Architecting the future of banking: how to modernise for ecosystem success

In the dynamic world of the financial services industry, the future of banking is intricately tied to the ability of institutions to adapt to change and modernise. Many already see the value of embracing the financial ecosystem approach as it presents new prospects for growth, innovation, and efficiency. However, to fully capitalise on these opportunities, traditional banks find themselves at a crossroads: overhaul their existing architectures, which is no easy task, or remain stagnant and struggle with mounting costs and lack of agility.

Modernising your core infrastructure is far from being ‘low-hanging fruit’. The potential returns are significant in theory, but the investment required is also substantial.

Many hesitate to touch their core banking system architecture because of poorly documented application metadata, legacy code, and entanglements with the general ledger. The fear of breaking key business functions due to a lack of understanding about the supporting legacy systems can deter them from taking the leap.

Mainframe applications, once considered the holy grail, remain untouchable unless there is a compelling and essential business reason to do so. As the years go by, banks end up constructing layers above the core and exuding substantial efforts to circumvent the legacy constraints. The result? You essentially end up creating additional legacy systems as workarounds, simply because the core software can’t adapt seamlessly to evolving market demands.

While this might seem like a strategic win in the short term, in reality it’s just a band aid that introduces complexities for legal and compliance teams. Unpicking the intricacies of business operations becomes a formidable task when the core architecture has remained largely untouched since the previous century.

The consequence of this approach is the perpetual accumulation of technical debt, as your organisation strives to meet market demands while navigating the constraints imposed by your sacred mainframe applications.

Preparing for the future of banking: key steps in the architecture modernisation process

Embarking on the journey towards architecture modernisation is a complex endeavour, and the reality is that every financial institution is starting from a different point on the technology spectrum. 

Each bank’s architecture varies widely – some may still grapple with monolithic applications and business silos, while others might already be operating on multi-cloud platforms. A unique starting point is not the only factor influencing the path to modernisation; the destination, too, is distinctly shaped by each bank's specific business objectives.

As a result, the process of architecture modernisation will vary from one organisation to the next. However, the steps and key considerations we outline below are a tried and tested way to prime the process for success.

1. Identify business objectives and reasons for pursuing an ecosystem strategy

Given the frontline position banks hold in the financial ecosystem and the regulatory environment they operate in, the consequences of any misstep are far-reaching. Hence, the first step is all about gaining clarity around your target business objectives and why you’re entering the ecosystem economy.

The modernisation journey can’t be solely an IT-driven endeavour. Instead, it must be anchored in the strategic vision of the organisation, answering the fundamental question of how the architecture will support your strategy and contribute to the overall success and resilience of the bank.

To identify your objectives, you and your team will need to answer questions like:

• Why do you want to play an active part in a financial ecosystem?
• Which ecosystem role can and should your bank take?
• What value will you gain from modernising your architecture?
• What are the consequences of not doing this?

2. Carry out a change readiness assessment

Once you’re clear on your objectives, it’s time to carry out a change readiness assessment and gauge your bank’s appetite for risk. After all, just because something is a good idea doesn’t mean you’ll be able to do it within your current organisational constraints.

Factors to consider during a change readiness assessment include:

• Current market conditions: understand how the broader market landscape might impact the urgency and execution of your modernisation strategy.
• Legal requirements and implications: examine the regulatory requirements that apply to you now and the implications of modernising your architecture and partnering with third parties in the financial ecosystem. For example, if you’re a bank moving into Bancassurance, there may be different regulations that apply to your insurance operations. You need to be aware of these additional limitations and have measures in place for when an external regulatory change could have impact on your internal processes and systems.
• Resources and capacity: assess the availability of resources – financial, operational, and human – to determine the feasibility of your banking architecture modernisation plan. Understanding your capacity will ensure that the desired changes can be executed within practical constraints.
• Availability of skills: identify the skill sets essential for successful modernisation and thriving in the banking landscape of the future. Evaluate whether your bank has the required talent internally, or if external expertise is needed to fill any gaps.
• Organisational culture: gauge your company’s adaptability and willingness to change and break down silos to foster a culture that encourages co-innovation and flexibility.
• Training needs: figure out the training requirements for your workforce to ensure the team is equipped to handle the new banking technology and processes introduced through architecture modernisation.

