Unbundling the Bank for Customer-Centric Transformation

What does the traditional bank have to do to stay ahead of competition and keep customers happy? For most banks the answer is to invest in modern technology. This year, banks across the world are expected to spend USD 176 billion on IT, an increase from USD 167 billion last year and USD 147 billion in 2023. But most of this investment is likely to be focused on customer service and product development rather than modernizing existing strategies and processes. Is this enough for delivering the kind of relationship based, personalized experiences, and innovation that the modern banking landscape demands? And how can organizations modernize decades old core banking systems?nbsp; Let’s dive in.

Navigating Market Volatility and Shifting Expectations

After decades of stable operations and successful strategies, why do banks now feel the need to increase investment in technology? Modern banks are operating under incredible disruption and strain. The pandemic upended global economic order, and it was followed by escalating geopolitical tensions. Right now, the Trump administration’s tariffs have led to unprecedented market volatility, fluctuating interest rates, and trade wars. Traditional banking revenue streams and profitability are now under pressure. Added to this is the fact that the 21st century customer is no longer satisfied with traditional, product-focused offerings. They expect personalized relationship-based offerings, and they expect their banks to be their financial advisors and partners and not a mere provider of services and products. Most importantly, they are willing to move to new age banks and fintechs if their expectations are not met.

Transformation Beyond Customer Service and Product

There is no question that banks need modern technology to deliver the kind of engagement and offerings that customers want today. But the technology transformation must be deeper than just customer service and product development. This is not to say that these functions are not important. Innovative products are critical for attracting new customers and sustaining customer engagement. 70 percent of customers say that consistent customer service experience across channels is an important consideration for choosing their primary bank. But the technology transformation must go deeper to modernize some critical banking functions like pricing, bundling, deal management, revenue management, and even rewards and loyalty.

Why Core Replacement May Not be the Answer

Modernizing these important functions is easier said than done. They are still housed within product core banking systems that have been in use for decades and that still power foundational banking processes. Not only do these systems operate in product-centric silos, but they are also highly complex as each pricing modification is saved as a separate variant. Understandably, these systems lack agility and scalability to unify data and drive efficient, accurate revenue management processes, manage deal lifecycles seamlessly, or ensure personalized pricing strategies. Completely ripping out these core systems and replacing them with cloud-native platforms might seem like a good idea on paper, but this is a lengthy, risky, resource heavy, and expensive proposition. And it almost always fails to change business outcomes or deliver the innovation that banks need to remain relevant.

Middleware as the Bridge to Innovation

To modernize processes like pricing, deal management, revenue management, banks need to separate the system of engagement from the system of records. And this can be achieved without touching legacy core systems. Banks can simply opt to work with specialized partners to deploy robust, cloud-native, microservices-based middleware platforms that can easily separate these functions from the core banking systems. They can sit over the legacy core to unify data, carry out advanced data analytics, and deliver customer centric, efficient, and accurate processes that banks need to retain their competitive edge. These platforms also provide a strong foundation for banks to leverage AI for further innovation. nbsp;And they are scalable and composable, ensuring banks can keep up with changing requirements, roll out new offerings quickly, and respond faster to market trends.

Why Technology Change Must Align with Business Strategy

But it is important to remember that the banking modernization journey is not about technology alone. It is a fundamental change in the way the bank functions, works, thinks of customers, approaches customer engagement practices, and responds to market changes. It is also increasingly evident that technology is no longer restricted to just the IT department. It impacts every department of the organization and shapes every function across the board. It is only logical that the decision to transform technology must be inextricably aligned with business and strategic priorities. Banks must also work out a comprehensive timeline for the modernization approach, so that it causes minimal business disruption. Without a carefully thought-through strategy, investments in technology may not work to their fullest capacity or deliver the ROI that organizations are looking for. And an ill planned transformation effort may disturb business as usual, inconvenience customers, and create security vulnerabilities.

As competition intensifies, banks must focus on modernizing some key functions and processes to attract and retain customers. True banking transformation requires an organization-wide strategic alignment of technology investments and long-term business goals. With a well thought out and phased approach, banks can roll out innovative relationship-based offerings without disrupting business as usual and without incurring significant risks or costs.

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