Integration holds banks back from digital transformation

In the race to keep up with the rapid innovation of fintech startups, traditional financial institutions are running into integration challenges on their digital transformation journey

The rapid ascent of fintechs startups took almost every incumbent financial institution by surprise. Initially dismissing these upstarts as little threat to their long-held customer bases, legacy banks thought they could keep up with evolving consumer expectations through incremental changes and some new digital assets like mobile banking.

But by tuning into exactly what people want from banks in the digital age, fintechs have stolen customers from incumbents at a rate that few in the industry could have predicted. Personalisation has rewritten the rules of banking. Whereas previously consumers generally desired a one-stop shop of financial services from one or two major banks, now they are more likely to select whichever firm offers the best digital experience for each respective product.

“Fintechs not only provide their customers with a financial service but also personalise the experience to their satisfaction and new expectations,” says Allen Terleto, field CTO at next-generation data platform company Redis. “While traditional institutions focus on cross-selling across a portfolio of products, a fintech’s entire existence is often to serve its customers in just one domain. This specialisation and hyper-focus gives them a competitive edge over traditional banks weighed down by their massive operational scale and the inherent risks of transformation.”

With so many fintechs zeroing in meticulously on the individual domains that form part of what a large bank offers, collectively they have become a major threat to the large financial institutions which have dominated the sector for decades. Seeing they were not digitally transforming fast enough to compete with the kind of innovation concocted at cloud-native, agile startups, banking execs have had to make big decisions on how to remain relevant.

Some have opted to replicate the fintech model by building innovative startup entities within their organisations, giving them the right people, processes and technologies to compete. Others have sought to fast-track digital transformation by acquiring startups. Having initially ignored them, banks are now forced to engage with the fintechs as peers.

Whether they are spinning out new digital assets through their own startup entities, or through acquisition, financial institutions are now seeking to evolve into technology companies. However, this poses major challenges, particularly when it comes to integration.

“Let’s say a bank acquires a new fintech that is cloud native and provides a great personalised experience,” says Terleto. “But the bank’s entire portfolio still operates on-premises centered around a mainframe. How does it enable cross-functionally, cross-selling opportunities, or a unified customer experience?

“The last thing it wants is for existing customers to register with the new service siloed from the rest of the portfolio and serve as a constant reminder of the contrast between their experiences. To avoid this, the cloud-native technology stack, skills and agile processes must align and integrate with the legacy operations of the existing architecture.”

Redis Enterprise, an in-memory NoSQL database platform, enables banks to overcome these integration challenges and digitally transform at a greater speed. A traditional financial institution whose operations are still mostly on-premise but which wants, for instance, real-time performance in its middleware can use Redis Enterprise to deploy on top of its private cloud, virtual machines or even bare metal without any impact on core operations.

If the same institution acquires a fintech startup that is based in the cloud with end-to-end real-time performance, and it wants access to that information on-premise and without losing any of the benefits of its cloud-native capability, Redis also facilitates that integration.

“For an integrated experience across the product portfolio, banks can create a hybrid deployment model between their on-premise operations and the cloud with active-active replicated Redis databases,” Terleto says. “In this model, banks can match fintechs in time-to-market and business agility, without compromising and adding risk to their existing on-premises operations.

“It’s the best of both worlds and creates an on-ramp for institutions that have near-term plans to progress along their cloud journey. They can migrate at their own pace in alignment with their governance, risk and compliance policies, and risk appetite.”

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