How banks can survive the FSI digital disruption

By Choong Sin Fatt November 26, 2015

Technology threatening traditional bank model, new non‐bank competition
Agile approach can reduce time‐to‐market drastically, while improving software quality

How banks can survive the FSI digital disruption THE financial services industry (FSI) is under siege. Traditional banks are facing competition from non-banking organisations providing banking services.

The diversity of non‐bank competition is increasingly threatening, and consumers are drawn to non‐bank competition out of convenience, efficiency, security, and the sheer reality that it is state‐of‐the‐art.

The IT leaders in financial services industries have huge challenges to address on a daily basis, and also to ensure that any and all technologies utilised must be able to grow and be sustainable for the long haul.

And coupled with the disruptive compression from the non‐bank competition, there is even more for the IT leaders to grapple with on a real‐time and pressing basis.

READ ALSO: CFOs under digital pressure, CIOs under CFO pressure

Non‐bank competition

In 2014, leading business consultancy McKinsey & Co published a piece on The digital battle that banks must win, which outlined what traditional banks face today against a new generation of non‐bank competition which have been empowered and emboldened by adopting cutting‐edge Web and infrastructural technologies.

For example, well-known companies like PayPal, Apple, Square, Google, Amazon, Western Union, are examples of non‐bank competition that are incredibly agile with cutting‐edge cloud and mobile applications, and enticingly convenient to consumers who can now make transactions in a variety of ways that prior to the emergence of such non‐bank providers, only credit‐card issuing banks could serve.

Closer to home, the new Asian giants such as Alibaba, Tencent, and even smartphone vendor Xiaomi have become the new non‐bank competition to traditional banks, by providing financial-related services that integrates with their online commercial offerings, such as convenient banking and payment services, previously available through banks.

They have millions of customers, and are nimble and are more competitive in providing financial‐related services that also seamlessly integrate with their online commercial offerings, something sorely lacking in pure‐play financial institutions.

The challenges of legacy IT systems

Unlike manufacturing plants which base their operations on a single predominant enterprise resource planning (ERP) system supported by a few auxiliary solutions, banks running legacy systems often stack on layers of technology, invariably ending up with an unmanageable technology ‘black hole.’

This complexity, compounded by running on legacy systems, the lack of efficiency, obsolescence, and difficulty in servicing, programming, or upgrading become the crippling pains every day.

Replacing such legacy systems means downtime, which can be unacceptable for customers and other stakeholders.

Finding developers to service, upgrade or debug old code running on archaic languages can be difficult too.

Another pressure to migrate comes from regulators as well, since legacy systems that are obsolete will not only fail at the advanced cyberthreats, but will also progressively fail to address industry and customer demands today.

Digital transformation as a competitive weapon

With e‐payments, payment gateways, smart cards, NFC (near-field communications), tokens, and other payment and transactional innovations, the financial industry is also embracing the frontiers of digital transformation.

Consumers demand multiple touch points, including branch operations, kiosks (such as ATMs), and also increasingly online applications secured by tokens.

The democratisation of software technology through open source components, also means that more legacy components are gradually displaced by transparent technologies that can be easily developed.

The fastest way

One of the smarter methods of managing software application development is the Agile approach, where transient and progressive applications are developed using the iterative Agile approach, as opposed to the traditional waterfall approach.

The Agile approach of software development can help financial services develop software with as flexible a system as possible, and more easily develop components to suit every service requirement as they emerge.

Whenever a new requirement surfaces, the Agile approach can address that as a new requirement (known in Agile as a user story) and develop to conclusion.

And development teams can more easily debug, improve, or transform the application code across the entire enterprise system of applications.

Improving the legacy approach that developed a usable prototype from six months to a year, the Agile approach of developing a financial software solution can reduce the time‐to‐market drastically, while actually improving software quality, decreasing costs, and improving morale among all the development stakeholders (such as programmers, analysts, administrators, and managers).

Increase business agility

The traditional banking culture – with its siloed business units, legacy technology systems, a risk‐averse worldview and a snail’s pace of change – must now become responsive and adaptable, in order to compete against startups and non‐regulated companies encroaching onto the same financial services space.

The Agile approach is flexible, responsive, and adaptable to changing markets and innovations. Going Agile not only enables companies to react quickly, with more efficient and targeted outcomes, it provides executives with the real-time data they need to make leadership decisions swiftly.

At the same time, customer feedback is an inherent part of the Agile lifecycle. Agile gives financial services firms the ability to quickly and effectively integrate feedback into a range of business processes, from enhancing online banking interactions to improving customer response times.

Agile helps companies adapt to opportunities for innovation, track and prioritise work according to its value, and coordinate efficient delivery of products and services, even across distributed teams.

Ultimately, with the Agile approach, organisations can fund projects that really count. Financial services companies can wrestle the big data and all the derivative knowledge from deep frozen legacy systems and code, into actionable intelligence and strategies to retain a place within the financial arena as well as among the digital disruptors.

There is really no other alternative than to leap forward, get Agile, drop old luggage behind, and join the digital transformation.

Choong Sin Fatt is a senior solution architect at Rally Software, which was acquired by CA Technologies in May, 2015.

Related Stories:

What’s Next: Disruptors will not kill off banking incumbents

Asia at the epicentre of the digital banking shakeup

Regulatory challenges in Singapore, especially for FSIs

Digital disrupters twice more profitable: CA Tech survey

APAC digital transformation to ‘scale massively’ in 2017: IDC