading banks for 25 years, and we believe that one of the hottest topics in 2017 will be the evolution of banks from financial service providers to full-blown financial services platforms (Bank as a Platform, or BaaP).
Unfortunately, banking would likely descend into chaos long before exponentially increased transactions occurred. With only double the number, the current computer systems of many financial services organisations would collapse. A continuing fall in the price of money, products that shift the risk from the bank to the customer, new customer-centric approaches brought about by digitalisation – all of these are forcing banks to drastically alter their business models.
Redefining the bank value chain to increase competitiveness
In an omnichannel environment, in which customers have an expanded range of points of contact with their banks, it is critical that banks understand and follow the “customer journey”. By analysing their value chain, banks can identify where their strengths lie and cover weaker areas by partnering with complementary service providers. This “mix and match” vision of banks, also known as Modular Banking, enables them to play different roles (product manufacturer, transaction processor, or retailer) at different times and stages on the customer journey, which positions them to appropriately address the needs of each type of customer or market segment.
In this sense, a modular banking approach bypasses the monolithic structure of a traditional bank by using BaaS (Bank as a Service) or BaaP (Bank as a Platform) models. Both concepts tend to overlap, but in fact deal with different perspectives. BaaS arises from the need to change the essence of the banking business from maintaining a pricing policy based on assets and liabilities to brokering and providing value-added services attractive enough for customers to pay for them. BaaP, on the other hand, is more about the idea of banks distributing their own products, as well as those of third parties, through Open APIs and front-ends, so that customers can easily exchange information with multiple suppliers.
The two models are not mutually exclusive, and can coexist within the same bank. However, what is fundamental is that the IT infrastructure supporting the operations of the bank must be flexible enough to adapt to the models and integrate them perfectly. For this reason, a modular bank requires an IT architecture that is also modular and open, capable of coexisting with traditional banking systems – which in today’s IT environment means they must get into the cloud.
Until now, the IT systems used by banks were comparable with the IT systems used by industrial companies; from now on, however, banks must follow the model employed by the largest digital technology corporations to adapt to the new business paradigm. Google and Amazon are good examples of technology companies that not only use the cloud but offer it as a service to third parties.
Banks have to be able to significantly increase their processing capacity from one day to the next, depending on market fluctuations. To achieve this, it is imperative that they embrace cloud technology, and many are already doing so. But switching to cloud is just the first step; the real key is to change IT systems architecture so that banks can not only work in the cloud, but also support the level of changes and performance needed by the company in a network model.
At GFT, we have accumulated more than 25 years of experience in the banking sector designing, developing, and integrating a large number of banking applications. Our extended network of partners in the world of digitalisation makes us particularly well-positioned to help banks on their journey to the cloud.