Banks face a multitude of challenges as they strive to transform digitally and move towards agile cloud-based solutions. To succeed, they’ll need to develop new strategies and approach their business differently.
The biggest challenge in transitioning to new technologies is running legacy systems and cloud solutions at the same time, opened up BNP Paribas chief information officer Bernard Gavgani.
“The fake news was that cloud will reduce cost,” he said, adding “By default, the cloud infrastructure will cost much more.”
The reality added Gavgani, is that businesses are moving to cloud, thinking this will reduce costs and increase flexibility. Unfortunately, large banks are still running their own data centres – even as they start using cloud – thus, the business pays for the cloud costs, on top of the legacy system costs. A second challenge, Gavgani said, is that running both legacy and cloud systems creates fragility.
Bernard Gavgani, BNP Paribas Chief Information Officer
JP Morgan, on the other hand, wants agility and standardisation, as told by David Hudson, global co-head of digital and platform services. To achieve these objectives, JP Morgan is using internal and multi-cloud solutions as well as commoditised infrastructure. Additionally, the bank intends to be a platform provider of financial services.
“It takes time to work out how you want to get there,” Hudson said. On the cybersecurity front, “We think cloud vendors have a better solution,” even though the bank spends a billion dollars a year on cybersecurity. “They have untold resources. These providers will provide better security.”
David Hudson, JP Morgan Global Co-head of Digital and Platform Services
The problem for banks is in recreating something that feels like a mainframe and allows processing during spikes in volume, even if it means the financial institution (FI) will not get to cloud-native costs, noted Ping An Global Voyager Fund chief executive officer Jonathan Larsen.
“It won’t be ideal. It’s about the ability to access low-cost processing, to scale up and down on demand,” said Larsen.
Using a mainframe and taking three weeks to three months to scale up is “archaic”. What banks need to decide, Larsen said, is whether they want to be wedded to one vendor, such as Amazon or Microsoft. Larsen also noted that whereas security and data encryption don’t exist in the legacy world because banks just secure their perimeter, data in the cloud is encrypted and actually more secure.
A bigger issue, Larsen noted, is that FIs all have the same suite of technology solutions from four to five vendors, with some level of customisation and with layered infrastructure. Those licensed solutions will go away over time, he said, and they will be replaced by cloud-based platforms in verticals.
“Vendors have shown no initiative to move to cloud. They’re financially driven, owned by private equity. They don’t want to kill their golden goose,” he added. Ping An, on the other hand, has exited from all legacy platforms and has become an all-cloud company, with every module it builds able to be plugged in at any of its businesses.
Bank Mandiri in Indonesia is also working on digital transformation and investing in cloud, shared Rico Frans, director of IT and operations. However, “the challenge will be the regulator. We do not have a green light from the regulator to use cloud. We have a legacy system that cannot move into the cloud.” If the regulator does give permission, it will most likely be domestic because the government is trying to drive onshoring. Moreover, the regulator still requires a signature. Even though decisions on 77% of credit card applications are instant, the bank is still hindered by regulation. “You can approve in one second. You still have to wait for the signature,” remarked Frans.
Vision for the future
JP Morgan’s vision is to be the platform provider for FIs, revealed Hudson. “The question is, how do you get there? How do you permanently transform?” he further asked before adding that the key issue is how to increase the pace of change at the bank. “It’s about the culture and making decisions quickly, and accountability.”
To make its business better, JP Morgan started a digital division that competes with the existing business. “We disrupt ourselves,” revealed Hudson. However, that model is only sustainable for a little while and new solutions have to scale up. “The transition is about the willingness to make a vision, and (also) to make decisions not to proceed. You have to make ‘no’ decisions.”
For Ping An, Larsen shared that they are constantly rethinking about the way they serve, their service standards, how people are trained, and the role of technology. Ping An has large traditional businesses, with 55 million cards, 78 million lives insured, and 200 million customers.
The impetus, according to Larsen, comes from the people closest to the customer and from figuring out how to use technology in new ways. Imaging that was developed to analyse automobile damage, for example, is the same image recognition technology that can be used for medical imaging. Larsen also noted that ideas can’t be scaled within a traditional business. By way of example, he said that Lufax, the largest asset manager in the world, couldn’t have been built within its businesses. Ping An Good Doctor, with 300 million users, provides primary care through a mobile platform, artificial intelligence (AI) and remotely-located physical doctors. It would have had similar challenges. “We bring in funding partners early, we do multiple rounds of financing, to share the cost of business development,” he added.
Jonathan Larsen, Ping An Global Voyager Fund Chief Executive Officer
How traditional banks can compete against digital banks
The competition is “not as one-sided as you think,” Hudson said. Being on cloud has allowed large FIs to experiment more and move quickly. While a digital bank could make sense for simple transactions, he also noted that it would be difficult to create a digital bank for capital markets.
A viable path for Larsen is to build a digital bank in parallel, to migrate the legacy account base, and then to use a phased fadeout of the traditional infrastructure. The incumbents’ advantage is enormous, he said, as they have strong brands and customer trust. “We’ll have a bunch of banks that get it and a bunch of have-nots that get consolidated into the haves.”
Looking ahead, Gavgani said the biggest challenge for FIs will be data. Hudson added that it is essential for all companies to realise that most of what they do is not core, to let it go, and to allow someone else to do the non-core functions. “If they’re willing to let go and become more standardised, it lets them do their core best.” And as technology changes occur increasingly faster, FIs will need to make paradigm changes internally, noted Frans.
June 30, 2020
July 02, 2020
June 30, 2020
July 02, 2020
June 30, 2020
July 02, 2020