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Over the years, we have come across many clients, both traditional and FinTechs, who are facing tremendous challenges with their legacy mainframe-based core banking platform. They are neither able to launch any new industry leading customer experience solutions, nor able to bring out any innovative propositions to remain competitive in the marketplace.

Generally, there are two broad approaches that we have seen and have worked on –

1. Extend the life of the legacy/mainframe – Continue to use mainframe platform but mitigate legacy risks & Bottlenecks
2. Move away from Mainframe completely – Mainframe solution is unviable and poses significant Risks for business growth.

Customers adopt their approach primarily based on the transformation drivers – Cost pressures, business imperatives and/or risk appetite.

Extending life of Legacy

An organisation pursues this approach if the primary driver for transformation is to resolve Digital Laggardness or enable business innovation. Under this approach, the legacy continues but specific interventions are brought in to enable or build new age Digital experience to customer and employees alike. Most common approach is to gradually move to an API first model. The bulk of Business rules and the entire data continue to reside on legacy. Many use this opportunity to also look at ways of reducing MIPS cost (in case of mainframes) by externalising data to an ODS. There are typically three variants as far as this approach goes –

1. Point to point API enablement – Overarching strategy is to keep mainframe as Back end and use Web based Front End, by modernizing green-screen to deliver new experience to Suitable only for Small Scale Application (or operational modules.
2. SOA Based Componentization & API Enablement – The entire monolith is componentised into SoX (SoR, SoI, SoE) and is suitable for larger application and more detailed API enablement which extend to Customer Experience layer.
3. API First approach – most complex and mature strategy which focusses on de-coupling business rules and data processing. End to end API enablement means that all functions and services are accessed through APIs across the board – internal and external. BPM tools are used to orchestrate the business processes and Mainframe only performs data crunching & storage.

Moving away from Mainframe

This approach is normally adopted if the legacy platform limits opportunities for API enablement and/or legacy (mainframe in many instances) costs are way too high. Now, the biggest risk with this approach is that business is running, in many cases there are multiple brands enabled on the same code base so one easy approach at least in theory to mitigate some of the operational risk is to keep the business rules, data structures intact and move the code as-is to a Linux platform. There are tools which can help to convert/refactor code to today’s most popular option – Microfocus COBOL on Linux. ����However, this approach has advantages and disadvantages:

• The advantage – The business roles and data structures remain unchanged and only the underlying infrastructure is impacted in theory – which is less risky.
• The disadvantage – All the inherent issues & bugs in legacy code gets carried forward to new infrastructure and opportunity to refactor is missed. This needs to be resolved before porting the code.

The riskier approach is replacing the core platform with a Commercial off-the-shelf (COTS) Core Banking product. This can be done multiple ways, by either gradually replacing a set of core functionalities of a period of time, thereby eventually making the mainframe code redundant – commonly termed as hollowing the core or standing up a brand new system in parallel, now a days entirely on the cloud, and to move business lines to the new core over a period of time.

Conclusion

There is no one size fits all option that is available but we believe that while the mainframe extension approach�� and the porting COBOL code to Linux platform might look like a good strategy in the short term, organisations need�� to definitely think about moving away from the legacy code. While the cost savings, and the infra evergreening are the most tangible ��outcomes, significant risk persists i.e. inherent code issues in the mainframe code, undocumented business rules, niche skills availability to name a few and therefore the banks will be better off to moving to a scalable cloud based,�� API and Digital first architecture.

91���� brings years of experience

91���� provides end to end Digital Banking Solutions and one of the core areas is our Legacy & Core modernisation services. ��,Regardless of the approach, we can help ��enterprises embark on a successful journey from Monolith to Microservices.. Equally, our DX practice focusses on Data Modernisation & Analytics led CX solution framework, we call it the Customer Intelligence Platform for Banking.

If you are looking to move to an industry leading Core Platform, our deep specialisation can come handy. ��91���� is a Platform Agnostic Core Banking Services provider and our Retail & Corporate Banking CoE allows us to build and scale this capability around a number of industry leading Core Platforms. We offer end to end services required for implementation of a new core platform – from Business Analysis, Design, Development, testing to implementation & support services. Please contact us to know more about our services and offerings.

