Call it “technology debt” — legacy systems and architecture, hardware and software — that has to be worked down.
As banks increasingly go digital, as they seek to leverage mobile devices to reach consumers where they live — and especially as the coronavirus has kept us all hunkered down and sheltered in place — they’ve got to pay down their technical debt.
Open banking and the rise of FinTechs have spurred banks to look toward developing new applications and products with speed, and to look toward moving mission-critical functions to the cloud.
But, as Ariff Kassam, chief technology officer of distributed SQL database company NuoDB, told Karen Webster, legacy core banking systems can get in the way.
As he told Webster, “technical debt is like a tax. It’s a tax on agility, productivity and adaptability. It’s a tax that gets built up over time.”
He said such debt is a natural accumulation that gets a little weightier every time a company puts in a new system or databases are deployed on-premises.
Accumulate enough technical debt with legacy systems and it becomes cumbersome for different departments within a bank to “talk” to one another and deliver a seamless experience to their users.
Kassam told Webster that a single customer can have different names within the same firm — in one department, for example, a corporate client could be known as “customer X Inc.,” while in another department, the same client could be known just as “customer X.”
Matching it all up becomes time-consuming if not impossible.
“Data management is critical — not just internally between silos, but also as you expand into the cloud,” said Kassam.
Moving To The Cloud
As the years go by, said Kassam, technology advances — and is advancing, inexorably, to the cloud.
That’s especially true for regulated industries like financial services, where there are mandates in place that govern data management, where microservices can help developers deliver new offerings digitally.
“One of the problems with some financial services industries is they’ve got the adage of ‘If it ain’t broke, don't fix it,’” maintained Kassam.
That mindset bumps up against a new reality where the spectrum of players in financial services has broadened. LendingClub, for example, bought a digital bank, and SoFi has acquired a digital payment processing company.
The challenger banks and FinTechs, of course, trace their genesis to an era where the cloud was readily available, and (so far) they have a competitive technological advantage over their larger, older, traditional brethren.
The ideal way to work down technical debt, especially as the financial services industry faces disruption, is to consistently revisit technological decisions made years ago. These financial institutions (FIs) can embrace a hybrid approach to scaling into the cloud and updating infrastructure.
That planned, incremental roadmap can help FIs pay down technical debt (call it, in a way, refinancing the debt) by acquiring or partnering with FinTechs, leveraging the latter’s newer platforms and infrastructure to serve customers.
“It’s almost as if you could think about transitioning customers over time to the new system, rather than effect this massive change that has to happen at one time,” he said.
That staggered deployment approach allows traditional FIs to think through data life cycles and mull how data is aggregated, where it its stored, and how it can traverse a firm across departments.
Technologically speaking, a hybrid strategy is less of a lift than a shift, where FIs can avoid having to “lock in” to certain platforms, vendors or suppliers, said Kassam. In addition, FIs can avoid single points of failure.
The cloud also can help alleviate the pressures that stress legacy systems (especially mainframes) as mobile banking is entrenched in the age of the coronavirus.
He noted that with mobile banking apps, people check their balances daily, perhaps even several times a day. Mainframes are not equipped to deal with the surge of volume for balance inquiries — and so transactions wind up costing the FIs extra money.
As a result, many firms have turned to developing microservices, which break applications down in simpler components.
He said the hybrid approach — enabled by firms such as NuoDB — allows FIs to have the data for a particular application either on premise or in the cloud, so they can reconcile data across several applications.
In the present environment, FIs — especially smaller banks — are recognizing they have to do something different, and do more, with the data and infrastructure they have, according to Kassam.
“They’ve got to become more agile, they got to be able to adapt,” he told Webster. “They want to get rid of this, all of this technical debt.”