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How Asian FIs can survive digital disruption

Nurdianah Md Nur | June 7, 2016
"The FI that is able to ensure the continuous delivery of microservices will be the one that comes out ahead," says Sean Lee, Head of Business Development, Pivotal Asia Pacific and Japan.

FinTech solutions are usually developed to make a traditional bank transaction/offering easier or cheaper to use, which explains their popularity with consumers. What are some of the obstacles hindering FIs from being as agile as FinTech startups to adapt to fast-changing consumer behaviours?

The biggest challenges for FIs are legacy systems that are massively complex and ingrained into their day-to-day operations. These legacy systems do not have the capability to process today's large volume of data, extract intelligence from customer behaviours, and integrate this intelligence throughout every customer touchpoint. Unfortunately, banks are often torn between taking a leap to modernise their systems and the risk of business or data disruption. As a result, many FIs are holding back on their digital transformation or taking incremental steps towards digitisation.

Another challenge is managing compliance for regional FIs operating across multi-jurisdictions. The answer to both of these issues may be for FIs to engage in a form of collaborative disruption with the FinTechs to drive breakthrough innovation in the customer.

How should FIs balance innovation with regulation?

Ensuring a healthy balance between innovation and regulation will take foresight, determination and the right employee culture.  The adoption of agile software, and real-time enterprise platform-as-a- service (PaaS) that can re-architect compliance workflows will be critical to the survival of FIs.

One way to do so would be to deploy a data lake platform coupled with cutting edge data science techniques that will in turn help FIs to identify underlying risk and fraud while reducing the compliance department's overburdened, manual review process. The approach also advocates a flexible user interface to promote an adaptive, continuously learning compliance framework. FIs must also create an operating environment that drives productivity, agility and innovation while nurturing a culture of innovation for an agile workforce.

Together with a DevOps culture, microservices and PaaS will be the primary engine that drives innovation at speed. Microservices are fast becoming the cloud architecture of choice because they offer the ability to loosely couple applications into discrete services that can be surgically changed without requiring disruptive overhauls. This approach enables the responsiveness and rapid change needed by the business.

We've seen a lot of banks launching innovation labs and accelerators, or investing in FinTech startups last year. However, Forrester's senior analyst Oliwia Berdak said that business incubation is difficult and accelerators use up resources, thus making it difficult for FIs to justify and sustain such investments in the long run. What are your thoughts on this? Should banks continue with such efforts to battle against digital disruption?

Business incubation is indeed difficult and requires high levels of dedication and executive commitment.  However with the pressure coming from FinTech, startups and other banking peers going through the same digital disruption, it has become an arms-race on which institution can truly declare themselves a digital bank first. The FI that is able to ensure the continuous delivery of microservices will be the one that comes out ahead.

With that said, there are established processes and tools (such as a single centralised enterprise data warehouse and enterprise PaaS) that can minimise the burden of banks' investment in resources and time, while maximising the productivity and compatibility between newly launched innovation labs and traditional FI business model. Pivotal has been involved in several banking institutions globally and in Asia in this particular regard.

For example, Pivotal has recently been selected by Mitsubishi UFJ Financial Group (MUFG), the largest financial group in Japan, to participate in their FinTech accelerator program. Our partnership will include the usage of Pivotal's managed cloud service and project tracking tools, as well as the adoption of Pivotal Labs' unique agile software development methodologies to spark and promote innovation within FinTech.

 

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