Like other industries did before it, retail banking is riding a bucking bronco of digital transformation. While customer satisfaction levels drop and government rules and regulations continue to expand, retail banking seeks new ways to adapt to the massive changes in how consumers interact and use financial products and services.
However, unlike other industries such as book publishing that have been rocked by the tsunami of digital changes in the marketplace, companies in the banking sector also have to comply with extensive regulations intended to protect consumers. In confronting this new landscape, banks are looking at better ways to use their existing data in real-time to improve customer experience and loyalty, comply with a growing number of government rules and privacy laws, and consolidate disparate IT systems in their current infrastructure. Banks must provide a seamless experience for customers no matter which product or service they choose.
Retail banks have gone digital — using online channels (e.g., mobile, web, etc.) and new technology to improve customer experiences and employee productivity. Common programming languages used in banking include Python, C++ for speed, C# for trading platforms, Java, Scala, HTML5, and .NET. This allows the institutions to introduce new features and services rapidly without the need for constant updates from vendors. It also reduces errors that are due to lack of manual oversight.
The network becomes more virtualized — rather than each router and switch on the system with set data paths solely on the destination address, a centralized controller creates the optimal path based on predetermined criteria set by the network operator. Operations can be managed with a small set of software tools, allowing users to achieve business objectives and KPIs faster and easier as the organization becomes more adaptable to change.
In essence, banks are becoming technology companies — they want to embrace a software-defined business structure because they have no other choice. Customers don’t think of banks as an offline or online institution. To them, it is all the same, and they expect to have a positive experience no matter which channel they use to obtain service. If a consumer does all their banking through an app on an iPhone, that becomes their entire banking experience. Without a robust mobile app, banks are short-changing their future because customers will gravitate to more technology-savvy institutions.
One of the reasons banks are slow to adapt to a digital world is that it costs a tremendous amount of money and time to change out legacy systems. Integrating new digital technologies with legacy backend systems requires an enormous amount of capital investment. Furthermore, massive changes increase the risk of exposure to potential security problems, which are a constant threat.
Microservices and Containerization
Like many traditional businesses that have maintained legacy enterprise systems for decades, retail banks are stuck between relying on the tried-and-true monolithic legacy systems that already work and moving to provide innovative services and technologies to a mobile-first consumer community that craves the latest technology. One way retail banks meet this challenge is to adopt cutting-edge technologies such as microservice monitoring, containerization, and APIs.
Microservices are applications made up of independent processes that talk to each other using APIs. Each process handles a single small task, allowing developers to build highly modular software applications that can be rapidly developed, modified, and deployed — and also reflect individual business units and initiatives in contrast to mini-projects and individual features.
Containers allow users to run software on multiple computing environments without worrying about the type of underlying OS, network, or infrastructure. Each container has a full runtime environment — an app and its libraries, dependencies, and config files. This enables it to run on everything from virtual machines to a cloud-based PaaS.
One of the major benefits of these technologies is that a retail banking firm can implement them alongside their legacy system. They can adopt new ideas and approaches without threatening the stability of their current operation. This way, they will meet their obligations to government regulations such as Dodd Frank, Solvency II, and BASEL III. With containers and microservices, retail bank DevOps can rapidly update new features and functions without the threat of a company-wide outage or performance hits.
In effect, banks should be less concerned than they were in the past about owning and maintaining their entire IT infrastructure. Instead, different functions are broken into components, some of which will be managed by third-party providers. This reduces technological overhead and increases the number of resources available on a strategic level.
Lacking the Human Touch
Software-defined banking may reduce the trust of some consumers because of the potential reduction in human interaction. Traditional banks have an advantage over Internet-only banks because their customers can get to know the manager and employees at a local branch. If consumers have a problem, they can turn to people they know to help resolve the situation. Local branches may also provide some services that are not available to consumers online. This is especially important for local businesses that rely on banks to provide capital for purchasing inventory, equipment, and business expansion.
As software systems continue to evolve and become more efficient, the need to employ additional staff across the institution diminishes. This can have a drawback effect over time as customers who prefer to work directly with bank employees may discontinue patronage.
ME Bank Adapts to Digital
One example of a forward-thinking financial institution is ME Bank in Australia, which won a Mozo award in 2016 as the Expert’s Choice for Australia’s best bank. Owned by a consortium of super funds, ME Bank started in 1994 by offering home loans and has since expanded to offer credit cards, personal loans, automobile loans, insurance, and other services.
In a recent interview with Business First magazine in Australia, ME Bank’s CEO, Jamie McPhee, talked about the challenges of banks adapting in the digital era. He said that we are moving from the industrial age of mass production to a new era that uses data to create a better customer experience. The digital transformation, he said, is affecting every business.
When he took over the CEO position in 2010, McPhee immediately began employing digital tactics. His belief is that banks who survive in the new digital age can adapt technology to meet customer expectations and demands. While many banks are incorporating newer technologies, McPhee went a step further, creating a shift to a “digital first” philosophy.
He was also a leader in the move toward mobile banking. Early on, McPhee recognized the rise of mobile banking and the desire for consumers to complete transactions through smartphones and other portable devices. He noted the success of ING Direct, which launched in 1998 without any brick-and-mortar locations, yet garnered 5 percent of the retail banking market in short order. McPhee’s efforts have paid off. In 2014, ME Bank garnered a profit of almost $37 million (AUS).
ME Bank’s experience is instructive. They realized that successful banks, and indeed businesses across the industrial spectrum, must customize data to meet customer expectations, needs, and desires.
Management and Monitoring
Retail banks can minimize and prevent UX issues by deploying software that manages and monitors the performance of their applications, alerting them to problems well before they reach crisis levels. Application performance management (APM) tools such as AppDynamics alert your internal teams to problems in the critical transactions that power your business. By monitoring software and performance optimization, you can detect serious issues before your users do, which helps maintain the level of service your customers expect.