How digital architectures can ease banking transformation

Many banks believe that they will be in a position to deliver great and differentiating CX within the next few years. This optimism is rooted in ongoing transformation efforts: various Forrester surveys during the past decade have shown that between 71 and 87 per cent of global financial services firms were executing a transformation programme, or planned to start within two years after the survey. Why do so many banks have little to show for these efforts?

• Ancient core solutions need complex enhancements. Many banks continue to use decades-old core banking solutions and payment engines written in COBOL, PL/I and assembly language. These ancient solutions have almost no flexibility, and the complexity they have accrued over the years makes them both a key driver of and major obstacle to transformation.

• Lack of skilled and knowledgeable staff causes uncertainty. Experienced COBOL and PL/I developers have become rare and expensive. And only a lucky few banks still have technology employees who know the history or have detailed documentation of the changes, customisations and enhancements made over the past 20 or 30 years.

• Fear of failure prevents transformation initiatives from starting. Many banking platform transformations suffer from serious delays and soaring costs despite their already enormous budgets. Full or partial cancellations of entire initiatives have added to the number of failed transformation programmes at banks all over the world. However, the perceived risk of failure is higher than the actual risk.

Layered digital architectures help foster change

Banking platform transformation is like a series of brain surgeries on a fully awake patient in a dark room. But digital target state architectures such as Forrester’s digital banking platform architecture (DBPA) help make these transformation challenges more manageable.

 

Let me explain the concept of DBPA in a nutshell. It’s about splitting what’s traditionally considered core banking (and further back-end solutions) into two decoupled elements: the lean core and the digital core. The lean core focuses on data availability and consistency. On top, the digital core delivers domain-driven, highly coherent, decoupled business capabilities (for example, for the domain’s customers and accounts) using data that the lean core provides via APIs. Technology teams in banks will find that this approach:

• Fosters change. Inward-facing APIs make the architecture more flexible and outward-facing APIs help it operate in business ecosystems. The domain-driven approach supports creating and working with entities such as customer and deposit accounts. Data and functional APIs allow the architecture to work with analytics or AI engines, for example. The entire target-state architecture exists to help banks rapidly gain new internally and externally provided business capabilities.

• Enable innovation. The digital core allows banks to assemble business processes for all the business capabilities from a variety of sources. Banks use external capabilities from partner banks, clearing or KYC "utilities", and cloud banking applications. Banks and financial technology firms such as New10, Starling and US Bank use external document aggregation and financial planning to, for example, enrich their product portfolio.

• Helps mitigate transformation risk. One of the challenges of digital transformation is the need to determine the sequence and timing of application replacement and temporary changes to legacy apps. But technology teams can avoid this meticulous planning and its complex execution: legacy and state-of-the-art applications can coexist as soon as the digital core can access legacy data. A bank no longer needs to change legacy applications until it switches them off.

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 Learn more about Forrester’s 2022 European predictions, which includes banking

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by Jost Hoppermann, VP principal analyst, Forrester