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PA OPINION

Visionary use of technology will be fundamental for growth in financial services

The pace of change for banks continues to accelerate, and options today are increasingly diverse - from traditional, full-service banks, through to mobile-only start-ups and Decentralised Finance (DeFi) such as BitCoin. Success means more than simply managing customers’ money.

Banks today need to centre on purpose in a way that connects with customer values, including driving more sustainable financial choices and engaging with new entrants across the FinTech eco-system. And as they increasingly rely on digital and data to drive their business, they need to prioritise active management of the associated third-party risks.

We believe one of the most fundamental building blocks to achieving success across this spectrum of requirements will be to adopt a truly visionary approach to technology. This is because digital technologies like cloud act as the catalyst to create innovative new products (like spend analytics) that meet increasingly complex customer and operational needs, while also staying secure (like AI to automate statutory reporting reconciliation). For example, the Bank of England recently highlighted that a balanced approach to leveraging the benefits of cloud need to be balanced with practical cloud concentration risk management.

But despite their potential, there can still be barriers to introducing new, and visionary, technology. Firms often lack organisation-wide understanding of the potential, with those “in the know” using their knowledge to create disconnected digital fiefdoms. This results in inconsistent technology principles, standards and design patterns, all of which constrain scaled use of technology. Poor technology architecture governance can also lead to confused internal technology landscapes (from inappropriate licensing to duplicated platforms) creating a fear of ungovernable cost.

So, how do banks make sure they’re ready to leverage these innovative technologies and avoid making them ungovernable, costly and ultimately unusable? We believe having strong architecture teams with top-table presence, who are able to connect business strategy with technology and governance is key. Just as online retailers have become technology behemoths that deliver retail services, so banks must embrace technology and, specifically, technology architecture at the most senior levels. Banking senior leaders today need to be as comfortable championing cloud operational resilience and discussing financial digital risk management, as they are market fundamentals.

An example of leadership and getting ahead of customers’ future needs in financial services is PayPal. Consider how PayPal (itself a ground-breaking financial services innovator from the dotcom era) is opening-up the UK to trading cryptocurrencies, making the UK the second country after the US to benefit from PayPal’s crypto trading support. Even though the cryptocurrency market has been around for nearly a decade, PayPal has still managed to innovate the services it provides through good technology leadership.

To build great technology architecture that will drive innovation, banking leaders should focus on three key areas:

Create teams that combine organisational vision with technology savviness

Banks that pioneer new technology will disrupt the financial services industry by redefining views on service scalability through cloud, trading of value through DeFi, and product innovation through Open Banking. But it will require a specific type of banking and technology leader. Chief Technology/Information Officers (CTIOs) will be critical for building banking and technology leadership consensus and defining clear, technology-immersed, decade-long roadmaps and transition states.

Banking leaders also need to commit to exploring new technology early. This can be done by selecting top-calibre colleagues, empowering them as decision-makers, and giving them full-time, well-incentivised roles to map-out where emerging technologies create new experiences and services. This creates a strong foundation to ascertain whether breakthrough technologies can offer a first-mover advantage ahead of new entrants or other institutions.

Business and architecture teams should also join-up to create dedicated innovation teams who can challenge business or technology-only groupthink. Setting a shared business-technology vision, having common governance and creating clear technology roadmaps will help to minimise missed opportunities.

Capitalising on the opportunity for increased revenue generation, improved customer engagement, and accelerated cost take-out, will also require technology architecture teams to be included early in top-table discussions, allowing them the opportunity to guide business teams on the implications of new technology. Legacy approaches where technology teams only receive direction on services required miss the opportunity to consider the full potential of new technology. In the current banking environment provision of fresh, innovative financial products and services that create first-mover advantage, tap-into the needs of digitally native customers and create the next generation of financial services is paramount.

Adopt ways of working that promote consistent patterns and standards

Once new technologies have been identified and approved at senior levels, architecture teams must create repeatable, consistent and risk-managed architecture patterns and standards. For example, consider adopting Agile ways of working and setting-out the guardrails (a combination of informal rules and formal guidance) for new technologies. Doing this clearly will reduce the risk that parts of the organisation create digital fiefdoms or ungoverned banking and technology risk.

Architecture leaders should also aim to intercept ungovernable environments, costly side-shows, and unusable platforms by applying consistent principles, design patterns and standards. Hands-on architects can “manage the gap” between business and IT delivery teams, setting a high bar for adopting new, well-governed technology, and being watchful for business and IT teams deviating from defined principles.

Visionary technologists and architecture leaders with the confidence to disrupt as well as forecast the impacts of technology advocacy, do not simply appear. Financial services organisations wishing to cultivate these future leaders need to treat leading technologists as peers and ensure their non-technologist colleagues are exposed to disruptive technology (it’s no longer good enough to proudly say “I don’t understand tech”). CTIOs must also be empowered to broker deals with technology firms to get ahead of technology-led disruption. The alternative will be missed opportunities. For example, consider how some of the early peer-to-peer/mobile payment application innovations were led by financial services organisations, only to be usurped by mobile device providers, such as Apple with ApplePay.

Align technology adoption to customer and organisation needs

Finally, bank leaders must introduce technology with a clear view of the advantages to customers and consider the wider impacts on operations and costs – not and only the customer now, but the customer in 2-3 years’ time (medium-term horizon) and 10 years’ time (long-term horizon). This should always include consultation with CTIOs, and willingness to act on the CTIO’s steer on technology suitability for a given innovation. This can help to avoid overcomplicating estates and recognises the CTIO role as an informed guardian of future technology innovation.

Architecture teams must validate the potential of digital technology by having fully-staffed, inquisitive horizon-scanning teams that look at technology innovation in financial services and elsewhere, and work collegiately with leadership to articulate clear value cases and build consensus for new services. Effective architecture teams flourish with leadership that creates open-minded, cohesive approaches. More technology-mature financial services organisations are dissolving barriers between technologists and non-technologists – with the advent of cloud-first, DevOps-first and Agile-first ways of working supporting the acceleration of this change.

For example, creating a technology environment that is versatile, has clear guardrails (instead of hard-and-fast rules), and puts in-place mechanisms to scale proven financial services innovation can ensure banks are able to rapidly respond to changing needs. COVID-19 changed the concept of a financial services contact centre. Suddenly, firms needed to scale remote working and create burst-capacity based on (typically) cloud-centred call-centre platforms. Circumstances such as these, where rapid changes in customer interactions are required, can be led by empowered architecture teams.

The rise of DeFi and Open Banking has accelerated change in banking. Customer interactions are dominated by digital and mobile, and new technology start-ups without legacy architecture are creating head-turning innovations. Banks that orient around new technologies, engage with innovation early, and empower their architecture teams to identify opportunities and operate at senior levels will win more in the marketplace tomorrow, and today.

Contact the author

Contact the financial services team