And the Duel Ends in a Draw; The Tentative Teaming of Start-Ups and Traditionals — Part I
The Duel is finally over. Guns have been lowered. Smoke, cleared. And what unveils itself is a perfect draw. A mutual recognition that the opponent, once thought of as the foe, deserves respect for their unique strengths and valuable contributions. FinTechs and Financial Services Institutions (FSIs) have lastly, and irrevocably, come to understand that the future is not about ‘displacement’ or ‘replacement’ — it’s about collaboration.
Now collaboration is a very over-used word, as we all know. But in this case, the reality that traditional financial institutions and new entrant start-ups must work with, and learn from, each other to exist in the coming age means — we may have just hit on one of the best definitions the word collaboration has ever seen! The combination of established global reach, and tech solutions at the edge of emergence, will produce achievements never before imagined. Welcome to the Future of Financial Services.
The Struggle is Real
So, what do we know for sure about the current situation? Starting from the outside in, we know that organizations need totally different relationships with their customers. How do FSIs get closer to end-users, while at the same time decreasing human interactions and closing physical locations? The answer is hyper-personalized service achieved using data, analytics and flawless digital design and delivery. We all know it starts with data, and the analysis of data for ‘actionable insights’ (also over-used!). But how do we mold data into the most experiential interface a customer has ever had? There is not one answer; IoT, Big Data, Core Data Bases, Cloud technologies, Micro-services, APIs — and then an interface offering ultimate simplicity and beautiful delivery, avidly appreciated by your end-user. Putting it all together is the feat ahead for Financial Services Institutions (FSIs) and FinTechs, alike.
Let’s look at just some of the expectations:
Defining and Designing ‘Open Banking’
Many say the way forward for all market participants involved is ‘Open Banking’. But what exactly is ‘Open Banking’? Everybody talks about it, but how many of us really know what it means? Let’s try to define it:
Open Banking is a term that is associated with a broad set of initiatives that align to one of these three principles:
Creating Connection for Collaboration
Sounds great, right? Everyone working together to execute a better experience and provide better products and services, faster and with much more ease. But how do traditional FSIs connect to this near off Nirvana? It ain’t easy. To understand just the technology that will be needed for FSIs to transform enough to plug into the energy of the eco-system is enough. But we must also look at all of the other implications of this type of change program as well. Process and Operations re-engineering, HR overhauls — and of course the toughest of them all — culture change!
To begin to look at the metamorphoses FSIs will have to achieve, it helps to consider what technology will be needed to reach the terrifying expectations discussed earlier. The first step is to look across the entire technological architecture, to understand what incumbents will have to employ to get into the game with their new friends — the Fintechs!
Data
We all know it starts with the data, but this is not your Grandmother’s data we’re talking about! We are talking data from the vast Internet of Things (IoT), we are talking structured and unstructured, dark data and light. Just about every morsel of data, available in any form, has to be gathered, analyzed and the insights from that process need to be continuously and consistently applied to improve every customer connection created.
Cloud
Well, when we finally have all of this data — where are we going to store it? You got it — the Cloud. With 50% of new applications launched by financial institutions projected to be cloud-based by 2020, the need for these solutions is only growing — and will be especially true as the industry evolves. FSIs are searching for ways to be more flexible, and adapt to tap into new markets and innovations constantly being expanded by FinTech eco-systems — and the Cloud is how they’re getting there.
FSIs want to use Cloud Technologies to expand their reach and execute on digital strategies, but searching for the optimal mix of solutions is not always cut and dry. Whether on-premises or off — public or private, cloud strategies will determine the health of an organization’s transformation. Full stop. Many high performing FSIs are choosing enterprise-wide, hybrid cloud strategies, flexible enough to capture emerging advancements while still taking into consideration data security, governance and compliance.
Microservices
Next, we come to Microservices. Microservices (used as a collective term) is an approach in which a large application is built using a suite of modular services, each supporting a specific business goal. It uses simple well-defined interfaces to communicate with a plethora of other sets of services. Microservices can auto-scale individual components to meet increased demands, and when the event is over, scale back accordingly. This helps remove gaps in user experience which is a huge breakthrough, and absolutely necessary for organizations that intend on offering digital services.
In a monolithic application, small changes or updates require building and deploying a whole new application, whereas Microservices requires little from centralized management. Microservices applications are independently deployable and scalable, therefore they change and enhance business capabilities with less planning and production. Building with a Microservices architecture saves time and money spent on development. Microservices, paired with APIs, is the only way forward for FSIs to engage with massive eco-systems and importantly, reduce time to market. A well-articulated Microservices strategy will be essential to compete in a Financial Services future.
APIs
An API, or Application Program Interface, is a set of definitions, protocols and tools used to build software applications. The API ‘gateway’ allows for secure access to FSI legacy data hosted on mainframes and allows FSIs to exchange this customer data with other parties safely. APIs provide simple access to Financial and many other Services. They allow participants an easy way to interact with each other while keeping integration costs low. APIs are important in any industry because they allow developers to aggregate the capabilities of numerous organizations, and build incredible new tools to support employees and customers alike.
The Challenge of Change
There is no doubt about it — everything about FSI’s systems, processes and procedures will have to change — and fast. But understanding the suite of various technologies that will be pivotal for FSIs to play in the new marketplace, will not alone solve the problem. Culture, bureaucracy, goal mis-alignment, cliudy communication — are all blights that could corrupt blossoming collaboration. How will FSIs actually interact with FinTechs, even after they get their technology right?
Stay tuned for Part II of “The Duel is a Draw; The Tentative Teaming of Start-Ups and Traditionals” where we will discuss other barriers that need to be busted for FinTechs and FSIs to truly work together. Will Tech Titans bridge the gap?
