For financial institutions (FIs), five years from now, the data center will be but a memory.
In an interview with Karen Webster, Vijay Oddiraju, founder and CEO of Volante, said that technological agility is critical to creating efficient (and fast) payment systems as FIs pivot to meet the expectations of consumers and enterprises.
“The digital transformation of FIs, and payments, cannot be separated, because most of interactions with financial institutions … end up in payments,” he told Webster.
Amid the great digital shift, banks are, in some cases, overwhelmed by the sheer volume of transactions they have to process on the back end.
At the same time, FIs have been known to be risk-averse when embracing large-scale infrastructure changes. Any large-scale tech overhaul carries risk, but Oddiraju noted that cloud migrations can be overlaid on top of existing systems, allowing banks to scale and phase their approach rather than resort to “rip and replace” tactics.
It’s an evolution that is all about more configuration and less coding, he said.
To get a sense of the traditional inefficiencies of updating on-premise, legacy systems, Volante’s research found that for every dollar spent on technology deployments, FIs spent an additional $5 to $6 to make those deployments productive — with manual tasks at every step along the way.
Years ago, that meant a lot of manual coding. But platforms like Volante’s automate coding (built into the business processes themselves) to help streamline new tech initiatives, saving significant amounts of time and money.
Looking Back Over Decades — And Forging The New Roadmap
The modernization roadmap for FIs has changed since 2001, the year of Volante’s genesis. The movement of money between trading partners has been marked by a journey from paper or batch processes to real-time eCommerce.
From a high level, said Oddiraju, “when you talk about digital transformation, you can use any buzzwords you want, but essentially it’s about improving efficiency.” The drive to bring efficiency into the financial services ecosystem leads to automation — of everything from payments to straight-through processing of other financial messages.
Beyond automation, the very nature of what FIs look for when choosing tech vendors has changed, too. Years ago, he told Webster, “the customer-vendor relationship has been: ‘You give us this, and we’ll pay you money.’ And that was it.”
But now, noted Oddiraju, as time has marched on, it’s become essential for FIs to look to partners and vendors for collaborative efforts that foster trust.
“Together, we can get a lot more done and address challenges more effectively this way,” he said, adding that partners like Volante can help banks compete head-to-head with FinTechs and challenger banks — not to mention Apple, Google and other tech firms branching into banking.
The urgency for digital-first mindsets is there, as FIs bring more services online and faster transactions are desired by consumers and businesses alike, said Oddiraju. “Everybody wants real-time payments,” he noted. “Nobody wants to get a check in the mail and then go wait for the check to be received — and then go and deposit it.”
But for FIs that want real-time payments attached to legacy systems, the technical heavy lifting can be a challenge. “To maintain it is even more of a nightmare,” Oddiraju pointed out. Volante allows FIs to embrace new payments services and get them out into the field. “You can just turn on the new services very quickly,” he said.
The simultaneous drives toward cost reductions and competitive agility are creating tailwinds for banks to reconsider, and reconfigure, their physical footprints — which demands the modular, scalable solutions that come with moving to cloud-native environments. That means data centers will eventually be extinct, predicted Oddiraju.
“I’ll be really surprised if banks, within the next five years, still have their own data centers,” Oddiraju told Webster. The movement to the cloud, and to resilient payment services that are available 24/7/365, cuts across private-public FIs and small and large financial services firms.
There’s also a security benefit to moving to the cloud. Oddiraju told Webster that legacy systems, particularly in traditional data centers, are increasingly targeted and breached by hackers, and downtimes can prove disastrous to a bank’s reputation and bottom line.
Through a phased approach, he told Webster, “as [the FIs] feel comfortable and gain confidence, they can migrate to whatever new services they need.”
The cloud provides the best of both worlds, said Oddiraju: the gradual migration of processes gives banks and other FIs the flexibility to continue business as usual today while simultaneously allowing them to build out technology that will carry them into tomorrow.