Greg Ouillon, CTO of EMEA at New Relic
PSD2 and Open Banking have made the financial services sector more competitive than ever before. To compete with the hundreds of fintech start-ups that have cropped up in recent years, traditional banks are accelerating their migration towards digital native and digital-first models.
Their aim is to create fluid, reliable, and efficient customer experiences at all times, but as they do so their tech stacks are becoming increasingly complex. To ensure development and innovation proceed at the required speed with a customer-centric focus, banks must employ comprehensive observability to provide real-time visibility into their infrastructure and software architecture.
Increased regulations and the competition they bring
European retail banks are facing staunch competition from fintech start-ups made possible by the implementation of PSD2 and Open Banking. This, of course, was the aim of the new regulations, to foster competition in the financial markets, but they have meant a change of operations for banks. Where before banks were particularly guarded about the information they held on their customers’ bank accounts, they are now required to share it through standardised APIs. Not only this, but they are also responsible for the availability and performance of their APIs and can be fined for repeated faults.
Driven by these European directives and the advantages they provide consumers, neo-banks, competitors of traditional banks, have become a part of people’s daily lives. For example, paying for items, both in person and online, with data securely stored on phones, has quickly become the norm for many people. And now, disruptor banks like Monzo, Revolut, and Starling are gradually taking market share from traditional banks.
Modernising systems to attract and retain customers
In this new, competitive era of banking, consumers have far more choice as to which financial service provider they use. As a result, traditional banks are adopting the intuitive and reliable payment experiences consumers have come to expect from neo-banks. This has extended beyond just payments and checking balances, now bank loans, trading and financial advice, and insurance are expected to all be available through slick, digital offerings.
However, despite consumers no longer hesitating to shop for better deals for their financial services, and s, and disruptors having a head start building their Systems of Engagement (SoE) – the infrastructure that allows customers to interact with their services and perform transactions from their mobile or browser – from the ground up with customer needs and experiences in mind, traditional banks do have a slight edge. They are in possession of the regulated banking licences and can offer a rich all-in-one services portfolio as well as their network of branches through which they can more easily propose a multi-channel service tailored to each customer.
Many digital-first disruptors have focused on modernising SoE. Yet, they are usually backed by traditional banks that own the licences, systems of record (SoR), and the core banking they require. It is in these core banking systems that security, compliance and governance are even more critical and constraining.
To maintain their competitive edge, retail banks can therefore modernise not only their SoE, but also their SoR and core banking architectures to preserve and increase their market share. However, legacy core banking architectures are not very scalable, and, when coupled with their complexity, are serious barriers to innovation and simplification of the customer offering. And since simplicity is at the heart of what consumers want, these can prove to be serious problems.
The obvious answer and strategic impetus is to use SaaS or Cloud Native services to upgrade their systems, but these present complexity and risk challenges such as controlling service reliability and performance throughout these migrations. Regardless, banks must find a way to modernise to remain relevant.
Putting the customer first
Creating customer-centric services is vital for traditional banks as they try to build and maintain trust and loyalty with consumers. And what consumers want is 24/7 availability with zero downtime, whether they’re using mobile, computer, or tablet. Easy and reliable connection is expected for all day-to-day operations, but as mentioned above, this is for all services, including selecting providers, quickly opening accounts, or even starting a procedure online that they intend to complete in person in branches.
Migration to the cloud or creating ‘digital native’ subsidiaries is now recognised as the quickest way for traditional banks to modernise their systems while they work on their core systems. These subsidiaries often have organisational and operational independence, and allow their parent banks to offer agile, innovative services. This approach allows them to go to market quickly with agile and innovative services, which will find their full potential when the Core systems are also modernised.
Using observability to ensure trust and reliability
Being in the Cloud is a good first step, but there are many more to go. As tech stacks become increasingly complex to match accelerated innovation and development cycle times, maintaining control over reliability, quality, and performance is essential. Banks must be able to measure their systems and software in real time across their entire stack, creating a full picture of everything from SoE, to SoR and core banking. Beyond that, they must have full visibility over their interactions with third-party systems, regardless of whether they control them or not.
To enable this modernization at speed and scale, retail banks must embrace observability as a key part of their infrastructure.
Already, SaaS observability service providers provide their platforms and expertise to global leaders in all industries, who are demonstrating the competitive advantage observability provides. Partnering with these observability platforms will give banks the best chance of succeeding as they edge towards becoming digital first. To be agile, to anticipate, detect and proactively resolve availability, reliability and performance issues, they must be able to visualise their performance in real time across the entire application stack.
To retain and grow their customer base, compete with neo-banks, and invent a new wave of financial services, retail banks must deliver superior customer experience and innovate faster. They must do so while managing a complex modernization at scale. Investing in observability will improve not only their customer experience but also their business performance. It will also generate economies of scale and productivity to free up valuable resources to innovate faster.
