In the drive to bring speed, convenience and true innovation to payments and address customers’ financial services needs in real time, financial institutions (FIs) need to break down silos.
That means changing processes and legacy tech systems that stretch across decades.
Easier said than done, of course.
But in an interview with PYMNTS, Kevin Fox, executive vice president of NovoPayment, said banking as a service can assist in breaking down those barriers to innovation — and can accelerate the time to market for new offerings.
And the opportunity for what he termed “FinTech enablers” such as NovoPayment, through the platform model, is to help serve as a conduit or facilitator for financially regulated institutions that he said may have some difficulty in innovating or delivering those services.
Among the Challenges: Legacy Systems and Processes
Among the challenges: legacy systems that may have been firmly entrenched in a financial institution’s operations for decades, or a mentality that keeps knowledge from being shared within an FI (hence the “siloed” mentality).
With a nod to silos, Fox said that within financial institutions, there are typically “subsystems that are focused in specific verticals or delivery capabilities.” Those incumbents may typically have a credit card solution, a mortgage solution and an investment solution, all operating independently.
“All of these solutions may have different systems that are managing the delivery of services, but they are not interoperable,” he said. And as a result, integrating those services can prove difficult.
In an attempt to address that lack of integration, the FI, typically, will create user interfaces in the form of separate applications, such as mobile apps, which in turn replicate the siloed infrastructure that resides within the financial institution’s core.
Breaking Down the Silos
One way to break down the silos is to have FinTechs and FIs meet across a platform to share various areas of expertise, and in the process change the very way financial products and services are created and brought to market.
As Fox noted, “We are definitely seeing more collaboration between incumbents and disruptors … and financial services are moving toward a less vertically integrated, and more distributed model, made up of different specialists.”
Some firms specialize in back-end enablement, others in front-end enablement. It’s becoming more common to outsource in order to innovate, said Fox, and then bring in incremental revenue streams through deposits or loans (to name just two examples).
The Use Cases
In an environment where consumers are willing to switch their allegiance to financial institutions at a moment’s notice, Fox said, focusing on the consumer experience and the user journey is imperative. That’s especially true for smaller players such as credit unions and savings and loans.
“Obviously there are a lot of options out there for consuming services,” he told PYMNTS, “and users are more demanding with regards to the means in which they interact [with FIs]. They want instant gratification.”
Among the chief and most pressing desires of the consumer, as relayed by Fox: the desire to be onboarded quickly and engage with the product or solution in a seamless manner. To get there, the NovoPayment executive said, a lot has to happen, technologically speaking, to ensure that a broad swath of data is being used to create an optimal consumer experience. In some cases, firms will need to conduct identity verification with speed (and accuracy), perhaps through biometrics; or they may strive to issue a digital card upon an individuals’ account creation.
“You’ll find,” he said of the platform model, “in order to satisfy those user journeys and offer a comprehensive and cohesive experience, you need to piece it all together effectively, and as an incumbent you may not have all the parts you need. You’ll want to be able to go and collaborate in order to get it all done effectively.”
The trend toward banking as a service is an inexorable one, he said, with a tailwind provided by open banking — which he said provides information more effectively and, from a policy perspective, mandates the portability of data.
He said open banking has allowed, and will allow, an ever-greater number of participants across the financial services ecosystem to get involved, interact across application programming interfaces (APIs) and transform digital services.
The common thread underpinning the collaboration, from a technological perspective, is middleware, said Fox. Business rules must be defined, alongside use cases. The integration of all the ecosystem participants must also take into account compliance and operational rules that all are found within the middleware service layers where all the APIs are being consumed.
“Whether you’re in a large traditional financial institution or a small credit union or savings and loan, there’s the need to have this middleware service component,” said Fox, “that serves to really bring all the pieces together and make sense of them in order to deliver value.”