By Redmond O’Leary, Ireland Sales Manager, InterSystems

Financial organisations are in pursuit of agility, recognising that it is crucial to a secure and successful future in banking.

The rise of neobanks and fintechs is forcing more traditional organisations to evolve their products and services quickly in order to compete. The fintech sector has an estimated CAGR growth rate of 24%, so the threat it poses cannot be ignored.

New technologies and data-informed decisions are enabling banks to improve their agility and increase the speed of innovation. Those leading the charge are leveraging the data they already have, yet many are falling behind, held back by complex back-end systems that make data harder to access. To overcome this, they must take advantage of technology that simplifies data management and optimisation.

Customer data fuels the development of innovative digital services and collaborations. Fintechs use it to hone exciting new consumer-facing or small business-focused solutions, so they can expand customer bases and generate meaningful revenues on a much greater scale.

This is why collaborations can be such a feature of the banking landscape in the near future. The big incumbents may well develop through consolidation into aggregators, becoming Open Banking marketplaces and acting as the nexus between customers and services. A new digital retail bank may, for example, use a major player’s credit expertise or risk and control mechanisms while designing a new user experience from scratch.

Incumbents must transform how they handle data and render it usable. Transforming a bank is problematic, however, when the institution’s data is held in multiple systems. This ad hoc jumble of technologies built for specific needs at different times is often the biggest barrier to incumbent banks becoming agile innovators. Migrating to a new platform is a mammoth undertaking so fraught with risk that many banks have failed to complete or understandably shied away from it.

The advent of the smart data fabric has changed all of this, however, simplifying management without causing disruption or requiring major expenditure. Simplicity is essential to achieve optimal integration of information from many different sources that include current data alongside analyses of the wealth of historical data lying in bank systems. This supplies clean, usable data that vastly improves the ability of services to talk to one another and is the rocket fuel for innovation and new product development, enabling rapid development and deployment of a range of new solutions and services.

Transforming traditional banks into technological innovators

Alongside this transformation of data management, banks might consider changing their collective mindset to become product-oriented, customer-focused organisations, abolishing internal boundaries. There are definite advantages in continually reassessing whether they meet customer and client needs so they have a clear view of where that demand is going.

Whatever the goal, the future suggests banks should adopt the product-focused practices of a software company, with cross-functional teams that use the availability of data and extract what they want from it. This is the route to high-quality outputs that ensure customer experience expectations are surpassed. Google, for instance, has a dominant position in the browser market, but is constantly innovating to offer new services that build on this expertise.

More conservative banks should recognise that innovation often comes from the edge of organisations, where small departments or service functions identify opportunities and are eager to act quickly. Small, agile teams have the greatest chance of success, but they should be concentrated where need for innovation is greatest, rather than being spread thinly across an entire institution. Neither should they work in isolation from the product partners within the bank or from any external fintech or organisation the bank is partnering with.

For rapid innovation around the customer interface and greater agility, banks could support the existing technology investments already running in production by adopting microservices architecture or developing APIs. Microservices are applications banks can build as a suite of services and maintain and enhance separately, allowing for easier integration with partners and provision of unique services to customers. APIs can also enable frictionless and secure data exchange with partners without disrupting banks’ existing systems. The agile bank needs to constantly glean what is going well or wrong, building on successes and fixing issues before they affect customers.

Less agile incumbents may find themselves left behind as fintech and neobanks disrupt their space, and major financial institutions leverage new technology and architectural approaches to increase agility and embrace innovation. The successful big-name banks will be those prepared to tackle the problems associated with legacy technologies and processes, so that innovative and creative minds develop new products and services or build profitable, future-facing collaborations with fintechs.