Banks rely heavily on their computer systems. Yet every computer system is an artifact of the time in which it was built.
As technology advances, these systems can be left behind. Examples of technology that was cutting-edge in its day become increasingly clunky to use when compared to new tech.
Fintech companies often seek to improve banking by improving the technologies that power the banking sector. Through a clear understanding of legacy systems and the right tools and relationships, banks and fintech companies can work together to add functionality to these older systems.
Take Stock of Your Current Systems
Removing an entire legacy system and starting over from scratch is daunting for a number of reasons. The cost is prohibitive for many banks, and the need to take essential services offline for a complete rebuild leaves customers without essential points of contact — an unacceptable scenario.
Banks do not need to choose between making no changes and installing a completely new computer infrastructure, however. Instead, a legacy infrastructure may be left in place, enhanced by a platform that allows older software to talk to newer applications.
To take stock of existing systems:
- Identify places where the system still provides value. Apply the maxim “If it ain’t broke, don’t fix it” to your organization’s IT infrastructure. Where the system still works effectively, the best choice may be to let it work.
- Focus on what needs to change. Target needed upgrades or additions to apply resources more efficiently.
- Consider the organization’s approach to IT as a whole. Updating systems may require a corresponding shift in how the organization handles IT work. Work with IT staff to rethink this aspect of the business.
Embrace Tech Tools for Flexibility
Early fintech companies focused on offering specific services, often in isolation from other financial services. Companies like PayPal, for instance, handled payments but didn’t offer any other services commonly found in incumbent banks, like loans.
As fintech has grown, however, both fintech companies and banks have found that integrating services combines the best of both worlds: the functionality of fintech and the established power of incumbent banks.
Application programming interfaces, or APIs, are the tech that drives these partnerships. APIs allow banks to partner with fintech companies, taking advantage of cutting-edge technologies, by connecting banks’ in-house computer systems with the fintech’s software. The API offers a way for the two to communicate with one another.
From the customer’s point of view, transactions may take place entirely on the bank’s digital platform or within a fintech company’s app. A customer who wants to transfer money from their PayPal account to their bank account, for example, doesn’t need to log into PayPal, then log into their banking app. Rather, the customer can simply log into one or the other, and the API handles the transfer.
APIs already play a key role in connecting a wide range of companies and services digitally. As their use expands in banking, they’ll also provide banks and fintech organizations the means to improve the functionality of existing computer systems.
Build Long-Term Growth Partnerships
For banks and fintech companies alike, partnerships that focus on the long term can help ensure that legacy systems enhance rather than detract from business growth.
Fintech startups face a number of challenges, including:
- A lack of access to big-picture views of customers, including the data legacy banks possess.
- Smaller budgets than incumbent banks that compete for the same customers.
- Reductions in interest and corresponding funds from venture capital sources.
Banks, however, face challenges of their own when it comes to thriving in a technologically advancing world. These include:
- Drains on time and money involved in propping up legacy IT systems and the challenges involved in upgrading those systems.
- Fewer opportunities to focus on tech innovation or deriving deep insight from available data.
- A customer base that expects instant, on-demand, personalized service and is willing to explore fintech alternatives to get it.
Meanwhile, both fintech companies and banks face competition from tech giants like Apple, Amazon and Uber, which are exploring their own financial services offerings.
They also share problems related to customer trust. While banks have traditionally invested in building trust relationships with customers, changing expectations — particularly in banking technology — are both eroding customers’ trust in incumbent banks and encouraging customers to put their trust in fintech companies.
These challenges, however, create an opportunity for fintech organizations and banks to meet their respective goals by forming partnerships. In these relationships, upgrading legacy tech becomes simpler and more effective for banks, while fintech companies get access to the data, customer bases and established trust they need to meet their own goals.
Images by: plusone/©123RF.com, nd3000/©123RF.com