I’m wrapping up predictions for 2015 with a touch on technology in banking, as that’s my space.
Although most people are talking about the internet of things and wearables as hot, hot, hot, they’re not. In fact, I was reflecting upon the fact that the biggest game of 2014 was Candy Crush. Before that was Angry Birds. Before that was the Crazy Frog.
Pic courtesy Crazy Frog
These are transient things that come and go like fashion. It is just fashion.
A bit like mobile telephones, they come and go. This year’s hot phone is the iPhone6, last year it was the Samsung Galaxy and before that the Nokia N95. In 2007, Nokia was worth more than Google or Apple. In 2007, Nokia was worth $150 billion; by May 2014, when Microsoft acquired what was left of this business, the value had fallen to just $7 billion.
That’s what happens with the froth of consumer electronics, and banking is not consumer electronics. So banks will tinker with IoT and wearables, but this is not fundamental in the focus upon bank technology change.
The real focus, as mentioned yesterday, is the digitalisation of core banking across the institution, and launching digital bank services. In practice, this means re-engineering core systems and processes to be built upon a digital core foundation, a massive change for some, and an incremental change for others.
This means the hot technologies in banking will be core systems renewal, cloud, analytics and incubators. I don’t think that IoT, wearables, social media or other areas will be core on the banks’ agendas. The reason is that these are the icing on the digital core cake, but the banks must first combine the key ingredients for that cake before they are fit to ice it.
Let’s take a quick look at the four core areas where I see the investment dollars going this year.
Core systems renewal
This has been bubbling away like an open sore filled with pus on the backside of banking for the last decade. The fact that most banks don’t touch core systems that are years and sometimes decades old is a crime. That crime has now come back to haunt the doorstep of not just the CIO, but the whole C-Suite. Most would rather not bite the bullet, as their predecessors managed to avoid doing this, but it’s now become so apparent that most core systems are not fit for purpose that it is no longer an avoidable issue. Batch, overnight, programmed systems that no longer have developers, analysts, architects, engineers, designers or managers who understand them have finally reached their end-date. Thank heavens. This does not mean all and every system has to change – mortgage systems, life assurance systems, pensions and some others cater for contracts that span a quarter of a century and can be left in cryogenic operation – but anything that demands real-time needs to be ready for the digital age.
A bank cannot be digital with a core system built for the last century.
A digital bank has the internet at its core and, today, that means the cloud-based net. Cloud allows mainframe services through the network such that security, change, agility and control are all in the hands of the network management and cloud-based software. For the past seven years, most banks have been content to ignore cloud because they believed, wrongly, that it means open systems, insecurity and unreliability, loss of control and potential risk. These perceptions are all wrong, as I mentioned last year, as cloud has matured and covers a panacea of software-as-a-service, infrastructure-as-a-service, platform-as-a-service and more. This is where banks must invest in their agile service structures to offer banking-as-a-service (did I really start saying this six years ago? YES!).
Banks have to move to a component based model to deliver agile services and plug-and-play the best of breed into their operations. Where banks can fulfil all the components, great. Where they cannot, they need fast fixes by buying in services from those who do these things well.
This is why banks will move to cloud, as their competitive services will be maintained through internal control in a private cloud whilst shared services and components that have little competitive differentiation can be leveraged through public or hybrid cloud.
This is the future re-engineered financial model, as I’ve explained many times here, and banks get that this year as they move to digitalisation and core digital platforms.
A bank cannot have a digital core without the use of cloud to componentise the systems architecture and business model.
Once banks cleanse their core and digitise it using cloud, then they have the opportunity to leverage their data. All banks talk about Big Data, but it’s not the big data that counts but the small moments. In other words, cleansing and creating the enterprise data store is a huge challenge in itself but that is not the end game. The end game is to use that data, which is where the rubber hits the road. Therefore, data analytics is the competitive battleground in banking and, now that banks recognise they have to digitise, they also see that the data analytics opportunity of their new core will be a big strategic focus.
What this really means is not just customer propensity modelling for share of wallet, but using data intelligently to create opportunity and improve service. Maybe good examples are the BankAmeriDeals program and the work that Metro Bank has been operating in this area. Both are using data analytics to give customers great offers that are personalised at the point of relevance. BankAmeriDeals make mobile app offers based upon the stores you are nearby that they know you shop at; and Metro Bank makes personalised tweets to people who are near a branch for an account opening opportunity (usually when they’ve just tweeted how much they hate their existing bank).
Expect more and more of this sort of data analytics competitive affray over the coming year, as this is the space that’s really hot, hot, hot once the bank has digitised its core. Add on to this that the internet of things and wearables will be served and serviced by the quality of the data analysis that sits behind them, and this is the real golden egg of technology that is sitting there today.
Banks that digitise will differentiate with data, and the royalty of analytics will reign supreme.
The first three areas I’ve outlined are re-engineering programs that banks are prioritising in their technology operations, but the fourth is the innovation and growth opportunity. This is because it does not involve messing about with redesigning the mess from the past, but focuses far more on creating the bank of the future. Most banks have some form of program in place for achieving these innovation incubators whether they call them accelerators, escalators or something else.
It doesn’t really matter what they’re called, but these incubators are growing.
In London, we have Level39, Innovate Finance, the Barclays Escalator, Fintech Start-up Bootcamp and more. American Banker cited nine great incubators out there, from Bank of America’s Lab to Bank Leumi’s hackathon. Hackathons, Open Source Challenges, the API buzz and more are all big technology focal points in banks, and this is just going to get bigger. Bear in mind there’s also more breeding grounds for start-ups and VC’s to meet, like Finovate and the Innotribe start-up challenge; and then add on venture funds of the banks such as Citigroup, Sberbank, HSBC and Santander; and what we’re really seeing is banks recognising that if fintech is where it’s hot, then they need their fingers to be burning in the pot.
If you can’t beat ‘em, join ‘em … banks that aren’t getting their fingers in the fintech pie will lose out when it comes to building the next generation bank.
So these are my four hot technology agendas for 2015 in banking. It’s not wearable, it’s not the internet of things, it’s not social media, mobile, Apple Pay, Apple Watch or anything else.
Far more fundamental is the back-end digital architecture based upon core systems renewal, cloud and data analytics, and being somehow involved directly in the innovation stream of fintech renewal that’s overhauling the old banking system.
Anyone care to disagree?