Authors:

Ranjith Ranadheeran
GM – Banking and Financial services

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We all know that Banking constitutes an essential service and was one of the first sectors to embrace Digital Transformation, which is considered the panacea for COVID-19.����When COVID-19 struck, there was an initial view that banking will not be significantly impacted by COVID-19 as compared to other sectors such as Travel and Hospitality. However, we know that the digital enablement of banks is at various stages and maturity levels. According to Forrester*, banks are just going through the motions of transformation;��only 14%��of global financial services firms believe that they have the right technology infrastructure and applications in place to deliver great and differentiating CX. This tells us that all banks were not ready to face the challenges brought to the surface by the pandemic-induced lockdowns.

Given the dire situation, many areas will emerge where less prepared banks will be impacted – particularly those with limited digital or self-servicing capability. The dimensions of this impact will be felt across both customers as well as employees. There have been several reports of Tier 1 banks – including Lloyds in the UK, Bank of America, Mashreq, and Westpac to name a few – who have reported significant fall in profits, primarily on account of bad loan provisioning.��

While for the normal end customer, there may be no impact on availing banking services, across all standard transactions like payments, direct debits, and funds transfer, etc., underlying issues faced by banks, building societies and financial institutions will continue to remain. I was a panelist in an 91���� Global Webinar where the banking fraternity from almost all parts of the world participated, and we discussed this topic in detail and generated revealing insights.

Not surprisingly, according to our audience the most impacted Banking areas were back-office operations, followed by call centers, and finally, customer self-service channels. It appears that almost all focus of Digital Transformation done by banks focused on the customers and less on internal-facing touchpoints. Given the remote working of staff and the huge call volumes, back office-operations and call centers may be unable to function as they should.

So, while Banks were arguably better prepared for COVID-19 than other sectors, they are still impacted due to the unprecedented nature of this situation. There are staggering reports of huge impact on customers and employees – customers unable to avail critical services due to closed branches and call centers having horrendous wait times. Moreover, due to staff working remotely or off sick or in isolation, they are unable to perform all functions effectively. This has and will continue to cause challenges for banks and financial institutions across all lines of their business. They not only need to continue business as usual but also work with the respective branches of the governments to make sure that the neediest are not left out – especially across small businesses and the retail spectrum. Among other things, they need to ensure that the monetary benefits, loans, and grants reach those who require them in a timely fashion.

Now, let’s take a look at the areas majorly impacted due to COVID-19.

Customer Impact

• Branch operations��– Due to closures, functions typically done in branches will have to be enabled on self-service channels. Small-medium banks/regional banks/building societies will be most impacted. Lack of self-service capability will mean that the vulnerable and needy segments of the population, who are either sick or not digital savvy, will not be able to avail banking services. Even if there is self-service capability, it will now have to take a larger load of the transactions, and it will have to be reliant.
• Customer Key Transactions��– Lack of automation for all functions means that even some of the critical customer transactions, e.g., high-value/international funds transfer, mortgage transactions, loan applications, etc. might get stuck due to unavailability of self-service capability in these areas as well as unavailability of bank staff. Banks need to look at creating additional self-service capability rapidly without impacting their core systems. These capabilities may need to be launched in days or weeks.
• Impact on the most vulnerable��– Vulnerable and old customers, who are in self-isolation or customers who are not digitally savvy or from the poorest sectors of the society are most impacted. While the majority of customers, at least in advanced markets, can continue to avail all the critical services they might need digitally, the vulnerable segments need more focus. Banks need to look at Digital workers/BOTs who can engage with the segment and enable BOT-assisted self-servicing, which can be delivered through an app, portal, push notifications, or even text messages.

Colleague Impact

• • Contact Centre/Customer Help Desks��– Bank’s help desks are likely to be inundated with an unprecedented number of customer calls on account of Branch closures and/or limited self-service capabilities, which will result in more requests/queries directed to the contact center. Staff going on sick leave or lack of remote working options for contact center staff means that tickets will pile up. Lack of remote access to the bank and automation options on top of core systems will result in even simple cases not being closed. Banks need to look at investing in Digital/BOT workers who can not only stand in and augment bandwidth to the bank’s helpdesk teams but can also provide 24×7 real-time solutions to its customers.

• • Back-office functions –��Banks running legacy may not have enabled home working for all functions, particularly back-office workflows. This means that if key workers are off sick, the cases and transactions will get piled up and cause bottlenecks in the overall operations. Banks need to look at automating bank-office functionals to enable straight-through processing and rule-based cognitive workflows.
  • IT Support Functions��– Due to the unavailability of bandwidth and with people becoming sick or unable to work, planned changes as well as the bank functions, get impacted. This will be compounded by the fact that more employees are working remotely and from different locations. The new working model is bound to lead to more support requests and incidents, which will have to be handled in innovative ways. Again, similar to the Customer Helpdesk, banks should seriously look to create a state of the art BOT enabled Service Desk, which will be more resilient and efficient.

