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Overcoming legacy Issues in the banking sector by harnessing Banking as a Service (BaaS)

Overcoming legacy Issues in the banking sector by harnessing Banking as a Service (BaaS)

By Bruno Macedo, FinTech Evangelist, five°degrees

Changes in the banking landscape: the growth of challenger offerings

In recent years, competition within the banking sector has intensified with the introduction of emerging technologies, changing the landscape that traditional banks and financial institutions operate in. New customer expectations have enabled challenger offerings to gain market share by responding quickly to new customer opportunities driven by digitisation.

Bruno Macedo

Bruno Macedo

Brand loyalty is becoming a thing of the past and traditional banks know they must continually innovate in order to survive.

Legacy IT challenges

Banks is being hindered in marketplace evolution due to their siloed legacy IT systems. It is difficult for traditional banks to keep up with the pace of customer demand as their legacy technologies hamper their ability to quickly introduce new products and services. Legacy IT siloed processes are also causing instances of service outages, impacting negatively on their reputation for their existing and future customer bases.

The challenges of bridging old and new IT systems while ensuring that the customer experience is not impacted on has been demonstrated by recent banking outages.

So what do traditional banks and financial institutions need to do to keep up with the pace of customer demand?

Keeping nimble and adaptable to customer expectations

Traditional ways of thinking about banking – a closed shop protected by very high walls – and nostalgic ways of working must be retired.

Across the world, financial institutions are committed to updating their core systems with digital technologies, but the pace in which they are preparing for the switch to ‘digital’ is not fast enough.

Many banks have already innovated in the customer facing front layers, but banking and financial institutions has started to realise that digitally transformation can only happen when innovative technology is used throughout the whole banking architecture to future-proof for the next generation of banking, free from legacy issues. Switching to a digital core banking platform that is based on standard building blocks and configuration editors ensures the required viability and flexibility.

The adoption of Banking as a Service (BaaS): overcoming legacy issues

 PSD2 is enabling the opportunity for banks and fintechs to explore collaborative ways of working.  Open access to banking customers’ financial data and the evolution of cloud services has enabled the development of completely new consumer-oriented products and services,  presenting a great opportunity for banks and third parties to work together. Taking advantage of ‘Open Banking:’ the opening up of banks’ application programming interfaces (APIs) to third parties is accelerating market innovation, enhancing customer experience and bringing new products and services to the market rapidly.

But how do traditional banks harness the benefits of ‘Open Banking?’ and at the same time deal with their cumbersome legacy systems? The emergence of Banking as a Service (BaaS) technology is providing traditional banks a lifeline with the ability to bridge the gap between back end legacy systems and front-end customer experience.

BaaS provides banks and financial institutions to enable full execution of a bank’s financial services over the Web. By adopting a BaaS solution,banks can completely transform the customer’s experience. End-to-end BaaS platforms offer open banking and digitisation with lower costs when compared with other digital solutions.

BaaS bridges existing legacy systems with other 3rd party applications and services, helping banks to securely and rapidly enhance digital offerings. It enables banks to generate new revenue opportunities by ensuring faster deliveries of tailored and innovative products and services, engaging clients wherever they are in their financial lifecycle.

It’s tempting for banks and financial institutions to adopt a standard BaaS solution. However, to have a full 360-degree view all the way from consumer to product, they  should strive to adapt an end-to-end BaaS solution.

Banks will only then be able to anticipate market needs to respond faster and with accuracy, equipped with deeper customer insights at every stage of the financial lifecycle. By embracing an end-to-end BaaS strategy banks will reap the benefit of greater process efficiencies and cost savings, as it will give customers fewer reasons to shop around.

As a way of proofing banks and financial institutions for the future, it is essential that end-to-end BaaS is part of the long-term growth strategy. BaaS represents a golden opportunity for banks to accelerate the creation of products and services to keep up with the pace of customer demand, reduce the incidences of service outages, and fully bring them into the digital age.

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