Where to start with innovation – back end or front end?

In the current news every time you read about a Fintech it seem they invent the world again and one could believe, the end for “normal” banks has come. But with a second glance, one can see, that behind every Fintech a bank does the service and takes care of the governance. So how will there, in the end, banking end up as the service provider for the face to the customer companies?

Never change the legacy systems?

With some years of experience in banking I saw a lot of intentions to make banking not so costly and more flexible: I was within cost cutting projects or in ventures of outsourcing to get down with the costs. In the end we always see the same scheme. Banking is dominated by the big backbone systems. This systems that work since centuries in the bank and provide the main products. This systems, the so called legacy systems are characterized as developed forty years ago, described with nearly no or just few words in wide spread out documentation and salted with just a weak idea who is using the data in which ways in the follower systems. But they do their job and that’s what counts for most of the banks. If you have some new products or necessary changes due to legal reasons, then please never came up with the idea of changing this legacy systems. The better solution is always to put a new module somewhere on this. That is easy to do, easy to understand and bears not that much risk. So every manager is happy with this solution.


If we cannot deliver, maybe it is not market standard

So is there really every manager happy with this solution? From my experience a lot of ideas are dropped by being too expensive and a lot of business is dropped due to the fact that the systems simply are not able to produce. So at least the sales manager would love to get new products in the market. But as the systems are not able to deliver and coincidently the manager taking the real decisions are grown up with this kind of systems, often one can hear that maybe it’s not market standard what the client demands. And then a lot of presentation go around why we cannot produce what maybe could be an advantage for the client and thus also for the bank. So the legacy systems will never be touched and banking moves in small steps forward.


Back end or front end?

Now one can say, yes, it is costly to change this systems, but is it necessary? If the client needs something new, give it him on the front end or do it with manual work if the client is that important or the sales has the power to push it through. But even there, a lot of banks are not able to deliver a proper real time management information system for their clients or great working interfaces adoptable to the individual needs of each clients. So as discussed in another blog, Fintechs are jumping on this ideas and creating new solutions for the client’s eyes. But they concentrate on a very small part of the whole picture and they use a bank behind them. And guess, you will not know how the processes are bended in this banks to the right way to serve this needs. If the banking provider behind is really making money I doubt. I mean there are a lot of great ideas for the facilitation of banking. I was mostly taken by the idea to use the passport or driving license together with the camera of the mobile phone to identify the customer doubtlessly. And to bring the information to the point that you can open the account in a few seconds without legitimate yourself via postal process. But I bet, there are not so many master data systems outside that are able to cope with this app. A big project to adapt the interfaces between the different sources of information and the several master data systems was the follow up of this great idea. You think why several master data systems? Yes! The before mentioned legacy systems demand master data in specific ways, and often it is cheaper to create a new master data database as to develop the existing base. Mostly it is simply not possible to enhance the existing system, that’s why we have then several systems. Maybe one for the client’s data, one for his account data and one for his tax data or other specific stuff.

So where is the future of banking more likely to be found? In a front end Fintech or a back bone disrupter?


Back bone disruption if you ask me!

As I always repeat myself in demanding better products that are more useful for the client, the other side is much more thrilling. The real thing banks have to fear is, that one starts banking from the scratch and uses modern techniques for development. Then we would have a bank being modular, able to keep up with new challenges and adaptable for every direction as necessary. This is in my opinion the real threat. It is expensive and it will take a real risk taker to go for this. But the one who dares can change the whole industry. This because if you have to change and are able to include either tax, legal or clients demand fast and cheap into your systems. That makes the big difference in the costs. Maintenance is one cost driver, but change is the hell of a cost driver. And now products that meet the expectation even of small group of people can be introduced. And most important, as long as the work stays in the machine, the effort is always not the problem to be discussed about in endless management rounds. If it is simple calculation power to be added. Then banking is there where it could be and where a lot of companies from the social media industry are today...


Stay tuned


Your K-Street6 team