Revenue & Profitability

• Provisioning against Bad loans��– Given the pandemic situation, there is a strong possibility for SME and small corporates becoming delinquent, leading to interest income write-offs. Banks will need to make significant provisions for bad loans, which will impact profits. Lloyds (in the UK) have announced that their pre-tax profits have fallen by 95% due to bad loan provisioning, and a number of Global banks have followed suit with significant profit fall reports.
• Reduction in Fee-based income��– Interest/fee-based incomes will reduce due to interest rate cuts and lower transaction volumes. Banks will potentially decide not to pass the benefits of interest rate cuts to its customers as the economic stimuli like mortgage holidays will need to be funded, and just the Govt. grants will not be enough. Banks will need AI/ML-led cross-sell and up-sell capability for new ‘paid’ products, which will offer additional value to customers.
• Identify & Help Vulnerable to avoid Bad loans –��Banks��will also need to proactively monitor and help/assist these customers, which will ensure there are limited bad books. Some of these customers may not have understood or availed the Govt. grants and loans due to a variety of reasons, and a proactive reach-out is essential. Instead of using traditional mechanisms, banks should launch special COVID apps and solutions to handle this situation.

Regulatory and Compliance Related

• Adhere to Regulatory/Central Bank directives��–��There will be a need to launch new products and modify existing products. As central banks inject stimulus to the economy in the forms of benefits, interest holidays, and new loan products, banks will need to stand up new functionality quickly to adhere to the central bank timelines. Banks will need to launch solutions quickly to help their customers and/or use this opportunity to widen their customer base.
• Increased Risk of Fraud and Money Laundering��– In this time of crisis, there is an increased risk of customer fraud and cross-border money laundering, as well as illegal funds transfer. Lack of heightened enterprise fraud management will lead to regulatory fines and reputational risks as well. Again, analytics and AI/ML-based cognitive solutions will be the key to helping banks identify potential cases and prevent loss and customer impact.

Technology Impact

• • Scalability & Resilience of IT Systems��– One aspect that the COVID-19 pandemic has brought to the fore is the resilience and scalability of the banks’ technology platforms. Some of the platforms, even at Tier 1 banks, are decades old and are tuned only to operate under normal circumstances. Banks are now seeing unprecedented transaction levels related to COVID-19 stimulus packages announced by central banks. Banks who used to process around hundreds of new loan applications a day are now getting more than a hundred thousand each day! Their systems are unable to cope, and banks need to look at quickly fixing the solutions while making new ones for the COVID-19 context without impacting their core systems. One mechanism is to divert the COVID transactions away from the core systems into a new application that is resilient and can scale and take the brunt, passing it on the core in a much more controlled manner.

• • Strengthen Remote Working –��Traditionally, remote working enablement was done for a limited set of functions and applications.��Banks have to re-look at this setup and extend this to all critical business applications so that the operational risks and customer impact are minimized. When we asked our Global audience for their views, the majority of them responded that the remote working of staff is going to be the new normal. In connection to this, Barclays CEO Jes Stanley recently said, “The notion of putting 7000 people in a building may be a thing of the past.”

Conclusion

This pandemic has brought several issues to the forefront.��While no new non-discretionary spend related initiatives or interventions are likely to start, banks will at-least spend the time planning and conceptualizing their transformation initiatives. Bringing out some more results from our Global Webinar, we asked our audience what areas they are likely to focus on and invest in the medium term, and not surprisingly, Customer Experience continues to be the main focus areas with Colleague Experience also featuring as a key area as the focus on back-office Digitization keeps gaining more and more momentum.

