The next era of banking will involve heightened complexity, uncertainty and competition, as banks face threats from new players – including companies in areas like software, social media and telecoms.
To combat these challenges and remain relevant, and to make the most from the latest technology, banks will be required to step up the pace of core systems rationalisation and modernisation, says Saurabh Kumar, MD of In2IT Technologies South Africa.
Many commentators argue that the fundamentals of banking have hardly changed over the past few decades. The same basic product sets exist today, and the principles of lending and borrowing, risk and return, still form the bedrock of the way banks approach their customers.
Evolution
To quickly sketch the evolution of banking in recent years: the mid- to late-1990s saw the first signs of paperless processing and bank-wide systems started plugging into each other. While banking remained largely branch-based, the concept of document management came to the fore. This was followed in the early 2000s with better data integration and the rise of “master data management”.
Interbank payment systems started to better connect banks at a national and international level, and the major card schemes like Visa and MasterCard accelerated their footprints across the globe. At the same time, more and more banking services were exposed directly to customers via secure online channels.
The period from 2005-2008 saw the mobile channel starting to take hold, albeit on simple protocols like Unstructured Supplementary Service Data (USSD), SMS, SIM toolkits, and mobile Wireless Access Protocol (WAP) browsers.
From there, digital channels have continued to evolve – with increasingly sophisticated online banking and online shopping services available, and the mobile channel shifting towards intuitive and easy-to-use banking applications (apps).
However, when one pauses to think about it, these underlying systems and processes are largely the same as those of decades ago – the only real advancements have been in the front-end, the banking interface channel.
Next frontiers
Jump ahead to the immediate future, and it seems likely that the next battleground in banking will be centered around breakthrough technologies like virtual currencies, location-based services, mobile wallets holding multiple stores of value, social lending, wearable technology and even augmented reality.
To remain relevant amid these waves of disruption and transformation, banks will need to develop greater agility and flexibility in their enterprise architecture. Undoubtedly, this requires a technology partner who understands the evolving banking landscape and the forthcoming threats, and can help to realign infrastructure accordingly.
The first phase in this journey involves application portfolio optimisation – where some processes and systems are optimised, and others are phased out. Secondly, it is critical to establish a secure and flexible Service Oriented Architecture (SOA) middleware layer that can connect existing legacy systems with the rest of the bank’s IT estate.
This SOA foundation allows new technologies and services to be fluidly added as customer demands evolve; and the bank is able to capitalise on the latest innovations found in both consumer and enterprise technology.
Importantly, having the right foundation with one’s IT estate enables sophisticated analytics, Business Intelligence (BI) and big data applications that scan the sentiments and behaviours of millions of customers – compressing this myriad of insights into useful outputs for executive decision-makers within the bank.
By better understanding customer behaviours, banks are able to create more personalised, contextual and predictive banking services. This, in fact, is the way they will remain relevant in the new era that is characterised by the threat of new market entrants and non-traditional competitors.