Banking - TxMQ Solutions

I spend a lot of time talking to IT professionals in banks across the US and Canada. Some large and global, others regional. As the CEO of a technology consultancy that works with financial institutions of all sizes, having varied conversations with our clients is a big part of my job. And I can tell you that almost every single one of them says the same thing: I’m so busy reacting to day-to-day issues that I just don’t have time to really plan for the future.

In other words, they’re always in a reactive mode as they deal with issues that range from minor (slow transaction processing) to major (catastrophic security breaches). But while playing whack-a-mole is critical to any bank, even a small shift in priorities can give CIOs and their teams the room to get ready for tomorrow rather than just focusing on today.

How to get out of reactive mode

Every bank technology person intuitively knows all this, of course, but it’s almost impossible for most to carve out the time to do any real planning. What they need are some ways to break the cycle. To that end, here are just a few suggestions for IT leaders, based on my experiences with bank IT organizations, to get out of reactive mode and start preparing for tomorrow.

Have a clear vision

A clear vision is important in all organizations. Knowing what we’re all marching towards not only helps keep teams focused and unified, but also ensures high morale and a sense of teamwork. The day-to-day menial tasks mean a lot more when understood in the context of the overall goal.

Break projects into smaller projects

As a runner, I’ve participated in my share of marathons, and what I can say is that I’ve never started one only to tell myself, “Okay, just 26.2 miles to go!” Rather, like most runners, I break the race down into digestible (and mentally palatable!) chunks. It starts with a 1 mile run. Then I work up to a 10k (about 6 miles), and so on, until I reach the final 5k.

Analogously, I’ve seen successful teams in large organizations do amazing things just by breaking huge, company-shifting tasks into smaller projects — smaller chunks that everyone can understand, get behind, and see the end of. Maybe it’s a three-week assessment to kick off a six-month work effort. Or maybe it’s a small development proof of concept before launching a huge software redeployment initiative slated to last months. Whatever the project, making things smaller allows people to enjoy the little successes, and helps keep teams focused.

Get buy-in from company leadership

IT leaders are constantly going to management asking for more money to fund their projects and operations. And a lot of times, management doesn’t want to give it to them. It’s a frustrating situation for both parties, to be sure, but consider that one of the reasons management might be so reluctant to divert even more money to IT is you have nothing to show them for all the cash they’ve put into it previously. In their minds, they keep giving you more money, but nothing really changes. You’re still putting out fires and playing whack-a-mole.

If, on the other hand, you’re able to show them a project that will ultimately improve operations (or improve the customer experience, or whatever your goal is) they’ll be a lot more likely to agree. As an IT leader, it’s your job to seek out these projects and bring them to business leaders’ attention.

Implement DevOps methodology

I find a lot of financial institutions are still stuck in the old ways of managing their application lifecycles. They tend to follow an approach — the so-called “waterfall” model — that’s horribly outdated. The waterfall model for building software essentially involves breaking down projects into sequential, linear phases. Each phase depends on the deliverables of the previous phase to begin work. While it sounds straightforward enough, the flaw with the waterfall model is that it doesn’t reflect the way software is actually used by employees and customers in the real world. The reality is, requirements and expectations change even as the application is being built, and a rigid methodology like the waterfall model lacks the responsiveness that’s required in today’s business environment.

To overcome these flaws, we recommend a DevOps methodology. DevOps combines software development with IT operations to shorten application development lifecycles and provide continuous delivery. In essence, DevOps practitioners work to increase communication between software development teams and IT teams, automating those communication processes wherever possible. This collaborative approach allows IT teams to get exactly what they need from development teams, faster, to do their job better. “Fail fast, fail often” is a common mantra. Encourage the failure, learn from it, and then iterate to improve.

DevOps is obviously a radical shift from the way many bank IT professionals are used to making and using enterprise software, and to really implement it right, you need someone well-versed in the practice. But implemented correctly, it has the capacity to kickstart an IT organization that’s stuck in a rut.

Getting ahead

As an IT consultant, I’ve heard all the answers in the book for why your organization can’t seem to get ahead of the day-to-day. But these excuses are just that: excuses. If you’re an IT leader, by definition you have the power to change your organization. You just need to exercise it effectively.

Remember: our world of technology has three pillars: people, process, and technology. No stool stands on two legs, nor does IT. Understand these three complementary components, and you’re well on your way to transforming your organization.

Historically, for most Americans (and Canadians), the local bank branch has always been where you go not just to deposit and withdraw cash, but to manage your retirement or savings account, apply for a credit card and secure a home, car or small business loan. Today, however, the bank’s ascendancy is being challenged by the rise of alternative institutions and other scrappy players who are trying to tap into areas that were formerly the exclusive domain of banks. This category of emerging fintech companies includes online-only banks, credit unions, retirement planning apps, online lending marketplaces, peer-to-peer payment platforms and others too numerous to mention. And while banks may have the size advantage, nothing in business lasts forever. Do these Davids have a chance to slay Goliath? And what do the banks need to do to protect themselves from upstart challengers?