The top 5 initiatives that I think Banks and Financial Institutions should focus on are:

1. Rapid enablement of their digital customer and colleague experience solutions��– Self-service capability across all their business functions, not just limited to customer-facing functions.
2. Digital worker/BOT based helpdesks��– Both for Customer help desks and Internal IT help desks, which augment the capability of the human workforce/agents.
3. Focus on scalability and resilience of their IT Platforms (Core IT) –��Review the platform and start making plans and business cases for their transformation.
4. Strengthen cyber-security and enterprise fraud management solutions��– When more functions are brought, online there is a big risk of��Cyber/Ransomware crimes. Lack of strong fraud safeguards makes any online/self-service capability they offer at risk of being exploited by criminal elements.
5. Revenue Risk Mitigation��– In the event of an economic downturn, there is a possibility of customers becoming delinquent as well as��fee income reducing. Banks need to��find ways to remain competitive and profitable. Banks will have to invest in solutions which will enable cross-sell/up-sell and also identify potential customer risks.

91���� has launched several Banking-focused solutions to manage the COVID-19 situation and provide better preparation for the post-COVID world. Our solutions cover every single aspect and dimension mentioned above and offer point capability in all these areas. Please contact us to know about our industry-leading offerings.

The Global Webinar I have referred to in this paper is now available as an On-Demand Webinar. Please do take time out to participate and provide your feedback, which will help us to further calibrate and finetune our COVID-19 response. You can access the Webinar��.

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The “new kid” on the block is punching above its weight.

Taking advantage of this need to deliver seamless experience at speed, engage customers with innovate products/services across channels and using emerging technologies at the core of their business model, many new age start-ups have come up in past couple of years. They are challenging the traditional banks and are being referred as “challenger banks” and are powered by accelerated customer acquisition, funding, partners, open API and technology initiatives, product quality and customer experience. Some examples are N26 (German), Monzo, Allica, Virgin Money Digital Bank (UK), digibank by DBS, Starling Bank (US), etc.��

Challenger Banks are a new breed of��technology-driven and customer-centric financial institutions��that are reimaging and redefining ways how customers are utilizing and interacting across the banking value chain.��These banks are not any of the recognized, traditional, main high street banks (RBS, HSBC, Lloyds, Barclays, Santander), but they have been able to create lot of buzz and interest among customers, partner, VCs and traditional banks in recent years. Their core differentiator is��driving innovation and improving customer service levels��in the banking domain using emerging technologies.

Challenger Banks are Targeting Traditional Functional Areas

The changing landscape of today’s digital marketplace has also affected the way in which banks are reaching customers, running their operations and protecting themselves from various risks and threats.

Changing customer expectations, open banking, and newer regulations around data utilization are the key drivers

Customers who are receiving��customized offers and instant response��from other domains like Retail, E commerce, Hyper local deliveries, Food and beverage, Entertainment etc. they expect the same or even high customer service levels and personalization when it comes to their banking activities. Increased scrutiny by regulators and customers have led to new focus areas which the banks can now leverage.

The Open banking directive and PSD2��lead to collaborative efforts from banks to partner with specialized service providers who can build financial and digital marketing capabilities on top of the bank’s data and infrastructure. This allows for banks to be able to customize offers based on relationship-based pricing. The Product mix of banks today also has changed and has separated out niche, moment- based offers, behavioral financing and Life stage/Need based financial support through various products and services of the bank.

Compared to traditional banks which offer general category rates and slower response, the newer digitally focused banks can��mass personalize. While in traditional banks the low customer satisfaction rates and low turnaround times leads to frustration for the customers and loyalty erosion. The challenger banks also can onboard these newly acquired customers through digital channels and robust data collection infrastructures.

Apart from the customers requirement for��newer ways in which banks could service their customers, there is also a financial economic incentive for new entrants in today’s world. By choosing to play in specific areas where the bank specializes, Challenger Banks are more profitable than incumbents as they have, a smaller cost base, asset light business models, cheaper and faster IT systems.

Modern banks also��need not necessarily have the same balance sheet composition��as the big banks or the legacy IT baggage.����Challengers have outperformed the Big Five on costs, with an average cost-to-income (CTI) ratio of 59.6 compared to 80.6 percent for the incumbents. Challenger banks that operate without a significant branch network have significantly lower costs across their customer and channel functions too. Since they can acquire funds from an alternate source of funding outside of just deposits, they have flexibility and speed which traditional banks lack to offer cheaper loan rates and higher borrowing rates.

