How Banks Can Achieve Modernization Through Partnerships

12/06/22 • 19 min

For most financial institutions, modernization and digital transformation are top priorities, yet many still struggle in these efforts. Many are unsure where to start and also wary of the potential risks with modernizing legacy systems. Therefore, a large number of banks and credit unions are still in the beginning or exploratory phase of digital transformation.

Yet these projects are more important than ever. Financial institutions face more competition than ever. This is not only from other financial institutions. But they face competition from fintechs and digital-only neobanks, too. This also includes consumer expectations derived from nonfinancial firms such as Amazon and Uber.

Digital transformation and modernization may seem a monumental task, but by using open architecture and taking advantage of partnerships, financial institutions can make great strides. To learn more, PaymentsJournal sat with Lance Homer, Global Head of Digital Payments and Banking Ecosystems for digital infrastructure company Equinix, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service for Mercator Advisory Group.

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What Makes a Better Bank?

Ultimately, modernization projects are embarked upon to create a better bank. There are several aspects of what constitutes a “better bank,” noted Homer.

“It’s about being greener, connected, smarter, modular, distributed, and automated,” he said. “These are the things driving digital transformation across the landscape.”

All of the above are byproducts of moving out of legacy data centers and into the cloud. That includes using open application programming interfaces (APIs), breaking up the legacy tech stack, and moving toward a platform model. As one example, Homer noted that moving to the cloud and operating fewer data centers mean banks can reduce their carbon footprint and reach ESG goals quicker.

Furthermore, by adopting a platform model using open APIs to connect with best-of-breed partners, banks can offer more innovative products and services to their customers and bring them to market quickly.

“It’s difficult for banks to differentiate on the thing they used to, like interest rates,” said Homer. “It’s about operating smarter and creating a better end-user experience.”

Grotta added that modernization is a “hot topic” in banking at the moment and that “I get at least two calls per week from financial institutions thinking about embarking on some level of modernization.”

Digital Adoption

She observed that in the past few years — especially spurred on by the pace of digital adoption during the COVID-19 pandemic — many bank and credit union executives are more sensitive to how their institution is lagging when it comes to digital capabilities.

“A lot of them are not happy in the way their institution has reacted when new digital products are launched into the marketplace, and they have a tough time delivering the digital customer experience they want to be known for,” Grotta said. “They need to keep up not only with the competitor down the street, but deliver on experiences that consumers and business are finding in other places as well.”

Homer said it is hard for many institutions to know where to start when it comes to modernization projects, but the ideal place to begin is replacing the “plumbing.”

“For banks, this means positioning to move to the cloud,” he said. “Figure out which applications can move to the cloud and which can’t. Determine where your cloud on-ramps sit and where your partners connect. Then it’s easy to move workloads one at a time.”

Financial institutions should also work to separate their technology stack into its component parts; this can be difficult due to having to work through years of “spaghetti code,” but being modular will enable institutions to be more agile, Homer said.

Banking-as-a-Service

These modernization efforts ultimately help institutions work toward a “banking-as-a-service” (BaaS) model and embrace embedded finance, Homer added.

“We are seeing this as-a-service model being adopted everywhere, across industries,” he said. BaaS “is about rethinking the digital supply chain and rethinking how a bank builds its infrastructure.”

Source: Lipis Advisors

BaaS enables a quicker time to market and the ability to ident...

PaymentsJournalHow Banks Can Achieve Modernization Through PartnershipsPaymentsJournal How Banks Can Achieve Modernization Through PartnershipsPaymentsJournal

What Makes a Better Bank?

Ultimately, modernization projects are embarked upon to create a better bank. There are several aspects of what constitutes a “better bank,” noted Homer.

“It’s about being greener, connected, smarter, modular, distributed, and automated,” he said. “These are the things driving digital transformation across the landscape.”

“It’s difficult for banks to differentiate on the thing they used to, like interest rates,” said Homer. “It’s about operating smarter and creating a better end-user experience.”

Digital Adoption

Homer said it is hard for many institutions to know where to start when it comes to modernization projects, but the ideal place to begin is replacing the “plumbing.”

Banking-as-a-Service

These modernization efforts ultimately help institutions work toward a “banking-as-a-service” (BaaS) model and embrace embedded finance, Homer added.

Source: Lipis Advisors

BaaS enables a quicker time to market and the ability to ident...

Previous Episode

Cloud Data Accessibility Informs Value-Oriented Business Activities

Data is the driving force behind key strategic decisions for any business. But, businesses have a tough time turning the wealth of data and insights into something actionable and tangible. How can cloud data help?

Through their partnership, Mastercard and Amazon Web Services (AWS) are equipping organizations with the most up-to-date location and spending insights. This enables those organizations to make informed and strategic business decisions.

“Mastercard has a wide reach across geographies that can provide powerful insights for businesses across industries and regions,” said Paul Chang, Principal of Payments at Amazon Web Services (AWS). “Through the Mastercard and AWS Data Exchange partnership, we can collaboratively provide meaningful insights and solutions to businesses across markets and industries to help them tackle their own unique challenges.”

“When we think about our Data & Services business at Mastercard, we focus on helping our customers make smarter decisions that result in better outcomes for everyone,” added Stuart Finkelstein, Executive Vice President at Mastercard Data & Services. “Our collaboration allows us to improve our reach with the simplicity of access and helps us drive scale by getting these powerful tools into the hands of more customers.”

Both companies delved into their partnership and why it’s so important in a recent PaymentsJournal podcast. Finkelstein, Chang, and Marco Salazar, Director of Technology and Infrastructure at Mercator Advisory Group, spoke about two offerings. These are Mastercard SpendingPulse and Mastercard Places. They discussed how these are critical solutions for organizations looking to stay ahead of competitors.

