The role of symbiosis in overcoming the technological paradoxes in banking

Imagine a bustling city where historic buildings stand proudly alongside sleek, modern skyscrapers. Done well, this results in a harmonious blend of old and new, creating a vibrant, dynamic environment. Making it all work together isn’t easy. Under the covers and behind the scenes, different generations of technologies and different eras of infrastructure investments coexist. In London, for example, Victorian-era infrastructure works alongside the latest fiber-powered broadband. In the world of banking technology, Chief Technology Officers (CTOs) and IT leaders face a similar challenge: modernizing their institutions’ IT infrastructures while minimizing risks and costs. The concept of symbiosis—deploying next-generation, open digital core banking platforms alongside existing IT infrastructures—offers a compelling solution to the technological paradoxes in banking. This approach avoids the disruptive “rip and replace” strategy, ensuring a smoother transition and continuous operation. Here, we explore the symbiosis concept from the CTO’s perspective, addressing concerns, outlining solutions, and highlighting opportunities. We look at the issue using lending as a practical example.

The integration conundrum

One of the primary concerns for CTOs is the complexity of integrating new digital core banking platforms with legacy systems. The fear of operational disruptions and data inconsistencies looms large. Adopting an API-driven architecture can significantly mitigate these concerns. APIs enable seamless data exchange between the new and existing systems, ensuring real-time processing and consistency. Additionally, leveraging microservices allows for modular integration, where specific lending functions can be updated or replaced independently without affecting the entire system.

The data dilemma

Banks operate on trust and data. Hence, data management is of crucial importance. As the saying goes, “garbage in, garbage out.” CTOs also worry about data fragmentation, security breaches, and compliance with stringent regulations. Being able to aggregate data from both legacy and new systems ensures consistency and accuracy. Adapting to technological advances, e.g., quantum computing, will become ever more important. The ability to rapidly support business requests for sophisticated reporting and visualization tools can be a competitive differentiator. To say nothing of the pressure GenAI places on the bank’s data architecture. Consider the impact of AI agents, operating on behalf of borrowers, interacting with core lending systems. That future is not that far away – indeed, for some, it is already here.

The main customer record puzzle

When operating with more than one core banking system, determining where the main customer record resides is crucial. Typically, a Customer Information File (CIF) or a Master Data Management (MDM) system is used to maintain a single source of truth for customer data. This system integrates with both core banking systems to ensure consistency and accuracy across all customer interactions.

The customer experience imperative

The importance of customer experience cannot be overstated. It is a bar that is being raised every day. But it can be a key differentiator. CTOs must ensure that the new platform enhances customer interactions without causing disruptions. True omnichannel experiences, integrating digital and physical touchpoints, are challenging for many to deliver, but consider the situation when ecosystem intermediaries and technological advances are woven in. How can banks provide a seamless customer journey? For instance, customers might start a “loan application” as part of a purchase process on a retailer’s website and seek to “reschedule” the loan in a bank branch. The technical challenges are considerable, but the advantages, for those banks that get it right, are enormous. Personalized services, driven by data insights, can further improve customer satisfaction and loyalty.

The analytics advantage

Advanced analytics and machine learning offer immense potential for improving lending operations. CTOs can harness these technologies to enhance credit risk assessment, customer segmentation, and personalized lending offers. By integrating advanced analytics into the new platform, banks can gain deeper insights into customer behavior and creditworthiness. This enables more accurate risk assessments and tailored loan products, ultimately driving better business outcomes.

The limits management maze

Managing credit limits, transaction limits, and other constraints across multiple core banking systems can be challenging. A centralized Limit Management System (LMS) can be employed to track and enforce limits across all systems. This ensures that limits are consistently applied, regardless of which core system processes a transaction.

The operational balancing act

Given the complexity of banking IT infrastructures, one could be forgiven for being reluctant to introduce change. However, maintaining the status quo is no longer an option, and increasing system fragility demands a response. The challenge is how to maintain the balance between making necessary changes and minimizing disruption. CTOs need to ensure that day-to-day banking operations, especially critical lending processes, remain unaffected. Automated workflows and Robotic Process Automation (RPA) can streamline loan processing, reducing manual intervention and improving efficiency. By automating repetitive tasks such as data entry and compliance checks, banks can maintain smooth operations during the transition. Further, by adopting a symbiosis strategy, the scope of transformation programs can be focused and the risk contained. For example, applying symbiosis to the lending area of the business, or perhaps a sub-area such as personal loans or buy-to-let mortgages, would reduce time to market while limiting risk and minimizing disruption.

The scalability and future-proofing challenge

Scalability and future-proofing are critical considerations for CTOs. The new platform must be able to grow with the bank and adapt to emerging technologies. Designing the platform with scalability in mind ensures that it can handle increased transaction volumes and new functionalities as the bank grows. A culture of continuous improvement, with regular updates and enhancements based on user feedback and technological advancements, can keep the platform future-ready.

The complexity and fragility paradox

Introducing a new system does increase overall system complexity. However, with proper planning and robust integration strategies, this complexity can be managed. The use of middleware and API gateways can help streamline interactions between systems, reducing the risk of fragility. Continuous monitoring and regular audits are essential to maintain system health. Indeed, symbiosis offers a way to reduce system fragility and complexity in a strategic way, with the timeline aligned to business priorities.

The cloud conundrum

Cloud technology plays a pivotal role in the symbiosis strategy. Cloud-based core banking systems offer scalability, flexibility, and cost-efficiency. They enable banks to quickly deploy new functionalities and scale resources as needed. Additionally, cloud platforms often come with built-in security and compliance features, which can simplify regulatory adherence. However, optionality is vital – in jurisdictions where cloud is not yet accepted, being able to run the same solution in an on-prem deployment is vital.

The strategic selection

Selecting the right business area for deploying symbiosis is critical. Start with areas that have clear boundaries, such as lending or payments, which can be isolated from other operations. Choose areas where the new system can deliver significant benefits without posing high risks to the overall operation. Customer-facing areas that directly impact customer experience can showcase the benefits of the new system quickly.

Conclusion

Symbiosis can indeed serve as a stepping stone to eventual, total replacement. By gradually migrating functions to the next-gen system, banks can minimize risk and disruption. Over time, as confidence in the new system grows and its capabilities are proven, more functions can be transitioned, leading to a complete overhaul. But it doesn’t have to be only seen as a stepping stone – if you just want to deploy sophisticated, next-gen lending capabilities, with symbiosis, you can do so.

To successfully implement the symbiosis approach, choosing the right partner is crucial. A partner with the right technology, decades of experience, and a vision for the future can make all the difference. Such a partner can provide the expertise and support needed to navigate the complexities of integration, data management, and operational efficiency.

In conclusion, the symbiosis approach offers a viable path for CTOs and IT leaders to modernize their banks’ lending operations. Just as a city thrives with a blend of historic charm and modern innovation, banks can leverage symbiosis to blend their existing IT infrastructure with new technologies. IT in banking has many paradoxes, challenges, and conundrums, which symbiosis addresses.