Personalized digital experiences powered platform of intelligence is at the core of their business model

1. Personalized and Seamless Digital experienceEffective personalization has been a great strength and differentiator for challenger banks. These banks have a deep understanding of the complex multichannel customer journey and experience gaps, and have the ability to quickly build a single view by collecting rich, unique data points to personalize a customer’s experience. They can provide a seamless branded experience with personalization across the value chain and at every interaction point. From choosing the right channels for acquisition and engagement and delivering 24*7 convenience for customer using intelligent and conversational services through IVA, chat bots and self-service Apps have helped drive the personalization agenda. We also see banking and financial education happening on new channels such as social media, blogs and even simulators for banking customers which allow the customer to be engaged throughout the banking process. From Emails to Ads banks, they can extract the exact needs of a customer and communicate it to the with a personalized offer which applies to his/her life stage, lifestyle and wants. These have shown to have high conversion rates and lesser churn.
2. Platforms of intelligence

   At the core of these challenger banks is the platform of intelligence for its customers and banking operations. The customer intelligence platform can collect the massive amounts of structured and unstructured data in a data hub/data lake construct. The data collected and stored in accessible formats is analyzed for different use cases – segmentation and personalization using AI/ML models to identify gaps, patterns, opportunities and next best actions. This was previously done in silos or were slow legacy systems. Today its an age of continuous intelligence and the insights are derived from constant analysis using advanced analytics, AI/ML algorithms and cross domain experts of the underlying data generated and consumed by the bank and its partners ecosystem. This can be analyzed for deep insights and powerful visualization, marketing automation, risk controls, funding and lending projections and optimization. The platform of intelligence for banking operation can drive operational efficiency internal to the banks in terms of risk assessment, liquidity planning, portfolio management by using advanced analytics and AI/ML algorithms to optimize various banking levers makes the internal functioning of the bank more efficient and less risky.

   These challenger banks have been working with IT service providers like 91���� to build these platforms of intelligence and deliver personalized, seamless experiences to its customers as well as leverage insights to drive operational efficiency across their organization.

   Stay tuned for the next blog in this Challenger Bank service as we deep dive into how they are building platforms of intelligence for consumer and operations and are creating a differentiation for themselves!
   

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As the third largest mortgage provider and one among five top commercial lenders and current account providers, the bank had to comply with the regulatory deadline of the Financial Conduct Authority (FCA). The goal was to meet the PSD2 norms for strong customer authentication (SCA or multi factor authentication) across its digital channels. With the COVID-19 pandemic eliminating the chance of our team being physically present at the bank’s facility in the UK, both Client and 91���� set up the infrastructure, teams and tools to remotely ensure that the change to the bank’s digital systems were made within prescribed deadlines and without impacting its 14 million customers base.

The regulatory requirement the bank needed to meet included implementation of 2F authentication for:

• Standing orders and setting up new payee customer journeys for retail customers
• Remote log in for retail and business banking customers
• Confirmation of payee changes

How do you meet deadlines when COVID-19 disrupts the work environment?

91���� set up a remote team (peak size: 40) to work on the bank’s requirements. From the client side Product owner, Analyst and Client manager worked remotely and continually on meticulously planning the roll out of the 2F authentication to 100% online banking users across the platforms of Web, Mobile and tablets.

The 91���� team members connected using remote access service (RAS) using distributed agile model. The scrum teams both onsite and offshore connected from the safety of their homes.

A number of collaboration tools were used to ensure smooth functioning and on-time program delivery:

• Microsoft Teams/Zoom video conference and tele-conference for Agile ceremonies and collaborations
• WhatsApp group for instant offline communication
• Confluence to communicate priority changes

Since we had low RAS infrastructure availability to handle the vast number of remote connections required for the project, we used a `follow the sun’ model. India members connected and worked prior to start of UK business hours, participating in daily stand ups and connected again when required during post UK work hours. RAS was upgraded to aligning with the peak remote connections requirement. Gradually members are now being moved to common work timing between onsite and offshore

100% customers migrated before deadline for 100% success

The problem of deployment was made complex by the spike in usage by bank customers in March. These implementations were well planned by the Product owners and Client Manager, well supported by team members of 91���� to implement stepwise incremental user migration to the new platform. Finally, before the regulatory deadline, 100% customer migration was achieved—just as the threat from COVID-19 had begun to peak in the UK.

Appreciation from key anchor and Manager of Channels IT, had these words to mention: “Amidst emerging COVID 19 situation at that time, new logon went live with full roll out on 10^th & 13^th March across Retail & Business Banking. My heartfelt congratulations to the entire team for the good work, dedication and the support you have shown throughout the roll out phase & to support them round the clock. People have worked in shifts covering different time zones / weekends to cover the sheer volume of traffic across these platforms and to continuously monitor the application.

