The Intersection of Financial Institutions and Technology Leaders

10 Steps That Banks Can Take to Drive Their Digital Future

By Alex Jimenez

More than a dozen years ago, I managed digital banking at a community bank.

Back then, keeping up with available digital solutions for customers meant attending our core system and digital banking provider’s user meetings and conferences. The major limitation we experienced was that we could only deploy technology readily integrated into our core and digital banking systems. If we brought in technology that wasn’t already integrated, we would be paying for the integration — paving the way for our competitors. In at least one situation, the rollout failed because our provider could not get the technology to scale.

Due to high costs and technical expertise, most community-based banking organizations have had to settle with being mostly buyers of technology. In contrast, many larger banks are viewed as builders of technology, despite the fact, that many of the larger financial institutions that have developed digital banking technologies in-house were net buyers as well.

With the growing adoption of application programming interfaces (APIs), banks are no longer limited to the binary choice of being a buyer or a builder of technology. Organizations that were previously constrained by integration limitations can finally own their own digital experiences — not by buying technology outright, but by building relationships with fintech firms. Increasingly, fintechs have shifted from wanting to disintermediate banks to partnering with them to provide the digital products, services and experiences that retail banking customers demand.

The biggest hurdle to taking advantage of these opportunities to partner with fintech firms as a way to manage your institution’s digital future is changing legacy mindsets in the community bank space. How do bank executives move from thinking of themselves as a “buyer of technology” to focusing on orchestrating and building partnerships?

Here are ten general steps to start this journey:

  1. Define explicit business objectives: Program goals, metrics of success, etc.
  2. Assign the person(s) responsible: Ideally, this should be driven by the CEO as the ultimate strategist for the bank, but day-to-day can be managed by a chief information or marketing officer, head of digital or another executive.
  3. Identify addressable gaps: Stay away from shining objects by identifying real gaps in the bank’s capabilities and addressing customers’ needs that the bank can close with a partner’s technology.
  4. Create a program to identify possible partners for each gap: This can be done through literature reviews, participating in conferences, innovation hubs, research firms or consulting partners, among others.
  5. Decide between build, invest or partner: Executives should categorize each partner into three options — build/customize a solution with them, invest in them for more strategic control and oversight or partner in the traditional contractual sense for the use of their product/service. A partner may fit more than one of these categories.
  6. Evolve resource allocation: Partnerships require organizational commitment, such as funding, networking opportunities and ongoing support.
  7. Build required technology and infrastructure: Develop the capabilities required to support your bank’s growing ecosystem, including APIs, cloud infrastructure, sandboxes and agile practices.
  8. Adjust planning practices: Fintech speed is counted in days or weeks, not months or years as banks tend to use. Apply agile thinking to planning, budgeting and testing.
  9. Iterate processes: Internal processes, such as vendor management, should support continuous iteration based on results. Additionally, banks should remain open to working with fintech firms to mature their processes.
  10. Revisit metrics: Make sure your bank is measuring successes and making appropriate adjustments.

Available technologies — such as APIs and cloud platforms — allow banks to step away from the shadow of their core providers. Banks now have an opportunity to own their digital futures and, more importantly, the digital experiences they offer their customers. Strategic partnerships allow financial services organizations of all sizes to compete and serve the needs of consumers by successfully leveraging the latest technology.

Alex is the managing principal, financial services consulting at EPAM Systems, Inc.