Traditional Banks: Mounting a Counterpunch with Agile

Speaking at a symposium last year, Federal Reserve Governor Michelle W Bowman posed a question, “Why have there been so few de novo [new] bank formations over the last decade?” And one of the explanations she cites is, “low interest rates and depressed demand for banking services—both of which depress profit for banks, and particularly new banks — may also have discouraged entry.”

While interest rates and macroeconomic conditions are beyond their control, the “depressed demand for banking services” should raise major red flags for traditional banks. Not that people have stopped needing banking services, if anything the demand for financial products has only increased over the last few decades and years. What has changed is the nature and delivery of financial services and the customers’ expectations.

With a new breed of innovative digital finance products, FinTechs are giving banks a run for their money, and with Big Tech also entering into the fray, the competitive landscape has become that much tougher. However, one trait they both share is the use of technology, and that is a tale of two parts.

First, digitalization allows FinTechs to design financial products and services to better suit the needs of users, and to deliver these in a convenient manner. From savings and payments to credit and buy now pay later (BNPL), and loans to investing, FinTechs like Stripe, Robinhood and PayPal are finding favor among users. While this was already in the making for a few years, the pandemic brought digital banking to the fore.

Second, the use of technology at the backend to enable the delivery of digital services is a key differentiator. For instance, the ability of Big Tech companies like Google, Meta, Amazon to harness insights from customer data and the access they have to a huge userbase allows them to create an integrated ecosystem with its own financial services to deliver a seamless experience for consumers.

As things stand today, traditional banks are lagging way behind new competitors in terms of digital banking offerings. Given the technological advances and innovation in digital tools, banks need to act with urgency in order to thrive in a digital world. And one way to achieve this at a pace and scale required is by adopting an agile approach.

Technology is the key battlefront that will decide the winners of the financial services market space. Two key aspects will be

1- Digitalization

2- Personalization

Four pillars of adopting agile

1- Infrastructure and Legacy Modernization

While adopting an agile philosophy has numerous benefits, it can only be as effective as the IT infrastructure it operates on. A recent survey revealed that 90% of IT leaders expect IT modernization to have a transformative or significant impact on their long-term growth prospects. And in the context of traditional banks, the IT infrastructure often consists of legacy systems and a patchwork of upgrades. This network of disparate systems adds levels of unnecessary complexity which makes IT operations far from efficient which at the end of the day translates to inadequate service for the customers.

Undertaking a complete IT refresh including infrastructure and legacy modernization allows businesses to deploy a scalable architecture that is cloud-native or hybrid. In addition to consolidating competing and redundant systems, upgrading outdated software and replacing non-intelligent interfaces allows enterprises to leverage customer data more efficiently

From an operations perspective, it helps traditional banks adopt an Agile philosophy of developing applications and a software environment that can help them compete with upstarts. Additionally, developing a microservices architecture helps keep it lightweight, and facilitates independent deployment of features. This affords the IT functions of banks scalability and tracking across multiple environments and metrics, all of which contribute to serving the customers more efficiently and effectively by launching new products and services.

2- Cloud Migration

Migrating to the Cloud is more than just replacing a data center with an alternative data storage system. It is a technological shift with enterprise-wide implications including critical function, systems, and processes as well as a people perspective. Cloud enables businesses to work smarter, better, faster, and in a cost-efficient manner. And for banks, it allows internal stakeholders to access and use data effectively, automate processes, and build intelligent applications which optimize IT operations and use of human resources.

Irrespective of the technology or level of automation, every system is designed for use by people, and any enterprise-wide change has an impact on the people. And operating a modern IT infrastructure or working in a Cloud environment requires a unique set of skills. Thus, assessing the skills and readiness of a team is a crucial step toward taking remedial measures to train and re-skill the current talent pool.