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The Benefits of AWS Data Exchange

Through AWS Data Exchange, customers can locate, subscribe, and use third-party data to supplement their own internal data. This enhances their decision-making.

According to Chang, data subscribers expressed the need to locate and use data within the cloud. “They wanted it to be as easy as it is to shop online today so that their team can focus on producing differentiated products and spend time on value-added activities rather than discovering data, maintaining infrastructure, or managing revisions,” he said.

“As a subscriber, you can reduce time to find and source data from months to hours with minimal changes to existing operations,” Chang added. “AWS Data Exchange makes managing data subscriptions easier by consolidating contracts, billing, and payments in one place.”

Meanwhile, data providers are also seeing the benefits, particularly in reaching a broader set of customers. “A data provider can publish data simultaneously to all its customers and spend more time growing their business rather than managing the logistics,” said Chang.

Harnessing the Power of Data-Driven Insights

Both Mastercard and AWS saw the challenges organizations face in regard to data. Many weren’t sure what to do with the trove of information they have or if it’s accurate.

“Mastercard SpendingPulse is a macroeconomic indicator of retail sales, which measures in-store and online retail sales and includes all forms of payment,” said Finkelstein. “It utilizes anonymized aggregated sales activity taken directly from the Mastercard Payments Network and is combined with survey-based estimates for other types of payments such as cash and check in order to answer key business questions for our customers.”

“For instance, customers may use this to gain a competitive perspective that allows them to understand their market share and their competitive positioning,” Finkelstein continued. “It gives them timely information that allows them to adapt and react quickly to changing sales trends. This understanding of trends opens up data-driven opportunities as they examine consumer purchasing habits and perform forecasts that help them identify and capitalize on untapped potential.”

Mastercard Places offers a comprehensive view of all merchant locations that accept Mastercard as payment both online and in-store. “Places is captured from aggregated anonymized transaction data that matches to third-party location data listings,” said Finkelstein. “Using Places, our customers can understand changes to merchants over time and what payment activities each location supports — and how the merchant landscape continues to evolve.”

A Focus on Ethical Practices

With Mastercard’s immense re...

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Expediting the Hardware Procurement Process at Financial Institutions

Within the banking industry, it’s important to secure hardware as soon as you need it. This will ensure your operations continue to run at peak performance and to meet compliance requirements. Unfortunately, the procurement process has become slow and cumbersome for many financial institutions. This is due to supply chain snags, disparate systems and lack of resources to manage this necessary function.

Automating the procurement process can help banks save time and resources. Ordering all hardware through a single vendor can further simplify the acquiring process.

In a recent podcast, PaymentsJournal sat with Alex Kennedy, Director of Hardware Advantage at Fiserv, to better understand the importance of automating the procurement process.

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Procuring Hardware for Retail Branches

Financial institutions require a lot of business hardware and supplies — PCs, check scanners, printers and ink cartridges — to ensure their business is functioning. Increased maintenance costs, decreased security, non-compliance and compatibility issues are just a few reasons to regularly update or upgrade hardware.

“Today the rising demand for hardware is due to changes in regulations, cybersecurity, as well as mergers and acquisitions,” said Kennedy. “In addition, the impact of the pandemic has given rise to supply chain delays from equipment manufacturers.”

Despite automation availability, many banks still procure their equipment through manual systems. According to a recent survey by Oxford Economics, 47% of banking executives reported that most, if not all, of their procurement processes are manual. Kennedy explained that this can be a problem for banks. Not all equipment is compatible. Working with different vendors can result in varied delivery schedules, especially when supply chains are already strained.

Benefits to Automating Hardware Procurement

Working with a single vendor such as Hardware Advantage from Fiserv streamlines and simplifies the procurement process dramatically. This will require fewer workers at the banks. Dealing with just one vendor also means that the equipment procurement process goes quickly. And new institutions can be up and running quickly as well.

“Banks can increase efficiency and agility and reduce expense and risk to their institution while improving transparency,” Kennedy said. “It can also free up employees involved in procurement for other tasks, allowing a bank to do more with less.”

Simplifying Hardware Procurement During Unsure Economic Times

During the pandemic, sourcing hardware became more difficult for businesses, and financial institutions were no exception. But, for companies that partnered with a single large vendor like Fiserv, simplifying hardware procurement lessened the challenges.

“During the pandemic, a large client of ours needed 700 laptops to accommodate its large workforce that was forced to go remote. Normally, an initiative like this takes months of planning, but we did it in under a week,” said Kennedy. “The alternative to using Hardware Advantage was buying out all the inventory of smaller regional resellers and trying to piece together a solution — which even if it was able to be done would have caused an administrative nightmare with multiple vendors shipping multiple products. In the end, we were able to work with the client and minimize the challenge of getting the equipment they needed in a timely fashion.”

Supply chains have improved somewhat, though they’re not back to pre-pandemic levels. One commodity that is still lagging in supply is computer chips. “The ongoing computer chip shortage is making equipment that is critical to day-to-day operations difficult to get in a timely manner,” said Kennedy. “Having a partner you can trust to help you maneuver through these delays and backlogs, and help you plan ahead to ensure your deadlines are met, can help alleviate potential impacts to your business.”

Conclusion

Supply chain disruptions, inflation and the pandemic have increased pressures to reduce costs and to overcome obstacles in procuring hardware. Letting a single vendor take care of all of this is a good solution. It frees up bank staff for other purposes and also removes a lot of distress for senior management. Financial institutions should consider going that route for peace of mind and cost savings as well....