December 13, 2016
Largely under the influence of FinTech, the robustness of internal infrastructure in banking went from being an industry norm to a disadvantageous hallmark of institutions in the financial services industry and beyond. Once efficient and advanced, legacy systems are now indeed a legacy – they no longer allow institutions to adopt innovation at the pace of technology startups and create a risk of falling into obsolescence.
FinTech, on the contrary, brought a different approach to building the core infrastructure and proved it to be an advantageous difference from institutional players.
As we have emphasized before, one of the core differences between the FinTech world and traditional financial institutions lies in the underlying technology and the level of freedom to build it. Unlike traditional banks, FinTech startups are free from legacy systems and operate mostly in the area of law that allows them to be relatively free. Hence, they can build their services on experimental algorithms and pivot them as they please to find the best solution.
Flexibility is also a core enabler of innovation, as it allows companies to respond to rapidly changing market conditions and technological advancements availability in an efficient manner. Cloud computing, APIs, AI, RegTech – their advantages have been grounded in enabling deploying companies to plug and play with new opportunities and improve operational efficiency in a resource-efficient manner. Having flexible IT infrastructures in place has been recognized to be a key to ensuring seamless change in management.
Moreover, the most successful FinTech companies have been employing a modular, flexible infrastructure model for their advantage from inception:
Technology professionals know better than anyone that flexibility is critical for digital transformation and plays a vital role in matters of compliance and security. Fai Lam, Director of Product Marketing at Nokia, pointed out the role of cloud infrastructure for digital transformation in financial services industry, noting that, In the digital age, bank IT infrastructure needs to be flexible and responsive to support new innovations while maintaining security and compliance. In order to leverage best of breed technology from different vendors, bank IT infrastructure should use open technologies and solutions, so that technology updates can be deployed quickly and easily.
Moreover, Lam shared that cloud computing has been helping enterprises to adopt new business models, maximize the effectiveness of shared resources, and become increasingly flexible while managing IT infrastructure costs.
Large Internet companies have leveraged the cloud and a web-scale IT approach, demonstrating that they can serve millions and billions of customers. Many banks have recognized the effectiveness of these Internet companies in growing digital business(es) and are now embracing private and hybrid clouds as a central part of their strategies on digital and innovation, Lam added.
So, what does a flexible IT infrastructure mean for financial institutions? Among the most important and beneficial implications that have been emphasized are the ability to efficiently meet customer demands, scale business faster and expand potential partnerships easily; the ability to easily replace existing obsolete elements of the infrastructure and pivot the business model in response to changing market conditions and available tech advancements; reduced time of digital banking application development, test and update cycles; elimination of inefficient and obsolete elements (such as replacement of legal department with RegTech software) and more.
Flexibility also means better chances for recovery in case of a shakeup as the institutions can play with vendors in a plug-and-play manner. In the long term, it translates into higher stability since institutions can replace elements of the business that have been compromised/damaged with a lower risk of being thrown out of business.