Digital transformation – in the banking sector this term is something you can’t escape, particularly since the coronavirus pandemic began. Here Ammar Akhtar, the co-founder and CEO of Yobota, a London-based technology company explains how the need to digitise financial services is being driven by two things.
Firstly, the changing demands of consumers and businesses. Gen Z and latter-day millennials are increasingly seeking smooth, contextual, mobile-first experiences. They will not settle for slow, clunky applications, let alone offline processes.
At the same time, the Covid-inspired closure of offices and bank branches in 2020 has highlighted the need for banks to be able to function even when staff are working remotely. We are further transitioning from a physical world to a digital one, where technology increasingly moves us to a licensing or sharing model, which means owning anything from household appliances to cars will become less likely.
The conclusion is that, in the years ahead, the way financial services are delivered and consumed will change more than it already has. It has to; for one, the mortgage renewal process many consumers are going through is still worryingly paper-based given the impending threat of a second lockdown.
And so, banks need to invest in technology.
Build it or buy it
Build it or buy it. This is the choice banks are essentially faced with when looking to develop and deploy fintech.
Countless hours can be put into discussing the relative merits of investing resources to develop technology in-house, or the possibly easier (and cheaper) option to source whatever is needed externally.
The correct answer can only be determined on a case-by-case basis; the resources, capabilities and needs of a business will shape the approach it takes. Yet it is likely that the pandemic will result in more banks opting to buy.
Why? Importantly, we should not oversimplify this to be a case of overcoming “legacy architecture” or achieving greater nimbleness (a recent McKinsey report touches on both these points when comparing fintechs with big banks).
In many instances, it will come down to costs. There is also sound logic in banks seeking out reliable, forward-thinking vendors and products that will be able to serve the demands of customers, not just as they stand right now, but as they evolve in the future.
All that being said, buying technology brings its own challenges. Banks will be acutely aware of this, given how much is at stake; let’s not forget that financial services providers operate in a highly regulated space. Investing in technology – and the related operational changes that are required – that “fails”, for whatever reason, not only wastes time and money, but can cause vast reputational damage and create regulatory issues.
So, what can banks do to better ensure long-term success when buying technology? Here are four important considerations…
- Be clear on the business objectives
Banks must be extremely clear on what they want to achieve when buying technology. For example, they might want to provide near-instant online quotes for prospective mortgage customers or have a search engine for employees to find documents relating to the underlying property for a mortgage.
Each different outcome would require a different set of tools. But buyers must work backwards from the business objective; what do they want to enable customers or staff to achieve and why.
With the objective decided, they must also be able to explain it clearly in the context of their business and how it will make a difference. This clarity will be crucial when searching for, assessing and working with vendors.
- Create an assessment criterion
Only when the business objectives are set can a bank begin to think about searching for a vendor. And, as they begin this process, they must have a stringent assessment criterion that will be used to establish the capabilities required from the technology.
Put simply, banks must have a detailed checklist of different boxes the technology must tick. This could include its functionality, the level of customisation that will be possible from a branding perspective, how quick and straightforward it will be to update the technology over time, or the price bracket it must satisfy.
A bank’s assessment criterion has to be exhaustive yet finite so that a sharp assessment process can be run.
Crucially, this level of preparedness is not only a benefit for the bank. It is of benefit to vendors, too; it will ensure neither side is wasting time and, additionally, it can help foster a healthy relationship between the buyer and prospective vendors.
There is a lot to be said for being transparent about procurement processes. Vendors will be happy to know more about the due diligence requirements, contractual red-lines or payment practices. These are all subjects that are best raised early on.
- Ensure there is a cultural fit
Technical considerations aside, the cultural fit between buyer and vendor should not be overlooked, either.
The relationship between both businesses, particularly at a senior level, is likely to be important to the success of the entire process. There must be a mutual understanding of what the overall vision is and how it will be achieved, including the practical implementation, timeline and costs.
Ultimately, company culture is important. Banks ought to work with vendors who have a similar operational mindset to them; they should gravitate towards technology providers that have a shared belief in the levels of quality required.
This can be problematic, particularly in the financial services sector, where there is perhaps often a greater disconnect between larger institutions and smaller fintechs. The two groups can clash over their vision for the sector (or a specific project), pace of work and organisational values.
From experience, such problems will only become amplified as projects progress and “working level” issues arise. As such, thinking about the cultural fit in the first instance is important; paying attention to the on-going relationship and building cross-team rapport is also a worthwhile investment.
- Do not consider it outsourcing
Finally, banks should avoid falling into the mindset of “outsourcing” the technology.
When buying tech from a vendor, a bank is procuring a solution that will serve its business, perhaps right from the core. Conversely, when outsourcing a company can feel it is relinquishing control and even responsibility – that is dangerous.
Banks must remain engaged and in control, particularly when it comes to shaping the technology they are buying.
Many fintech solutions offer the flexibility to be customised through data configuration, rather than custom development; and modern API boundaries (the way software systems can interact with each other) typically enable clean interfaces onto end-user apps and data feeds to existing systems. Keeping that in mind should allow companies to select the best-placed vendors.