Technology and Banking: Arch-rivalry at its apex
The thing about technology is that it never loosens up the knot. It’s always about the latest apps, exclusive gadgets, innovations on the verge of revolutionizing the world. However, does anybody wonder if man can keep up? What if the world cannot cope with all the need for change?
Evolution, revolution, high tech digital worlds, these are terms that we have all come across; disruptive technology – not so much. The thing about such technology is that when it fully matures, it hits markets so hard, that only the early adopters survive (cloud computing is an example of that). All that’s outdated, practically dies. We can call it the natural selection of our days, or, survival of the fittest. What’s interesting though is the fact that the masses are already starting to get trimmed.
In the hype for technology, the banking industry is somehow lagging behind. The legacy of old mainframe computers is making banks be cautious about their digital strategies. For decades, various banking institutions around the world have been relying on “big iron” computers for data processing and consumer statistics. However, it’ been a while now since the world has changed its pace due to newer technology.
Although highly reliable and secure, mainframe computers lack both the speed and the flexibility of more modern tech, such as cloud platforms, API interfaces and application-based data sharing. And it may just be because of their failure to keep up with a rapidly changing environment, that banks are perceived to be so rigid.
So what’s holding the banking industry back? What’s preventing banks to step up their game, and get ahead of financial start-ups, app-only banks and digital lenders? A brief comparison may help.
With people, it’s millennials who own technology nowadays. As such, we can think of banks as the baby boomers of the financial system as we know it: steadfast and conventional. As such, you may find it easier to understand why it takes a little bit more time for banks to adapt to change. With kids, new technology is easy, with old folks, not so much. And as with old folks, it’s all about bank security.
It may be a little hard to take in, but what keeps customers clinging onto their bank accounts is actually more simple than one can imagine – trust. Given that they are heavily regulated, banks are safe. And people have kind of taken that for granted. Dismounting layers and layers of securely locked up data, and opening it all up to the world: that’s just not something banks will do just for the sake of the “we” economy.
So here are a few of the few challenges which make technological integration in the banking industry hard to achieve:
- Legacy IT infrastructure: On the one hand, while fully grown by acquisitions, banks have never fully integrated their systems. On the other hand, banks have kept on building up layers upon layers of information technology systems, which are now so complex that it is hard to design programming languages to unbundle them.
- Third party access to API: in becoming a “platform”, banks have to succumb to the prerequisites of open banking and data exchange ecosystems. This raises the demand for security and data control. This may require banks to enable rigorous vetting processes, by which third party users are given access to data. As such, data sharing must be consistent with data security and data privacy.
- Financial restraints: redesigning a bank’s technological infrastructure is a costly enterprise. Deciding on the adequate technology to use, defining and implementing the right security parameters or developing the necessary skill sets for implementation may cost more than starting from scratch and building the technology itself.
- An outage for every update: system failures are not uncommon with updating repellent infrastructures. Fully aware of the havoc system outages produce, banks also have to consider the reputation costs associated with such interruptions.
- Communicating change: customers have to be fully informed of the entire data management process throughout the planned technological shift. As hard as it may be to come by, a rigorous change management strategy can help banks plan ahead for, implement and follow up on the reconstruction of an entire system.
As much as we would like it for banks to reinvent themselves overnight, it will be a long time before we will see them come to terms completely with all this new technology. And as much as banks like to advertise themselves as early adopters of biometrics, wearables and the Oculus Rift, it is actually the unresolved past that prevents banks from stepping into the future.