Logon is one of the most complex journeys technically and the handshake to core application was done seamlessly. Creating sophisticated dashboard & alerts / watchers, are some of the proud achievements we can always cherish & this could not have been achieved without your good work, support and dedication.”

The bank’s Senior Manager, Channels IT, took note of the effort: “Amazing work from each one of you—especially in the current climate. Thank you for navigating through such a complex and difficult journey. You have remained focused throughout and shown true collaboration.”

Product Owner for Channels IT, summed up the outcome as “I would like to say well done on your efforts to get SCA login over the line for retail and Business. We made the regulatory date despite many obstacles and dependencies – you should be proud of what has been achieved and the current performance of the code is v positive.”

COVID-19 has placed numerous challenges before businesses; it has been no different for us. But with each passing day we find that with innovation, perseverance and presence of mind we can battle the pandemic and ensure life continues with as little disruption as possible.

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In a crisis like this, each stakeholder behaves and responds differently (but mostly in a pre-determined and agreed manner). The key is to understand how each stakeholder evolves their plan during this dynamic period of crisis.��

Some factors that are being affected –and which will evolve—are discussed below. Eventually we will need to redefine and fine-tune them once the impact of COVID-19 recedes. This is essential to developing a sustainable and resilient business.

Business operation will demand an updated Business Continuity Plan (BCP). In any value chain, BCP is managed by multiple stakeholders. The way BCP has evolved during the crisis will aid in redesigning the process, translating into better client acquisition process and financial goal management. The “new” unknown unknowns must be considered during the redesign of BCP along with a slew of new regulatory requirements that will inevitable be on their way. The corollary is that existing information security policies will come under the microscope and must be aligned with the new work environment.

People management is about to take a massive turn. People are the foundation of great asset and wealth management. With social distancing and travel restrictions, employees will be away from their clients. The lack of proximity in interactions will hinder their creativity and effectiveness. In the post COVID-19 period, success will depend on how well tele/ remote/ virtual working tools are used to manage interactions, queries and solutions. A new set of best practices must ensure that customized responses are available, teams collaborate and managers monitor processes and simplify interactions.��

Customer management is about to undergo a revolution. Custom views of interpersonal client interactions have been central to understanding the risk and reward profiles of clients. This profile pivots the design and execution of financial goals and portfolio creation. Advisors must manage this process in a virtual world and develop custom views that keep their customers responsive to markets and macro-economic changes. The utilization of virtual workshops, sessions, webinars, social media live casts and podcasts will grow as tools for continuous��communication that also provide extra comfort to clients. One of the important aspects of such tools will be the ability to archive interactions for retrieval and analysis at any point.��

Using technology to manage portfolio and trade desks will set off organizations on the hunt for robo-advisory systems, trade bot platforms, cloud and other automation tools. The tools they select will provide competitive differentiators. New technology will provide new use cases and scenarios which will fold into existing processes and deliver a stronger response to client requirements.

Digital Workplace teams will be in demand. When we get to a virtual world, we also add volumes to interactions and transactions. A big change will be presented to EUCaaS owners. They will have to effectively utilize their existing teams and also provide a helping hand to manage increased volumes. This will be besides the burden of reorganizing existing resources and developing and utilizing bots for end-user issue management.

In the long term these changes will transform the overall value chain in asset and wealth management. When the industry is affected by the next catastrophe, it won’t panic. Instead, game changing digital process will have been baked into their systems, creating resilience and responsiveness.

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Some industries like travel and hospitality are going through an existential crisis, while others like retail and manufacturing have been badly hit by the spikes and troughs of disrupted demand and supply chains. Banking is perhaps less visually impacted (for now), as irrespective of self-isolation or social distancing, it is a necessity and a fundamental utility akin to gas and electricity. But there is a lot coming down the road for sure.

