The Difference Between Plumbers and Interior Designers

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Editor's Note: In this blog, we take a look back at a recent webinar featuring Kevin Karrels. In the webinar, Karrels discussed implementation of long-term digital banking strategies. We dive deeper into this notion and why not having the appropriate plumbing behind the scenes can be a nightmare for financial institutions in the future. 

Earlier this month, Kevin Karrels, SVP Digital Banking Strategy Executive at First Tennessee Bank, was featured in a CBA webinar on implementing a long-term digital banking strategy. Karrels described the challenges facing his financial institution when it decided to transform its online and mobile banking offerings into a digital platform that would have the scalability and flexibility to last 10 years or more. The primary challenge was not an inherent lack of creativity within the bank but rather the disparate legacy systems that were inhibiting FTB's ability to deploy the innovative services needed to better serve their customers.

The primary challenge Karrels identified is a common characteristic of the IT landscape in financial institutions that has been around for decades. Silos of services served by disparate legacy systems are impeding innovation and driving up costs and complexity. Those who work in the industry, not part of the Baby Boomer generation may find it hard to believe that this problem is not a recent development but rather a new obstacle created by the recent and rapid introduction of new technology. Certainly, the pace of technology has added to the complexity, but it has not created the overall problem that has roots dating back to the 1980s or earlier.

What is different about the challenges presented by these disparate legacy systems today, and what is making those challenges difficult to overcome, is a shift in who controls the pace of innovation and change. Specifically, consumers are now driving the "terms and conditions" of their relationships to financial institutions rather than simply accepting that their banks or credit unions offer them. In addition, these terms and conditions are evolving at a rapid pace driven not by what other financial institutions are offerings as by the expectations around the user experience that is being shaped by brands such as Amazon, Google, Apple, and others.

As has been well argued many times, the whole thing started when Steve Jobs stood on stage holding the first iPhone in his hand. Since then there have been tablets, smart televisions, Internet-enabled cars, wearables, and voice activated assistants standing by 24/7 to help the consumer with a myriad of needs, including banking. At the same time that the universe of digital access points was expanding as a result of the "big bang" created by Apple, FinTech developers were looking to build applications that extended the convenience of these devices. Many of these applications targeted the friction inherent in many of the services offered by financial institutions.

As FinTech products gained enough traction to confirm their viability, banks and credit unions were facing months or years of work to respond. Why? The reason is not the financial institutions are, by nature, not creative or innovative as noted by Karrels in the webinar. Banks and credit unions are staffed with smart people with as much creativity as any other organization. The reason that financial institutions are slow to innovate is that even the basic services they provide rely on a complex set of "plumbing," some of which is a permanent part of what it means to be a bank or credit union. However, many applications developed by FinTechs are essentially front ends; i.e. they are beautifully designed (usually) pieces of code that offer a singular or limited set of services. In other words, they isolate themselves from having to worry with the plumbing. They are more like interior designers whose goal is to deliver beautiful, functional surroundings to provide an environment that enhances whatever purpose the area serves.

Financial institutions do not have that luxury. Yes, some of the plumbing could be modernized (at great expense and significant risk) but much of it is part of the overall infrastructure that has developed over time in the United States. It has compliance and regulatory components along with dependencies that are very difficult to remove. Recently, many have proposed a strategy that would help mitigate some of the limits created by this plumbing while providing a way for banks and credit unions to deploy innovative service to end users at a fast pace. As described in an earlier post on the 270° View, this approach is no slam dunk but it does have merit. More in the next post on two distinct interpretations of Banking as a Platform (BaaP) and what those interpretations mean for the stakeholders involved.