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Considerations for Digital Banking Journey for Legacy versus Newer Banks

Fundamentally, a bank’s business has changed very little over the past several decades with client trust being the central pillar. Consequently, the banking industry has legacy players – many over a century old – and newer banks to compete amongst for the same client’s trust and win their businesses. In recent years, however, with the arrival of innovative newer channels and a huge increase in security threats, the landscape has changed drastically.

Fortunately for the emerging markets, including India, the degree of legacy dependency is much less compared to many global peers in the mature markets. Most Indian banks have started their digital journey a decade or two ago. Furthermore, it is on a relatively newer and open stack architecture compared to global banks operating in India. For instance, many global banks still have a huge dependency on mainframes and iSeries (AS400) or have spent enormous efforts to gradually migrate to open systems during the past couple of decades.

With digital banking journey being one of the key focus and business driver for all banks, there exists a great opportunity for legacy and newer banks alike to transform and align with the future of banking trends.

Surajit Chakravarti
IT Consultant & Advisor
EX-SVP Standard Chartered Bank

Considerations for Legacy Banks

The older or legacy banks have a huge advantage. To start with, they have a stable and trusting client base with a proven market and regulatory reputation. Furthermore, the basic banking infrastructure and distribution channels are well established across their territory of operation. Where these banks have the opportunity to transform, include revamping their legacy and aging IT infrastructure and adopting innovative ways to make life easier for its customers.

Revamping the legacy IT infrastructure

Established banks spend a huge amount of their IT budget maintaining, upgrading, and resolving IT platform risk just to keep the operations running. This leaves them with a smaller budget share to invest in growing businesses or future expansions. In such cases banks should look to use the upgrade opportunities to align their platforms with open and scalable solutions including, leveraging micro-service architectures, API, cloud and integrating with SaaS solutions. For instance, adopting and aligning with API based third party solutions (SaaS based, in many cases) for systems supporting trade, cards management, loan management may offer opportunity for the banks to align with the future trends around Open (or API) banking while breaking away from the continuous cycle of upgrades and capacity enhancement of these legacy systems which is time consuming and takes a toll on the overall IT spend.

Focus on better client experience

Older legacy banks typically have a huge customer base. The challenge for these banks is to retain the client base while appealing to the ever-growing new and younger clients, who are highly tech savvy and are looking for superlative client experience. This is especially the case in India with the majority of the population being young. It is, therefore, important for banks to build and adopt customer-facing applications across all its channels (internet banking, mobile, social, etc.) to be highly user friendly, automated with personalized experience and agile to adapt to the emerging trends. In essence, for legacy banks, the differentiating client experience shifts from focusing on its branch’s décor in the 1990s (where private banks had a huge advantage over public sector banks in India) to making its digital banking channels a memorable experience for its clients!

Considerations for the Newer Banks

While the newer banks are hardly saddled with the overwhelming challenge of obsolete and legacy IT infrastructure, in most cases, retaining and expanding its customer bases remains the key focus. This challenge is compounded by the growing trends in banking consolidation, non-viability of mid-market banks as well as emergence of neo banks and fintech solutions. These banks can, therefore, leverage a larger portion of their IT budget to focus on adopting cutting edge technology to leap-frog into better client experience and innovative solutions.

Focus on better client experience

The newer banks typically have a fundamentally better and more modern IT infrastructure stack to enable faster adoption of changes to ensure better client experiences. This was highly evident, for instance, when UIDAI (Aadhar) linking was rolled out in India few years back and the early-adopter banks could revolutionize the client experience of opening a savings account in minutes without any paperwork, photocopies or visits to a branch. Fundamentally, it changed the expectations for the customers which many of us never thought possible having banked in the 1990 or even beginning of this century!

Innovative solutions to win over competition

For the new and growing banks, the only way to acquire new customer base is to innovate and offer solutions faster and leverage the evolving banking trends. Since they are hardly limited by technology barriers, delivering innovative solutions to leverage fintech, partnering with niche channel players, adopting of blockchain technology for decentralized solutions and exploiting new income streams from open banking and digital channels provide exciting prospects. Not only can these solutions create new income streams for banks for faster and sustained growth but also help adopt the Blue Ocean strategy. By using cloud, robotic process automation (RPA), AIOps and AI/ML more extensively, banks can integrate better in the open banking channels while modernizing the back-office for higher efficiency.

The Road Ahead

The banking industry has enjoyed a long history and stability for years compared to most other industries. In recent times, however, the changes in the banking industry are evolving very fast and the rapid adaptation to these challenges will be the key for many banks to stay relevant in the banking and financial services industry. Banks are forced to move away from several traditional processes and are looking for ways to innovate and change to offer better client experience.

The key for legacy or older banks is to modernize their IT infrastructure by adopting newer solutions with open architecture to scale and embrace third-party solutions and niche channel players.

For the newer banks, the opportunities are enormous to bring in innovative solutions to accelerate their digital banking journey and explore blue ocean strategy which can revolutionize how we bank in the future.

About Surajit Chakravarti

Surajit is an IT industry veteran with over 30 years’ track record leading multiple enterprise product development efforts globally for tech giants like IBM, Intel, Oracle and Digital. During the past 5 years, he has headed middleware development under the CIO organization for Standard Chartered Bank, driving multiple modernization programs for the bank.

Over the years, he has worked across software, hardware, infrastructure, cloud, DevOps as well as application levels- from product development to solution consulting. He has also co-founded a startup catering to product development consulting and served on the board of directors for four companies during his career.

Surajit holds a Master’s in Electrical Engineering from The Ohio State University and a Bachelor’s from Clemson University.

Disclaimer: The views expressed in this feature article are of the author. This is not meant to be an advisory to purchase or invest in products, services or solutions of a particular type or, those promoted and sold by a particular company, their legal subsidiary in India or their channel partners. No warranty or any other liability is either expressed or implied.
Reproduction or Copying in part or whole is not permitted unless approved by author.

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