To find a way forward, Forrester suggested banks look at digital banking platform architecture (DBPA) providers which support rapid change and continuous transformation while helping reduce transformation risk. The platforms separate business capabilities and data and support an ecosystem approach to banking services that relies on APIs and micro-services.
The report identified the 10 most significant DBPA players: EdgeVerve, Finastra, FIS, Intellect Design, Arena, Mambu, Oracle, Sopra Banking Software, Tata Consultancy Services (TCS), Technisys, and Temenos. Curiously only one, FIS, is headquartered in the U.S. — Oracle Financial Services Solutions is based in India.
Jost Hoppermann, principal analyst at Forrester, who explains the idea of DBPA in a blog, says “Forrester defines a Digital Banking Platform (DBP) as a comprehensive but modular/componentized set of banking applications designed to cover areas like retail and corporate banking.
“DBPs comprise core banking functions and support processes in near real time, provide insightful information, allow rapid product development, and expose business capabilities via APIs.”
In responding to Forrester surveys over the last decade, banks said they were working on digital transformation, or planned to start at the end of the year, Hoppermann said. If that were true, the industry would be in much better shape than than it is, he added.
Many banks get stuck in early stages, or they can’t manage the complexity, or the executive in charge realizes the benefit will come only after he is gone, while the risk of failure will hang over him until then. Occasionally a tech team is overly eager, like one he consulted with recently which plans to move the core, data stores, CRM and a digital front end into separate clouds within a year, despite having no experience with cloud.
He said some U.S. banking tech vendors are treating their technology as a cash cow, with meager investment in modernizing. Consulting with a bank last year he looked at one vendor which was using a flat file system for customer data, “definitely not the basis for any kind of true digital banking approach.”
FIS has a modern solution, he added, although “FIS didn’t start as early as I would have liked to see.”
Forrester has also developed the concept of “zero back office” which Hoppermann said is not so much a state as a strategic plan, plus methods, technologies and architectures, to make the back office more seamless and more automated.
“It nicely aligns with the need for more productivity and more efficiency,” he added. “In a global financial services architectural survey of 2019 we found that 49% of respondents said increasing efficiency and productivity through tech was a major goal in their transformation efforts. Only better customer experience and customer service were more important.” Better customer experience may be the leading goal, but many banks still have difficulty identifying customers across products lines, he added.
Forrester’s Wave report analyzes all 10 of the DBPA firms it ranked, from leaders to strong performers to contenders. In his blog he explains in greater detail what he means by an ecosystem approach. Off-the-shelf functionality will become less important than the platform’s ability to deliver functionality, which can be through micro-services and that will favor cloud-native platforms, not platforms that can be placed in the cloud.
“Banks need a future-proof architecture, including business capabilities delivered by third parties, that can support the changing financial services industry,” he wrote in a blog post last year.
Some banks, like Alberta’s ATB, will create a separate digital bank with its own branding and attract new customers to the digital organization. It may then eventually move the regular customers over to the digital operation. The dual bank structure can lead to problems. The traditional bank may not have a path for customers to move to the digital bank, customers may resist because they like the traditional bank’s products more. Or customers may move, leaving the cost structure of the traditional bank with dropping revenue.
Banks have lost customers because they didn’t think through the way customers would respond to the changes, Hoppermann added. It’s going to require a big change in the way banks, and banking technology firms, think about technology — technology as an enabler or connector to apps and micro-services, rather than as a complete solution. Alyson Clarke, another Forrester analyst, told me a few weeks ago that getting to partnerships may require replacing a lot of the legacy executives at banks, because they just don’t think that way.
Hoppermann’s concludes that: “Those vendors that believe that their broad and deep banking functionality will ensure their DBPA a place on a shortlist forever need to rethink and accelerate. Digital banking has not only reached the banking industry but also the banking software industry.”
On the bright side a added Hoppermann, Covid-19 has accelerated digital transformation, which he didn’t expect when the pandemic first emerged. Banks need better digital to make up for closed branches and staff working from home.
“I am seeing them achieve in three months what wasn’t achieved in five years, although that’s only true for some areas of banking. There is still a need for transformation remaining.”
Prior to Covid-19 Forrester asked banks if they thought their current application landscape put them in a great position to service customers. Eighty-one percent said no.