• Data sharing across internal and external boundaries: carefully consider the complexities of ecosystem data sharing across internal and external boundaries. This means clearly defining what can be shared, how, and with who. You need to be able to demonstrate robust controls that ensure the secure flow of information, while respecting organisational boundaries.
• Data security and protection measures: establish protocols for safeguarding sensitive information and ensure compliance with regulatory standards. This is particularly crucial when dealing with personally identifiable information (PII) in an evolving regulatory landscape (ex: PSD2, PCI DSS, etc). Remember, if you partner with a complementary third party from a different industry, the regulations they must adhere to may have an impact on you too.
• Anticompetitive behaviour: besides data sharing and security considerations, you need to think about ways of demonstrating commitment to ethical business practices and avoid anticompetitive behaviour. Emphasise transparency and fair competition within the financial ecosystem, showcasing your dedication to maintaining a level playing field.

Addressing these key themes while evaluating your current banking architecture and laying out the future vision is crucial. Striking a delicate balance between innovation, security, and compliance is pivotal in creating an architecture that not only provides new opportunities but also fortifies your bank for sustained success.

Find out how we addressed technical debt to enhance three+one’s data architecture efficiency and scalability

When outlining your roadmap, the focus should revolve around consistently managing dependencies and risks. The goal is to develop a strategic roadmap that can guide the transformation of people, processes, and technology in a well-coordinated manner, ensuring a smooth progression from the current state to the desired outcome. What’s more, this roadmap should serve to ensure your organisation stays on course and maintains alignment with the established objectives. When objectives change, so should the roadmap.

One of the key considerations here is to avoid ‘big design upfront’. It’s best to use evolving architecture, test and learn, and continuously adapt your architecture just as you adjust your banking vision, product strategy, and offerings. The mantra should be ‘Fail early, de-risk early, deliver value early’.

• Communicate clearly: successful change demands the active involvement of internal staff. Develop a compelling vision for change, then engage the rest of the organisation. Clear, timely, two-way communication is paramount to getting positive engagement, as well as ensuring your employees’ input is valued and integral to the process. Instead of imposing changes, make them part of the solution, fostering a collaborative approach.
• Be flexible: embrace flexibility as a core principle. Recognise that change is not limited to technology alone; it extends to business practices, behaviours, and organisational structures. Be prepared to adapt and evolve as you go. For example, be flexible about how you plan to maintain full regulatory compliance throughout the modernisation process. There are ways to adhere to regulations that may differ from what you’ve done before, but that doesn’t mean you should disregard them, or that the perceived risks should scare you away from the necessary technology change.
• Anticipate ‘knock-on effects’: organisations are a complex mesh of interdependencies, so understand that change in one area will inevitably have ripple effects across the wider business. Anticipate these ‘knock-on effects’, engage impacted stakeholders, and proactively address any challenges that arise because of the evolving architecture.
• Prepare for the tension period: acknowledge the inevitability of a 'tension period’. This phase may involve failed attempts and challenges. Think of it as an opportunity for learning and refinement, leveraging insights gained from setbacks to strengthen the modernisation process.
• Start small: begin with small, manageable steps that the organisation can readily adapt to, and which clearly show benefits. Involve the entire bank in the process, ensuring that the modernisation journey is a collaborative effort.

With years of practical experience executing complex legacy system modernisation projects and supporting data integration initiatives globally, our seasoned professionals can provide strategic insights and technical expertise to ensure a seamless transition.

Together, let's build a resilient foundation to prime your organisation for the future of banking and secure your place in the ever-evolving financial services ecosystem.