I have spoken to many banks and CIOs in the last few weeks and discussed and shared thoughts. The immediate focus has been on business continuity measures, on getting remote work from home (WFH) processes up and running and ensuring the technology and infrastructure is in place and getting contact centers and helpdesk to support the business. But now as it stabilizes, and it becomes evident that this is the ‘new normal’ (a phrase you hear everywhere), there is a clear thinking emerging on some potential steps and imperatives for the bank CIO.��

Stress and impact on the self-service/digital channels of engagement

Over the last two decades, internet banking and mobile banking were built as independent channels to the branch, call-center etc. and the utopian goal over the last few years has been to achieve an omni-channel outcome where customers could engage across channels seamlessly. Yet the technology stack has been built incrementally with band-aid solutions and some of the current mobile/internet channels are cumbersome and already legacy systems. Today, due to COVID-19, the entire stress and impact is on self-service via the digital online/ mobile channel, and there has never been a better time or a business-case to look at transforming this.�� There is cheap and proven technology around to choose from. Mobile-first, cloud-native and secure; out-of-the-box functionality that can easily integrate with your existing core-systems, and canned workflows and processes that can easily be tailored. And low-risk implementation models that are plug and play and bolt-on, delivered in days and weeks rather than months.

Don’t put your change budget and discretionary spending on hold; modify it

Most enterprises are programmed to follow set patterns of risk management. The first response to a disaster is to put discretionary spending on hold. “Let’s focus on BAU,” is a comforting idea amidst the chaos. But the lessons of 2008 should not go waste. In 2008, savvy banks invested in modifying their technology estate, IT legacy systems and their limitations, while the markets were still in turmoil. They got fit before the downturn loosened its grip. And when economies returned to normal, these banks zoomed ahead leaving their competition far behind.

Core-systems transformation/ modernization and approaches – either ‘rip and replace’ or ‘hollowing out the core’ – have in the last decade matured significantly. They don’t necessarily need to balloon into spends running into millions (which then get railroaded by inter-company political agendas) and fail spectacularly and become a career-limiting outcome for the people involved.

Trim down the change budget by all means but talk to your IT partners and see how it can be put to better use and explore how some proven technology and approaches can simplify and transform your existing IT limitations. This could be the best time to do this.

Agile IT Delivery – make it global and distributed

When Agile development became institutional in the last few years, and Agile manifestos, and stand up meetings sprang up everywhere, the purists recommended co-location as mandatory and suddenly development and testing teams all in the same floor/building became de rigueur. This was somehow seen as a conceptual clash with the global delivery (onshore, nearshore, offshore) model and local IT contracting and costs mushroomed exponentially. Some of the braver CIOs saw this as unsustainable and took the step of working with their IT services partners and pioneered Distributed Agile development models. These have now matured very well with robust tools, technologies, processes and ways of working with remote teams.�� And when COVID-19 struck, unsurprisingly, these distributed agile teams were the first that adjusted to the new normal. Today when everyone is working remotely, whether a developer logs in from his home in Boston, Birmingham or Bangalore, it doesn’t make a difference. But it does make a difference to the bottom-line when the unit cost of delivery is different in each of these.��

And then with automation and other efficiencies, there has probably never been a better time to go all-in and consider Distributed IT delivery models that reduce your unit cost of delivery.

Move (even more) to an opex, pay-per-use model

In the last few years, SAAS applications and platforms have paved the way for increased familiarity with the consumption-based spend pattern for IT. On the other hand, large clunky lock-stock-and-barrel outsourcing contracts with black-box operating models are distinctly unfashionable. But there is a clear middle ground here for parts of the IT spend and estate to be carved out intelligently and moved into an opex model with your IT services provider, with guaranteed performance metrics, productivity improvements and clear transparent dashboards that give you all the control you want and the services and scope can be tweaked as required.

By implication, IT vendors will step up their game with new models. While some of the larger vendors may struggle to move fast enough to change their cookie-cutter outsourcing frameworks, or not be as hungry because of the dropping contract values, or perhaps be loath to cannibalize existing contracts, chances are that flexible, nimble and agile mid-tier providers will knit together these offerings much faster than their more mature competitors.��

The winners…

In my view, this is not the time to wait and watch; it is a time for decisive action. Banks and their CIOs (and their IT partners) have a window in which to turn this setback around and those that react fast and adapt will end up as the winners. To borrow a phrase from Malcolm Gladwell, those who see this as a phase of ‘desirable difficulty’ will be the ones that thrive.

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Around this philosophy are eight tenets for success:

1. Buy, don’t build – Some challengers are drawn into building everything from scratch because they have an overwhelming desire to differentiate. This should be avoided. Instead, the focus should be on building only the differentiating capability. If capex required to build an industry standard core banking solution was a major deterrent, SaaS and subscription-based option are now available, ensuring an affordable Opex model with modest initial outflows—again, allowing building only the differentiating capability.
   
