In this article by Steve Round, President and Co-Founder of SaaScada, we explore how entrenched company culture in traditional banks may be hampering their ability to modernise and compete with more agile FinTechs and challenger banks. The reluctance to embrace technological change and the risk-averse mindset prevalent in senior banking leadership are examined, alongside potential strategies to overcome these barriers and foster innovation.
Is company culture hamstringing banking modernisation?
As increasing numbers of FinTechs and challenger banks emerge, offering boutique products and personalised offerings, traditional banks must ensure they can understand and meet their customers’ needs. To do this, banks need a technology stack that is able to provide them with detailed, real-time insights on their customers’ behaviours, allowing them to offer products that are relevant to their customers.
This technological shift requires significant buy-in from key decision makers – including at the board level. But, in many cases, change is unwelcome among senior bankers. Recent research found that 77% of innovation leaders at banks admit that banks need to modernise, but feel that challenging the status quo often puts careers at risk. This fear perpetuates a culture where junior employees are encouraged not to rock the boat or ask why certain processes are done certain ways. This widespread view is indicative of a reluctance to challenge existing processes and shows the vital cultural shift required for banks to embrace technological change.
Better the devil you know…
Many established banks run on legacy core banking systems, built on architecture that originated in the 1970s. These core banking systems are still widely used today – albeit with layer upon layer of updates, workarounds and plugins. This presents a significant challenge, especially as consumers increasingly look for their banking provider to be flexible, able to adapt at a moment’s notice, and provide them with relevant, personalised banking products. In reality, data is the most important currency a bank can have – and legacy systems are unable to access it in real time.
Meeting evolving customer demands is not the only challenge for banks who still use legacy core banking systems. Although two-thirds of bankers feel unable to move on from legacy technology because it was selected and implemented by decision makers still in the organisation, these systems are complex, hard to manage, and expensive to maintain. To fully reap the rewards of modern banking systems, banks must adopt cloud-native technology, giving them the flexibility they need to prioritise customer-focussed objectives and deliver a better banking experience.
However, in many cases, senior bankers prefer legacy systems because they were responsible for bringing them in and are used to how they work. Those same senior bankers are also responsible for promotions and raises. This reluctance to change can lead to inertia throughout the whole team, with no incentive for the status quo to be challenged. When senior bankers become set in their ways, they prefer employees who will say yes to work and do it the way it has always been done. This approach can stifle a culture of innovation, meaning banks are left behind the competition.
Risk avoidance: Sensible or stifling?
In many banks, change only comes when it is forced, driven by an inability to compete, or by identification of risk or technological deficits that can no longer be fixed with workarounds or sticking plasters. With 80% of bankers saying the board doesn’t want high-risk projects carried out on their watch, an ‘if it ain’t broke’ mentality often prevails, even in the face of the huge benefits offered by digital transformations.
This risk-averse culture is highly prevalent in the banking world, and – while highly understandable – is part of why challenger banks and FinTechs are able to be more agile. Of course, any digital transformation carries an element of risk, especially when carried out poorly. Research has found that 57% of the UK banks that have migrated their core banking infrastructure to the cloud suffered service disruptions during the migration process.
However, the potential costs of doing nothing far outweigh the risk of a well-implemented digital transformation going wrong. Instead of sticking their heads in the sand and being unwilling to take the necessary steps to change, banking teams instead need to face up to the challenge and try and find ways to move forward in a way that reduces risk but enables modernisation.
One step at a time: The co-existence model
One way banks can reduce the risk of digital transformation is to adopt a co-existence model. This approach is one where banks deploy a new cloud-native core banking engine without immediately ripping out legacy technology, so that the two can work alongside each other. By having an API driven cloud core banking platform that runs alongside the legacy systems banks can take the time to migrate critical systems from their legacy architecture in a low-risk way.
Alongside benefits related to performance and reliability, this approach gives banks concrete evidence of the value of their cloud-native systems by yielding small, quick, high value wins – without the risk associated with big bang change.
These smaller-scale projects show the benefits of transformation and process change – offering a glimpse into the power of better customer understanding and personalisation – while allowing banks to slowly transition from their legacy systems. A co-existence model gives banks the breathing space they need to quickly launch innovative products, while still planning their longer-term legacy migration. By celebrating and highlighting the results this model can achieve, innovation teams can create a buzz around new banking systems, bring their teams on the transformation journey, make these processes less scary and risky, and win the cultural war against change. After all, once change becomes accepted, flexibility becomes the norm. This allows banks to identify and respond to their customers’ needs and stay ahead of the competition.
To achieve change, your culture needs to change
Real, meaningful change requires full cultural alignment throughout an organisation. Crucially, this is a cultural battle and not a technology issue. Mindsets throughout financial organisations need to shift towards prioritising improvements, rather than maintaining the status quo. It is also crucial banks demonstrate this change is taking place to show they are making positive changes for their customers. This will help them provide the good service they need to build deeper relationships with their customers and secure their long-term loyalty.
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