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“It’s a tough time to be a bank!”
Bank Chief Information Officers (CIOs) have a tough balancing act on their hands. They have to help the bank become digital to serve new needs of its digital customers and at the same time prevent placing burden on existing IT and operations systems that enable the business to bring current revenue. In this complex, ever changing banking landscape, how do they decide where to focus finite amounts of time, talent and investment to drive business innovation and growth?
Banks are going through structural transformation led by digital disruption. They are not only confronted with ferocious, asymmetric competition from FinTech startups and technology firms vying to enter the financial service space, but also subject to increasingly complex, wide-ranging regulations. These are imposing ever-greater scrutiny on new and existing revenue streams—and adding enormous costs to P&Ls.
"From harnessing innovation for differentiation to meeting customer expectations for seamless, connected digital services, banks are at the epicenter of a digital revolution"
Digital disruption means leaders across the business are clamoring for rapid, breakthrough innovation. Some are pursuing it through their CIOs or business leaders and others prefer to bypass them and do it themselves, usually partner with FinTech startups etc. The sense of urgency is creating chaos within the organization with multitudes of other projects and priorities jostling for attention.
CIOs are critical to helping banks fight the FinTech and digital disruption risk. This is because CIOs own one of the most valuable and prized asset of a bank— core banking and back office systems. Most FinTech startups operate at the thin outer layer of banking. Part of the reason startups haven’t been able to scale, at least in the retail banking world, is that so-called innovations are usually just different ways for people to interface with their banks, while core banking transactions—deposits, loans, mortgages and payments—generally remain the same on the backend.
The solution calls for a completely new approach to core banking and that’s where CIOs can play a critical role in helping their banks innovate. CIOs that focus on changing core banking and backed systems to a complete digital and agile system will be on the driver seat of positioning innovation as the engine for competitive advantage.
One possible solution lies in CIOs adopting a three-stage approach:
1. Pace of Change: Separate Large-scale Traditional Delivery vs. Innovation Delivery
The starting point is to establish a closer connection between the trajectories of business, marketing, operations, and IT. This recognizes the business need for various resource consumption (marketing, IT, operations etc.) at different speeds and balance provision of pace with large-scale traditional delivery vs. innovation execution.
2. Decoupling: Legacy Systems vs. New Fintech Technologies
CIOs should decouple FinTech platform(s) with legacy systems and avoid integrating the two. For example, blockchain based trading and settling system should be maintained and kept separate from existing business set-up. Simple and agile platforms should become core strategic assets to enable agile innovation delivery.
3. Business Collaboration: Flexibility in Operating Model and Infrastructure
Innovation requires a new operating model with business, marketing, operations, and IT interfaces driving closer alignment, new governance and change capabilities to allow full decoupling between innovations vs. more traditional development. The ability to deliver quickly and fail fast will have to exist alongside the skills required to deliver and maintain complex structural and risk-laden legacy systems
From harnessing innovation for differentiation to meeting customer expectations for seamless, connected digital services, banks are at the epicenter of a digital revolution. By mastering the three-stage approach, CIOs can become integral to their banks reaching its many new destinations.