Banking is changing very fast – a very interesting development into something new. I will post four short posts about this change. The content is derived from many sources: my reading, own experience and insight into banking, reports and discussions with people in the middle of this change.
If you are interested, please read, comment and share.
The change in back-end
Banking is changing! There is, of course, always development but now the pace has increased significantly and it is accelerating. In the current change there are four dimensions that are very relevant to understanding the change and outcome:
1) The change in back-end tech for banking. Totally new game to reach large cost-cuts, new functionality or cheap start-up-platforms.
2) The change in front-end tech for banking. Totally new capabilities to create higher customer value and new business models.
3) Strengths and weaknesses for existing banks vs. new start-ups. Critical to match strategy and business model with core competencies and capabilities.
4) The change of the eco-system. There will be consolidation as well as fragmentation but also totally new models in both vertical and horizontal areas. (This is the really interesting part.)
To start with the back-end technology: We know that IT legacy is costly, a business risk and also can prevent current actors from developing new functionalities. Regarding the cost, some suppliers of back-end tech claim cost cuts can be in the magnitude of 90%. Personally I don’t believe in those extreme numbers and biased estimates, but cost cuts in the magnitude of 50% is definitely realistic for some players. In addition to cost cuts, the reduction of business risk and ability to develop new features is a big win and critical for the change to happen.
What is this back-end tech then? Well, it certainly involves modern core banking-systems, hybrid cloud and modern cybersecurity. Other important ingredients are BI-platforms, aaS-solutions and Digital Process Management. The trick though is to adapt tech to legislation, people, processes, etc. If this isn’t done properly, the expected tech gains will not occur.
Another important aspect of this new, cheaper and better back-end is that the break-even for new actors will significantly decrease. Banking is a scale business and will be so in the future too, but the customer base needed for profitability decreases significantly. This is good for competition, and we will also see more factors that promote competition.
We are entering a very interesting future with many winners but also some losers!
In the next post I will elaborate a bit about the change in front-end tech.
As a Client Relationship Executive in Banking at CSC, Patrik Merup helps clients to link business challenges and opportunities into IT solutions. Patrik’s expertise is retail banking after 20+ years in a variety of roles in the senior management team of three different retail banks before he joined the IT supplier side of banking. Patrik has MBA degree from Stockholm School of Economics and Stanford University and lives with his family in the Archipelago outside Stockholm, Sweden. Connect with him on LinkedIn.