If a bank’s core systems are based on legacy architecture, what happens as the fintech marketplace matures? Story by Chris Skinner.

I’ve blogged on some of the themes I’m going to cover below, but the story gets clearer and clearer in my head the more I blog about and talk about it, so this version may be a little clearer than some that have gone before.

The first is that banks’ organisational structures have to move from being locked in, proprietary and tightly coupled, to open, partnering and loosely coupled. It’s all about plug and play, open sourcing technologies based on apps, APIs and analytics. A bank has a strong position in this space, as they own the marketplace today, and should be building the platforms to allow their customers great experiences by connecting with the best-in-class APIs out there.

From an open API viewpoint, there are thousands of startups focused on doing one thing really well, from making a merchant payment (Stripe) to borrowing money (SoFi, Prosper, Zopa), to investing (eToro, Zulu Trader, robo-advisers). The thing is that, as a customer, I have no idea out of these thousands of firms doing one thing well, which to choose from and who to trust (if any of them). So a bank should be partnering with the firms they think do these things best, and bringing them to me through curation.

After all, if thousands of new, shiny fintech firms are doing one thing well, how can a bank compete when they’re full of legacy and heritage that means they do a thousand things average? Reboot through co-creation and partnering, and gradually reshape the bank for the 21st century by replacing the bits that don’t work with a partners’ capabilities that do.

Technology experience

OK, OK, so you’ve all heard all that bluff before, but it’s my last few concluding slides that are meant to really hit this point home. Y’see, most banks’ leadership teams are fatally flawed, as they’re run by a bunch of old guys who understand banking, but have never had any technology experience in their life. 94% of C-levels in the banks are bankers; only 6% have any technology experience.

As a result, they’ve dodged the legacy replacement question for decades; they think fast following is OK; they believe they’re immune to technological changes; and they believe that digital is rolling out a mobile app. They just don’t get it. For the very few that do get it, they don’t know what to do. This means that the bank is currently stuck in the tightly coupled proprietary avenue, but if the leadership team does get this, they want to move to the open street future.

What’s the first thing they need to grapple with in developing their digital transformation? Culture and leadership. They need leaders who can articulate and communicate what’s going on to staff in a non-threatening way. Unfortunately, I heard one bank CEO recently talking about thousands of staff being replaced by robots. That’s not the most sensitive way of articulating the message. I would rather put it more delicately, as Piyush Gupta puts it, and show the people that they have a great opportunity to be part of a change to make the bank digital, and in the process they are allowed to experiment. They are allowed to try things and, even more importantly, they are allowed to fail.

After all, there are two massive mountains to cross to get to digital: the first is to get the people onboard, while the second is to replace the legacy. Core systems replacement, if the systems are based on legacy vendors or legacy architecture, is essential.

Then, if you’re still working for a bank run by a bunch of old guys, they may feel that a digital transformation of the bank’s culture and replacement of core systems is just too big an ask. It’s not needed. We can still keep putting lipstick on a pig, and the customer won’t notice.


The customer is bound to notice because there are all these really cool, new firms doing things differently. And guess what? If those new, cool firms who do one thing really well all start to group together to do hundreds of things well together, how would a bank compete?

If the bank that does a thousand things average, cemented to its past, isn’t agile enough to update daily and refresh their core regularly, they will be outsmarted by those who can. Those who can will then recognise that the banks are doing a thousand things average, and will naturally come together to do a thousand things brilliantly.

Just watch as the fintech marketplace matures and the partnering and co-creation ecosystem emerges, how many banks are part of the end game. It won’t be many, but the ones positioning themselves into this space today are going to decimate the ones who resist it.

READ NEXT: It’s legacy banking systems that are the risk, not fintech

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image by Graphics Master, Shutterstock.com

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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