If not handled well, Cloud migration can backfire, in more ways than one. As per a survey, 75% of all migrations went over budget including a staggering 28% that overshot by more than 20%. And 38% of projects ran behind schedule including 13% lagging by over three quarters. Technology is not a strong suit for most traditional banks and competing with digital-native start-ups weighs against them. One way to overcome these challenges is to adopt ‘as-a-service’ model for various services and nurture a relationship with reliable technology partners to enable a steeper learning curve and achieve scalability.

3- Bringing AI into DevOps

In a recent survey, more than half (53.7%) of IT executives in the banking sector said that they use artificial intelligence (AI) to optimize IT operations, second only after fraud detection. This in many ways highlights the potential of bringing AI into DevOps along with Machine Learning (ML) and other emerging technologies. More specifically, the combination of AI and DevOps can help traditional banks catch up with the contenders in two ways:

Unlocking value by accelerating innovation

AI can be deployed to optimize and streamline IT operations and automate tedious processes that underutilize human resources and slow down development. Enabling Site Reliability Engineering(SREs) and DevOps teams to focus on their core strengths of delivering applications that users value. It also improves the ability of banks to focus on innovation and developing solutions that offer tangible benefits. For example, deploying AI-enabled chatbots to respond to functional queries like balance checks, last transactions, fund transfers, etc. reduces pressure on banking and call center executives.

Deliver a superior customer experience

In the age of the consumer and personalization, delivering a superior customer experience has emerged as a key enterprise-wide responsibility. And with an increasing demand for remote and digital services, delivering a seamless experience and engaging with consumers in a digital world are imperative for traditional banks. In fact, given the inherent nature of digital-native FinTechs and the consumer-centricity of Big Tech companies, banks
have their work cut out. Using AI and DevOps helps improve the quality of data and breaks down data silos thus allowing better access and analysis across operations. This also allows real-time visibility for consumers and reduces downtime or failures that result in friction and customer dissatisfaction.

4- Low Code App Development Platforms

For banks to reap the benefits of Agile, the speed and reliability of developing applications is the most critical success factor. One way to achieve this is by democratizing app development through low code app development platforms. Besides enabling non-tech stakeholders to create and add value to the technology function, it also allows technology talent to focus on more value-added tasks.

The surge in demand for remote app development during the pandemic has fueled the demand for low code adoption. Combined with the acceleration of digital transformation, the need for customization, and reducing the time-to-market make for a perfect storm for low code adoption and valuable contributions from citizen developers.

The banking industry can use low code app development platforms for a range of applications that range from onboarding and KYC to automating decision-making for lending risk assessment, developing customized applications that integrate with open banking, and customer service management as well as managing risk and ensuring compliance with data privacy and anti-money laundering regulations.

How Xebia can help

Agile Transformation

Our Agile approach to transformation enables businesses to become resilient and responsive to change. With over 20 years of experience in helping organizations adopt Agile, our certifications include Scrum, Lean, Less, SAFe, Spotify, and more. Our Agile Consultancy spans the entire transformation journey from assessment to implementation as well as knowledge transfer. We also offer a set of specialized offerings that include First Time Agile to help companies get started to become future-ready, Repair Agile for companies that have been working Agile for a while but are unable to derive the desired outcomes, and Agile NXT for companies that have mastered the challenge of working Agile and are looking to accelerate their innovation to create products and services for the future.

Low Code Application Development

With over 1,000 successful implementations over the last 8 years, our low code application development offering helps improve the quality, reliability and pace of digital deployments. Our knowledge and experience on Appian and Salesforce platforms as well as an ecosystem of technology partners enable us to deliver innovative and creative digital solutions for our clients

Cloud Services

As a technology partner, we help customers with Infrastructure Modernization as well as upgrading and migrating legacy systems and processes. We also help customers chart a Cloud Strategy and facilitate Cloud Migration to align with their business goals. The responsibilities we undertake also include management and maintenance, knowledge development and training as well as incorporating security and reliability, and optimizing cloud spend. We have deep and longstanding partnerships with leading Cloud service providers including Amazon Web Services, Google Cloud, Microsoft Azure and Alibaba Cloud.