From Legacy to a Thriving Financial Services Ecosystemby Ruchi Singhal, Head of Financial Services Asia, Zühlke December 18, 2023
Traditional banking systems, burdened by age and complexity, can cripple innovation, restrain time to value, and strain customer relationships. This is not an isolated challenge; many incumbent banks struggle to keep ownership and maintenance costs in check and swiftly expand product offerings to compete with nimble challenger banks.
Digital transformation is no longer a choice; it’s a lifeline. Embracing a modern, cloud-based banking platform and thriving ecosystem of specialist third-party solutions offers a path to faster time to market, data-driven decision-making, and personalised customer experiences that foster loyalty and engagement.
Key drivers of digital transformation in banking
In the rapidly evolving landscape of the commercial and retail banking industry, many institutions now find themselves at a pivotal juncture. For years, they have relied on internally developed systems, traditional infrastructure, and well-established processes and channels to attract and serve customers.
But this approach has become a stifling anchor that can drag you into the abyss of stagnation. It hinders innovation and slows time to value for those keen on embracing open finance, composable banking, and other modern technologies.
Currently, there are six key factors exerting pressure on traditional banking businesses and driving the need for digital transformation.
With so much internal and external pressure, digital transformation can no longer be postponed. It is time for forward-thinking banks to act and transition to a modern, cloud-based banking platform that merges internal capabilities with an ecosystem of specialist suppliers for areas like the general ledger, card processing, KYC, anti-money laundering, and more.
This shift will not only streamline operations but also significantly reduce cost to serve, enabling the bank to introduce new, innovative products and services swiftly.
Why become part of a financial services ecosystem?
A financial services ecosystem is an evolving collaboration model among various financial institutions that helps leverage their complementary offerings.
This multi-lateral, dynamic environment enables the delivery of a unified and seamless customer experience that is underpinned by mutuality and shared value across participants.
The diagram below is an example of what a modern bank’s platform architecture could look like when composed of cloud-based services orchestrated via APIs. This composition of ecosystem players providing critical capabilities is just the first step.
Modern banks can also take advantage of expanding the ecosystem with other partners to extend their products, services, and brand reach beyond their own digital channels and into areas that may be ancillary to their core propositions (e.g., investments, loyalty schemes, insurance, small business loans, etc).
Traditional banks must evolve and adapt to remain competitive within a changing industry landscape as costs get higher, time to value grows, and customer relationships become ever more complex.
By leveraging partnerships, new channels, and modern technology solutions, they can address these challenges and become more agile, evolving faster to meet the everchanging customer needs. The financial services ecosystem allows organisations to do so most effectively.
A great example of the benefits a financial ecosystem can deliver is global technology innovation service provider Zühlke’s collaboration with an Asian digital bank.
The bank was looking for assistance with building core banking systems from the ground up using various cloud-hosted third-party products, including the general ledger, customer identity, card issuance, payment systems, and anti-money laundering tools.
Zühlke’s multidisciplinary engineering and DevOps expertise were instrumental in supporting the cloud-based bank throughout the entire development process, from license granting to market deployment which was achieved in an impressive 18-month timeframe.
The company was also in charge of maintaining relationships with partners and adapting processes to ensure smooth data flows between them.
Now, the near real-time ledger, KYC, payment systems, and other services run on Thought Machine in AWS and provide the client with a core banking solution that performs seamlessly, improving the experience for customers and staff.
Shifting to a data-driven financial services ecosystem
1. Understand the problem and set the strategy
To become ecosystem-ready and modernise one’s banking platform, start by understanding the core problem. Define key objectives to guide decision-making, including the institution’s role in the finance ecosystem, portfolio strategy, partner selection, and risk management. Prioritise service design and business architecture for customer-centric solutions, leveraging user research to replace assumptions with evidence.
2. Get the people and culture right
In the highly-regulated financial services sector, people and culture are crucial for success as they can either hinder or enable transformation efforts. To overcome this, communicate the need for change to internal stakeholders, motivate teams, and foster a culture of co-innovation. All these things will help people realise what’s at stake and what the end goals are. Thus, motivating them to make the effort required to move towards well-architected, data-driven financial services ecosystems.
3. Focus on effective orchestration
Data is valuable when used well, but it’s useless without integration and flow. Ecosystem orchestration manages interactions and automates workflows, connecting systems and data sources. This enables timely insights for predictive use. Access controls are crucial when data is pulled from multiple sources.
4. Balance build and buy approaches
Buying reputable third-party solutions is appealing due to fintech innovation, offering faster ROI, time to market, and resilience. However, building your own provides control but entails upfront costs, time commitment, and user migration challenges.
Organisations need to consider vendor reputation, internal resources, maintenance costs, API and orchestration, security, customer experience, speed to market, alignment, geography, and contract flexibility.
Ultimately, the choice depends on the particular bank’s unique business situation and may evolve with market factors, technologies, and regulations.
5. Consider the cloud
Most traditional banks are moving to hybrid or fully cloud-based models. The right approach is crucial. Address key considerations, including data regulations, customer location, vendor lock-in, cloud availability, landing zone design, network connectivity, and long-term costs.
Partnering with an experienced financial services ecosystem integrator
Transitioning to a financial services ecosystem involves complex considerations. An experienced ecosystem integrator partner like Zühlke can be invaluable in managing these challenges. They can conduct due diligence to select fintech and cloud providers, ensuring no weak links and addressing regulatory concerns.
Integrators also help in avoiding vendor lock-in by leveraging their expertise and prioritising open standards. They optimise cloud infrastructure, ensuring a smooth migration and future-proof flexibility.
Furthermore, they excel in integrating and orchestrating various platforms, enabling valuable data flow and timely insights for predictive purposes. Integrators conduct thorough testing to guarantee stability and top-notch performance.
With years of practical experience in executing complex integration projects and supporting data orchestration initiatives globally, Zühlke will be able guide organisations through the entire cloud transformation, architecture design, data integration, and partner assessment journey.
Financial institutions seeking to join a vibrant financial services ecosystem can reach out to Zühlke for a smooth transition here.
Featured image credit: Freepik