It’s no longer a question of “if”, but rather how and when. For an increasing number of consumers, the primary means of interacting with their financial institution is the mobile banking app that lives on their smartphone, not the physical branch. And this segment of the population will only continue to expand. Younger tech-savvy generations will continue to age into the need for banking services while, at the same time, other demographics gain more comfort with digital channels.
SRM’s newly released report, “The Digital Transformation of Financial Services,” explores the critical factors banks and credit unions must consider in responding to the transition. As you will read, the decision to respond is non-optional for any institution wishing to remain relevant. For those choosing to remain relevant, the challenge is navigating the complexity associated with successfully completing a transformation that typically involves rethinking more than just what product to choose.
It is worth noting that banks and credit unions that do not approach this challenge holistically will not be successful. In fact, shortcuts have already resulted in more than one organization going backward rather than forward, damaging their brand along the way. Digital transformation must encompasses all aspects of an institution’s operations, including staffing and outsourcing decisions, customer marketing and communications, and perhaps, most importantly, its approach to both attracting new customers and cross selling additional products.
Old School Meets New School
A central and sometime paralyzing obstacle that can end the journey before it starts is the challenge of simultaneously managing both the old and new technology supporting the various functional areas of a financial institution. Experts have estimated that 80 percent of transactions processed by institutions are still dependent on COBOL, a reliable but inflexible programming language dating back to the 1960s. Meanwhile, most new banking solutions are leveraging modern tech stacks and architectures that utilize APIs (application programming interfaces) to capitalize on modularization, extensibility and scale.
A fundamental change in how new software is developed, utilized by many of the FinTech companies that have sprouted from the landscape, shows this stark divergence between old and new. Most legacy systems were developed using the “waterfall” software development model. This model is ill adapted to winning in the digital world. It is not iterative and cannot support ongoing innovation with the same ease as the newer methodology known as Agile.
The Agile development methodology enables organizations to deliver material product upgrades in weeks rather than years; its use is widespread and its benefits clearly measured by a number of studies. In fact, because of overheated demand, a shortage of developers experienced in the Agile approach has developed. Interestingly, this is at the same time that banks, credit unions and other organizations dependent on COBOL are struggling to find programmers that can continue to support the systems that rely on this dated language. Of course, the fact that the Agile approach is typically taught within computer science curriculums at universities, colleges and coding schools, over time will address the need for Agile-oriented programmers. The same is not true as it concerns COBOL-skilled resources.
Giving the Customer What They Want and Need
At the end of the day, financial institutions have little choice but to bring their digital offerings in line with customer expectations. To succeed, these organizations must recognize and respond to the fact that these expectations have been set by non-financial firms the likes of Uber, Venmo, Airbnb and others. The nation’s largest banks have committed significant resources to addressing this reality, which only ups the ante for small- and mid-sized institutions to defend (and hopefully expand) their market share. It is possible, but not without a commitment to accept that this is not banking as it used to be.
Find out more in this report and another scheduled for publication next month.