2. Leverage the Fintech ecosystem – Intelligently stitch the industry-leading solutions and capabilities of FinTechs into a modern digital platform using APIs and integration frameworks. In comparison to building from the ground up, this will quickly build industry leading capabilities in key areas.
3. Cloud first – Opt for Cloud native applications for business support and operations. Most cloud providers can plug into your business performance management and finance tools, providing you a detailed view of run costs and optimization opportunities. The headache of IT heavy lifting–like evergreening, scaling and security–will also vanish!
4. Build once, run anywhere – Make the platform truly omnichannel, from a customer experience perspective and an employee perspective.�� Invest in a low code base platform as part of your omnichannel strategy. This will create hybrid or native apps and offer a development platform using only one codebase—thus lowering costs.
5. Data-driven interventions to insights – Use data, analytics, process mining and customer analytics to sharpen your proposition. This will make your business customer centric and additionally help leverage a cognitive customer care and business performance management framework. The bonus will be the inherent ability to manage operational risks and control weaknesses before they impact business, thus establishing regulator confidence.
6. Open source wherever possible – Put money behind IP-based solutions and business support systems. Keep the rest of the stack open source to reduce capex/opex and retain the flexibility to tweak solutions based on needs.
7. Vendor independence – The last thing you need during launch of a business is a vendor who fails to deliver a component or does not deliver what it says on the wrapper. Therefore, create loosely coupled systems that allow you to swap in/out products and capabilities in a snap.
8. Micro-services to Micro-apps – A microservices based architecture is the key to stitch solutions and capabilities together. Create a strong API and mobile framework and enable business functionality by orchestrating discrete atomic microservices. This will go a long way in leveraging the FinTech ecosystem.

Our deep experience working with challenger banks has led to the development of a Challenger Banking Reference Architecture. It builds on the eight tenets to construct a state-of-the-art platform capable of successfully setting up challenger banks.

Recently there has been news of JP Morgan launching a digital bank in the UK. Over the last two years this has steadily become a trend—some examples include the Royal Bank of Scotland/ NatWest that launched Mettle and Goldman Sachs that launched Marcus. Other high street banks have not been left behind. Names like Greenhouse, aiBank and Digibank are signs that your bank could launch a digital winner next.

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Changing Human Behavior – A Barrier in the Banking Landscape

Studies show that humans are not always rational in their decisions. Over a period, they have also started counting on shortcuts to resolve problems. This approach, also called heuristics, often results in various forms of biases that lead to judgment errors. This situation poses a challenge for banks whose primary focus has been on changing consumer behavior pertaining to investment discipline, insurance coverage, savings, and credit discipline. The needs and consumption patterns of today’s customers are unpredictable, thanks to the plenitude of choices they have.��

Less wonder that a study revealed that the average rate of application abandonment across a bank’s retail offerings is approximately 40–50%. Also, the non-performing loans have added to the bankers’ woes.��

Behavioral Science – Perfecting the Art of Knowing Customers

Behavioral science is that elusive answer to multiple questions bankers are asking. It is a field of study that deals with human behavior and decision-making. Experts in behavioral science apply the principles of psychology, sociology, economics, and neuroscience to analyze human relationships.��

Traditionally, banks have been leveraging the concept of behavioral sciences in the areas of strategy, product design, and marketing. Nowadays, they face the challenge of mitigating the new issues related to acquiring and assisting customers. Many banks and solution providers have realized that the application of behavioral science to banking technology has now become the need of the hour.

Infusing Empathy into Technology

Financial institutions have been investing heavily in digital technology. All these investments will pay off only if they help decision-makers recognize and analyze their customers’ behavior across channels and touchpoints.��

Today’s progressive banks are on a journey to deploy the next-generation behavioral banking technology; one that would cater to the financial and psychological needs of users. Bankers have to gain a deeper and comprehensive understanding of their customers and their behavior at every stage of engagement. This demand has resulted in the development of newer solutions with triggers to enhance the consumer’s decision-making ability.��

Bankers can apply the principles of behavioral science across the technology themes of business model change, digital simplification, risk management, customer value management, and customer acquisition. Online/mobile banking, architecture & integration service, AI capabilities, personalization & marketing, process re-imagination, and big data analytics are some of the most common technology services supported by this fast-emerging trend in the banking space. Powered by comprehensive Master Data Management (MDM) technologies and integration of several backend applications, behavioral banking technologies create a single view of the customer, while making the business more transparent, more nimble, and more effective in the marketplace.��

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