Why are top players successful?
Traditional banks are facing a rollercoaster of challenges. In the last 10 years, 51% of banks generated returns on equity below the cost of equity. What can the banks do to avoid such outcomes, and create value instead? A review of leading market studies(1), combined with our experience in accelerating innovation for leading financial powerhouses globally, point to five key dimensions that set top financial services players apart. The top players:
- Relentlessly address the pain points of customers: leading fintechs, specialists and banks excel at solving specific needs of customers in a micro fashion, building on changes for the customer incrementally into an ever-improving end-to-end digital experience.
- Attract, retain and deploy talent well: top companies excel at attracting and retaining talent; in addition, they are also excellent at deploying their employees into areas of work that provide them with the greatest fulfilment to deliver high impact experiences and innovation.
- Continuously iterate, experiment and learn in the market: top banks embrace an innovation mindset that focuses on iterating and experimenting, and not being afraid to learn quickly, early and inexpensively on the journey to success in the market.
- Tightly link their growth and cost agendas: top companies achieve growth with thoughtful investments and spending; they align target-differentiating capabilities with appropriate investment and cost structures to generate the highest risk-adjusted financial returns.
- Collaborate closely with best of breed technologies/ partners: leading financial institutions work closely with ecosystem partners, leveraging them to draw-in more customers, unleash a wide range of interconnected services, and improve product offerings.
How can a next-gen core platform help?
As such, traditional banks looking to create value for their stakeholders need to transform themselves to excel in these dimensions. A common theme among successful transformers is the use of a next-generation core platform to power their products and business. This is because a next-generation core platform is a key enabler that provides them with advantages and positions them for success on the five dimensions. In particular, a new core can:
- Deliver an enhanced customer experience by providing banks with greater control and ability to integrate appropriate solutions when designing their architecture, to deliver on their aspirational end-to-end journey and create satisfaction for customers.
- Optimise the use of people and talent by enabling people with business domain knowledge to be directly involved in product development (more configuration and less coding), and dramatically reducing code-heavy and time-consuming platform maintenance and product change requests. This frees up the engineering team to focus on delivering innovative features and differentiating propositions.
- Facilitate an experimental mindset by reducing time to launch MVPs and new products as well as time to iterate existing products already in the market, thereby reducing risks of a “big bang” failure, and improving speed and cost of learning.
- Improve the transformation ROI by allowing for earlier realisation of benefits, as well as lowering upfront costs and cost of maintenance. From our experience, players with best-in-class implementations can see >70% reduction in operating costs.
- Empower a partnership ecosystem through open banking APIs that facilitate easy integrations with best of breed technologies and existing bank’s ecosystems.
However, not every bank who decides to have a digital core will automatically reap all these benefits. Although 70% of banking executives review their core banking strategy, only 5% of banks modernise their platforms each year. Implementation is key to closing this divide.
Nine principles for a successful core implementation
Based on our experience with bank transformation and core banking projects(2), there are nine principles categorised into three areas that banks should follow when implementing a new core.
1. Begin with the end in mind: articulate a clear vision for the future that will drive business strategy, target customer value propositions, aspirational end-to-end journeys, and the end-state architecture, which will be the basis for the transformation.
2. Think big, but start small: reduce resistance to change through an incremental approach that manages risk, reduces upfront costs and realises early wins. Take the first step by building the digital banking proposition on a new core outside legacy systems. Over time, incrementally migrate from the old to the new.
3. Focus on win-win to get it done: align key stakeholders, on both business and technology sides. Help them understand the imperative for change, and how implementation of a new core will directly benefit their teams.
4. Own your architecture: take ownership over the creation of a differentiating value proposition for your customers in how you pull the different banking applications and components together into the end-state architecture.
5. Don’t reinvent the wheel: resist the urge to build everything and buy where it makes sense. Embrace the philosophy of composability, working with best of breed technologies for applications and components that have low cost-benefit to code.
6. Build differentiation around the core: deploy technical talent to build differentiation by integrating the components of the ecosystem into a seamless architecture. Leverage the product factory of digital core banking platforms to configure and not code, to better utilise people with business domain knowledge when building products.
7. Embrace an innovation mindset: imbue an innovation mindset throughout the organisation, adopting a customer-centric, agile, iterative approach with continual learning and experimentation. This mindset will help the organisation fully realise the benefits of speed (to market and in the market), composability, and digital, enabled by the new core.
8. Build towards the aspirational end-to-end operating model: empower people with business domain knowledge to be involved in the implementation from the beginning. Involve your best people in the transformation project, and not just on business-as-usual running of the bank. Plan from the start to build capacity, continuity, and retain your intellectual property.
9. Don’t be afraid to seek help for transformation: in-house system integrators and PMO teams often do not have the bandwidth or niche expertise for complex banking implementation projects. Collaborating with partners and consultants with proven delivery track records can address the knowledge and manpower gap for non-BAU activities.
Our SaaS cloud banking platform powers the digital banking propositions of over 200 customers in more than 65 countries, including traditional banks embracing transformation and greenfield “speedboat” propositions. The Mambu Advisory team combines strategy consulting experience with Mambu’s unique knowledge, to help customers carve a path through complex challenges.
(2) Special thanks also to Mambu Onboarding & Support and Solution Engineering teams for contributing perspectives and inputs.