Studies indicate these new entities are giving banks a run for their money (no pun intended). The top five U.S. banks, for instance, accounted for only 21% of mortgage originations in 2019, compared to half of mortgages in 2011. Filling the gap are non-bank lenders, which not only offer a convenient, digital-first customer experience, but also tend to approve more applicants. Similar trends can be witnessed in small business loans and personal loans.

It’s not a stretch to say the traditional bank is facing an existential crisis. This has been partly brought on by a general lack of competition for so long. For example, at one point, towns had just one bank. This single bank didn’t have to innovate in the face of zero competition. That reality may have led to a decades-long attitude of complacency, which as a result, has led to a failure to innovate. Retail banks need to rethink pretty much everything. In short, they need to start thinking like a startup—more specifically, a tech startup. Silicon Valley is driven in large part by a philosophy of disruption, innovation and entrepreneurship. Many alternative lenders have been empowered by this philosophy, but that’s not to say that traditional banks can’t make use of it, too. Far from it, here are some ways that banks can start thinking more like tech companies so they can stay competitive against alternative providers.

Embrace lean methodology.

Startups, by definition, lack the resources of more established businesses, but they don’t let those limitations stifle innovation. In fact, those limitations actually serve to encourage innovation. Lean methodology is a way of designing and bringing new products to market specifically designed to fit the limited financial resources of startup organizations. First outlined by entrepreneur Eric Ries in “The Lean Startup,” this approach emphasizes building and testing iteratively to reduce waste and achieve a better market fit.

To become vehicles of innovation, banks should consider adopting similar methodologies. I’m not suggesting that they should create artificial obstructions or arbitrary constraints. But no matter the size of the institution, budgets are always going to feel too small—not least of all because product developers for massive institutions need to develop huge products to match. With tried-and-true methodologies for innovation like the Lean Startup out there, scarcity shouldn’t be an excuse for not innovating.

Fail fast, iterate often. Adopt Agile.

Startups know that rapid iteration cycles mean rapid innovation. It also means embracing a culture of failure. Failing to fail means failing to succeed. These are the lynchpins of agile or lean methodologies. Excellence is the enemy of success and progress. Get it done, get it out there in front of the market and then iterate improvements.

Identify opportunities with big data.

One of the reasons alternative lenders are able to offer such high rates of approval is that they employ state-of-the-art AI and machine learning techniques to get a better picture of their customer than a simple credit or background check can deliver. Well-trained AI algorithms can efficiently comb through a wide body of available data to uncover trends and make predictions about the risk of lending to a given individual with incredible accuracy.

Online-first lenders have such an advantage here because they’re in a better place to mine that data. What a lot of people forget about data analytics is that the greatest algorithms are only as good as the data you feed them. Businesses, and banks especially, generate millions of data points per day—data that could prove valuable for data mining and other similar uses. However, the majority of this data is unstructured and heterogeneous, and often time, siloed and difficult to access. Many successful online-first lenders have carefully structured their digital loan applications to be useful for data analytics purposes from the ground up. When nearly 40% of the work of data analytics is gathering and cleaning data, this represents a huge advantage to the fintech startup.

But traditional banks can take advantage of this, too. Developing online and mobile banking applications to replace old-fashioned paper forms for most activities would set banks up to make better use of that data by ingesting it in a cleaner format. Add in the fact that customers are demanding mobile banking features anyway, and there’s no excuse for not offering customers a more robust set of mobile banking features.

Shrink bloated bureaucracy with cross-functional organizations.

Think about all the startups you’ve visited. Did teams operate in silos, constantly blaming other teams for their inability to make progress? Or did they adapt to situations, never believing their roles to be fixed or immutable?

To become the latter kind of organization, traditional banks need to break the cycle of bureaucratic apathy. One way to do that is to have disparate teams work together on projects. Working on shared projects not only helps develop a sense of shared purpose, but it also empowers employees to solve problems in areas that are not considered in their traditional wheelhouse. That, in turn, reduces the inefficiency of teams passing the baton to another division until it’s been weeks or months until the customer’s concern has even been truly considered. Moreover, bringing together different kinds of minds and thinkers encourages the kind of fertile ground in which innovation is known to thrive.

Reports of the bank’s death have been greatly exaggerated.

Ultimately, banks have numerous advantages that they can leverage over most fintech startups. They have their brick-and-mortar retail locations, allowing them to make personal connections with customers that drive loyalty. They’re considered more trustworthy to the average consumer (for the most part). And a lot of people just want to do all their banking at a single bank branch rather than shop around for various piecemeal banking solutions. If banks can innovate their information technology and organizational structures to meet the changing needs of today’s customers, they can continue to dominate the financial market.

Tag: Banking

How Bank IT Leaders Can Get out of Reactive Mode (and Start Preparing for Tomorrow)