Intelligent CIO North America Issue 3 - Page 74

INDUSTRY WATCH

A WILLY-NILLY APPROACH TO DIGITAL ADOPTION IN WHICH THE FINANCIAL INSTITUTION IMPLEMENTS A MULTITUDE OF DIGITAL SERVICES ALL AT ONCE IS LIKELY TO RESULT IN HIGH COSTS AND POTENTIAL FOR FAILURE .

union , and 58 % want to receive it through the organization ’ s website or mobile app . To expand deep relationships like these into the digital realm , banks and credit unions can take a page from the BaaS notebook . Adopting a Bank-as-a-Service model to Digital Transformation leaves the legacy core as a system of record and provides digital functionality by layering on the solutions that are necessary to keep financial institutions competitive .
The flexible , scalable alternative to core system replacements
Despite tight margins , financial institutions are facing the need to rapidly evolve digital capabilities . Prior to the COVID-19 pandemic , 85 % of business leaders across multiple industries believed they had only
Allan Brown , VP and GM , Digital Community Markets , Finastra a two-year timeline to make progress on digital initiatives before they fell behind swiftly-moving competitors . The COVID-19 crisis has shortened that runway . Stayat-home mandates have forced years of digital adoption to occur within the span of a few months , according to J . D . Power . Approximately one-third of consumers who used digital banking services during the pandemic actually plan to increase their usage of online and mobile banking in the months and years to come .
However , a willy-nilly approach to digital adoption in which the financial institution implements a multitude of digital services all at once is likely to result in high costs and potential for failure . Instead , it ’ s wise for banks and credit unions to start first with the one or two initiatives that will account for the biggest portion of revenue and efficiency gains . The advantage to an API-driven strategy is the infinite scalability , meaning that a bank or credit union can start with the services that make the most sense and scale upwards as time and circumstances demand .
For example , a financial institution firmly rooted in online services may not be fully meeting the needs of the increasing number of consumers who want to bank through a mobile device . While mobile banking was the least-used banking channel in 2008 , it is expected to grow at a CAGR of 2.83 % by 2024 , the highest among all channels . With APIs , providing new functionalities like this is a plug-andplay process , allowing for rapid time-tomarket . Then , as needs change , the bank or credit union is free to add additional services and products to the core .
Slipping the loop on the iron-clad core contract
While BaaS models allow for greater agility and rapid expansion to the digital product line , what happens to the financial institution locked into the iron-clad core contract ? Sixty percent of banks indicate that their core provider is slow to provide innovative solutions or upgrades , according to a survey conducted by Bank Director .
Thanks to the product limitations of many core providers , banks and credit unions are missing out on lucrative opportunities . For example , small businesses are currently paying US $ 500 billion to non-traditional providers for services such as accounting / bookkeeping , invoicing , bill payment and payment acceptance services .
Simultaneously , nearly a third of financial institutions are facilitating commercial clients from retail platforms that lack business-specific products and services , according to Aite . Forcing businesses to use products designed for consumer needs results in low satisfaction where 67 % of SMBs say their bank doesn ’ t offer services they ’ d be willing to pay money to receive .
The API-led approach makes it simple for banks and credit unions to slip the loop on iron-clad contracts by standing up a separate , business-only solution with a new innovative provider .
Fifty-seven percent of large and midsized banks are currently taking this approach to accommodate commercial clients , migrating business customers on to commercial platforms that have the capacity to fill SMB product and service needs . The key here is that banks and credit unions have choices when it comes to digital adoption , and many options for slipping the noose on restrictive core contracts as well as the constraints of legacy core systems .
In the modern era of banking , digital is the new core , offering faster time to market and far less risk than replacing legacy systems . •
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