Interoperability in banking

Hans Tesselaar at BIAN explores the biggest obstacle facing the financial services industry

 

Just as the world tried to recover from the chaos created by the Covid-19 Pandemic, 2022 brought a new set of challenges. The war in Ukraine, continuous supply chain disruption, the evolving regulatory landscape, and the risk of a recession across multiple economies have caused every industry to rethink its strategy and determine how it will survive this turbulent time.

 

This is complicated by the consumer and how quickly their needs and lives are changing to accommodate the world we now live in. 

 

When it comes to the financial services sector, there is an opportunity to make the most of the disruption and force a new era of banking. Experts at Deloitte believe that “over the long term, banks will need to pursue new sources of value beyond product, industry, or business model boundaries. […] Banks should be bold and stay ahead of the curve, proactively shape emerging forces, and envision the possibilities beyond the current fog of uncertainties.” 

 

While this is positive, banks must ensure they have the correct technology and processes in place to enable and support continuous change. Failing to do this means that opportunities will be missed and change won’t be guaranteed. 

 

Barriers to change

When it comes to making this digital change, our research with IBM found that 88% of banking executives were troubled by their banks’ commitments to multiyear projects, interoperability across technology environments and theft of sensitive data. A lack of skills also continues to cause problems, according to 42% of financial services organisations. 

 

In addition to this, all banks reported data constraints, with 65% experiencing that data is often or always siloed inside their business. This highlights the need for improved interoperability across the industry to ensure that different technologies and departments can communicate effectively. 

 

So, if a new customer applies for a loan after seeing a special offer, for example, the bank can determine what offers the customer is eligible for as soon as they register, as the data has been able to travel freely across the bank, rather than the customer having to be passed from department to department. This will dramatically increase efficiencies and the bank’s ability to support its customers.

 

But what is holding banks back from achieving this? 

 

A lack of standards 

A significant lack of industry standards is restricting the industry’s ability to modernise and ensure interoperability across organisations. The European Commission said that “the use of standards and technical specifications enables seamless information exchange among financial service providers, lowers barriers, underpins trust of consumers, boosts innovation and enables compliance with financial laws in a cost-effective way. It is a challenge to find the right standardisation axis in such a rapidly transforming industry.”

 

This hurdle is also complicated by the fact that each technology vendor uses its own language, meaning financial organisations are forced to select technology vendors based on the language they use rather than service offering. 

 

A coreless banking approach to digital transformation

This can be overcome, however, if banks rethink digital transformation initiatives and adopt a coreless banking model instead of replacing legacy systems. An approach which is outdated, extremely costly and time intensive.

 

This new approach will enable organisations to provide new services that are not dependent on traditional core systems. A coreless banking platform translates each proprietary message into one standard message model and empowers organisations to select the best-of-breed vendors needed to bring new services to market. 

 

In addition to this, a common framework as a reference architecture helps facilitate business and IT alignment, increasing adaptability and speed for bringing new services to the market. This provides endless opportunities for connection, collaboration, and upgrades, and allows different solutions to operate within the same framework as existing CX systems, so banks can expand their service offerings throughout their banking ecosystem and avoid having a siloed or limited use.

 

A new era of banking

As economies begin to prepare for a recession and consumers continue to tighten their purse strings to deal with the cost of living, greater attention will be paid to the role of the bank and how they can support their customers. This provides a huge opportunity for the financial services industry to forge a new era of banking. 

 

To do so, however, they must overcome some of the significant obstacles the industry is facing when it comes to interoperability and ensure the data can move freely across the organisation. Failing to overcome this will limit the impact of digital transformation initiatives, and banks will fail to capitalise on the opportunities presented in the market. 

 

A coreless banking framework will simplify banking architectures and provide a common standard. This provides significant value and facilitates the interoperability of services within and outside the boundary of financial institutions, helping businesses to develop their offering for the customer of tomorrow. 

 

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Hans Tesselaar is Executive Director at BIAN, the Banking Industry Architecture Network

 

Main image courtesy of iStockPhoto.com