Time for a reinvention

A burning platform:

Will established institutions find themselves in a precarious position?

An established bank, an integration platform-as-a-service, and a challenger, based in Benelux and the Nordics, consider the threat to the incumbent business model and what banks must do to change it

APIs have been around for 20 years or more, but it is only in recent times that they’ve really punched their digital weight within the banking community.

Through open banking, fintechs have been quick to jump on their potential, driving innovation and keeping up with increasing consumer expectations for digital services and capabilities. Conversely, many incumbent banks have been hamstrung by their legacy systems and have struggled to compete with disruptive fintech players. However, a ‘forced evolution’ is coming, whether they like it or not.

For a perspective on the challenges facing larger financial institutions going forward and the need for a structural and cultural sea-change, we spoke to three significant players in this space. Mike Kiersey is director for global technology in EMEA at Boomi, which provides integration platform-as-a-service (iPaaS), seeing the innovation at work, and saying ‘how can we do that?’. The solutions will come from changing their internal cultures and IT. They’re the result of years of project-based deliveries of IT and IT services to deliver banking needs, rather than a more harmonised offering.

But, at the same time, these challenger banks are growing and feeling stretch pains already. They are looking at their larger counterparts and asking ‘how are you guys solving these issues? What can we learn from you?’.

On both sides, the journey is to see how they can adopt new, innovative technology and also deliver new patterns within that architecture, to release value more quickly and efficiently.

API management, master data management and data preparation, Flemming Laugesen, chief technology officer at Nordic digital bank Lunar, and Tom De Witte, chief information officer for international markets and head of core banking transformation for the Belgian universal multi-channel banking and insurance group, KBC.

THE FINTECH MAGAZINE: How can larger organisations use open banking and open APIs just as effectively as the small, agile banks that have started to eat into their market share?

MIKE KIERSEY: There is definitely a dichotomy here. The bigger organisations are very complex engines with many more cogs, versus small, nimble, high-speed versions of the bank, which have come straight in and adopted APIs; they don’t have the legacy of mainframe technologies. Clearly, the big banks are looking at the challengers,

TFM: How can those with a legacy culture use open banking more effectively?

TOM DE WITTE: Technology is a lever to bring in a broader, better customer experience.

Larger institutions need this obsessively- focussed mentality that says ‘we need to do better than we did yesterday, we need to continue to excel for our customers, we need to find new ways, and better ways to make life much more convenient for them’. Because banks that are neglecting the cultural side, and just using technology for technology’s sake, are not going to see a lot of progress.

Banks that are neglecting the cultural side, and just using technology for technology’s sake, are not going to see a lot of progress

Tom De Witte, KBC

I do believe Cloud is a huge facilitator of all this. It used to take weeks to bring new functionality to customers through IT, which is unthinkable now. We are talking now about hours, minutes maybe, to spin up new stuff, so that we can easily, immediately reply to all our customers’ requests and provide the services that are required. The benefits of Cloud reach far beyond simply a means of being quick and agile – it’s a fantastic answer to many new business demands.

Imagine yourself a decade ago, setting up a greenfield operation and having to decide how to size your IT infrastructure. Are you expecting a steep adoption of the service by your customers or prospects? Should you invest in a large pool of IT infrastructure, and then potentially be hugely disappointed, with large costs if the market isn’t as speedy as you expected it to be? Or should you take a more prudent approach, and then be unable to cope with a massive inflow of unexpected customers? This is where Cloud is bringing huge and fantastic answers because it’s so easy to spin up, and also spin down, if necessary. The flexibility that has brought to IT infrastructure is tremendous and it’s providing businesses with good, new, decent, stable technology to realise their plans.

TFM: How can large banks harmonise their IT department and other subdivisions, to ensure that everyone’s vision of global transformation and innovation is the same?

MIKE KIERSEY: I do think one of the biggest challenges is the culture; there’s no common language between what the business wants and what IT wants, and they don’t know how to harmonise that. Moving forward, you need to have a business-IT continuum. Let’s say, on the one side, you’ve the deep expertise of technologists in IT, but that knowledge is on a sliding scale down to the rest of the business. On the other side, you’ve got business domain expertise and people who know everything around what banking should be and that’s a sliding scale of knowledge, too, going the other way, to IT.

Banks now have an opportunity to create a harmonised business-IT model – IT and the business need to come up with some common tools that they can start to use. I’m not saying it’s easy, it’s a fusion of different roles, cultures, ideals, architectures and business needs. But it’s a shift that is imperative to banks’ futures.

Banks have an opportunity to create a business-IT model. It’s not easy, it’s a fusion of different roles, cultures, ideals, architectures and business needs. But it’s a shift that is imperative to banks’ futures

Mike Kiersey, Boomi

FLEMMING LAUGESEN: You have to examine how a specific institution is running. What are their rules and expectations? What are its ways of working? How does it handle goal management? What’s its organisational design? I think that is probably more important than Cloud because, if you don’t look at how you work, how you are set up, how you engage with your employees, then moving to Cloud might not necessarily help. It’s just another infrastructure, after all.

I really think you need to look at the environment the engineers work in. Are they working in a fail-safe environment, or a safe-to-fail environment? Are they seeking pains, or are they trying to avoid pains? Looking at all these issues around culture will help the more settled institutions to break out of their habits. Don’t get me wrong, Cloud is integral, but, for the bigger institutions, if Cloud by itself is the goal, then they will miss the opportunity to reinvent and start thinking as a technology company.

TFM: How have Benelux and the Nordics, specifically, adapted to open banking?

TOM DE WITTE: Some banks were a bit ahead of the pack in terms of embracing new technology, some were lagging. We found ourselves on the leading edge. Of course, now, if you look beyond the revised Payment Services Directive (PSD2), you can see a much broader acceptance of API technology – some of our competitors accepted the strategic advantage of it, bringing new solutions to the market for their own customers. As a result, the big winner is the ultimate end customer, because new functionality has been provided in a much faster and more convenient way. I believe this is exactly what we need to do, as the financial industry, in all of our markets.

FLEMMING LAUGESEN:

Incumbents have tended to see open banking from the perspective of compliance; fintechs see new business models and business opportunities, and start grabbing these APIs to build something that puts the user in control. The larger institutions are starting now to figure out what they need to do to be on top of this; they need to use it, because otherwise they’ll come under increasing pressure.

If Cloud by itself is the goal, a bank will miss the opportunity to reinvent and start thinking as a technology company

Flemming Laugesen, Lunar

MIKE KIERSEY: We’re now seeing institutions move forward with open banking. Boomi can help them with PSD2, start looking at how they can design for the future, how they can connect for the future, and bring greater value through data, quickly and more efficiently. At the end of the day, it’s a regulatory need to be able to share data, but it’s an opportunity for them to build new products and allow the fintechs to bring new ideas to the table.