Advance Risk Management by Simplifying Banking’s Cluttered Tech Stack

While the banking and finance industry deals with some of today’s most cutting-edge technology, many institutions are still operating on legacy systems. Most banks and credit unions rely heavily on legacy systems for their core functionality — and as those systems grow older, it is becoming more difficult to integrate them with newer applications. That poses a problem in today’s world, where the ability to provide consistent and transparent reporting across the enterprise is increasingly critical.

Modern financial institutions must be able to quickly access and share consistent and transparent data to drive the operations efficiencies necessary for success in today’s market. If a cluttered and inefficient tech stack prevents both internal and external stakeholders from getting the information they need in a timely manner, remaining competitive will be a serious challenge. Institutions that want to thrive in this new economic reality need to declutter their disparate tech stack and simplify with modern solutions—or risk being left behind.

The Core of the Problem and Why It Matters

Legacy banking cores are, in some cases, decades old—and it comes as little surprise that they sometimes struggle to integrate with more modern systems. This forces financial institutions to rely heavily on middle-layer technology that serves as a sort of “adapter” between newer and older systems. The more adapters banks need to make their services function, the more cluttered the tech stack becomes. Instead of systems speaking directly to one another, there is a tangle of opaque and complex intermediary systems. This often means systems have a hard time communicating with one another, which makes moving data from one platform or application to another a slow and difficult process, which is ripe for errors.

One way this manifests is that most legacy banking cores are “batch-driven,” which means data is moved from one place to another in large, periodic batches. A few short decades ago, that wasn’t a problem—but today’s businesses can no longer afford to wait for the next scheduled upload. This is especially true in the financial industry, where businesses need real-time, up-to-the-minute information if they’re going to make informed decisions. Amid today’s increasingly fast-paced financial services landscape, these organizations need reliable data that they can be easily shared across multiple platforms with minimal friction. But with a cluttered tech stack comes increased friction, further slowing an already cumbersome process. How can banks begin the arduous process of modernizing such a complex technology ecosystem?

It All Starts with Data Standardization

There are a few concrete steps banks can take to start the decluttering process, but the first thing financial institutions need to do is understand their ultimate business goals. Technology is, first and foremost, an enabler. Before adding a new solution or integration, banks need to understand the impact it will have on their strategies, processes, and goals. One of the most common sources of clutter is an overreliance on point solutions designed to solve specific problems. By prioritizing solutions (or suites of solutions) that impact the overall business rather than individual challenges, financial institutions can avoid creating unnecessary complexity that may cause new problems down the line. Simply approaching technology from a more holistic perspective can help banks avoid making the problem worse.

Data standardization is also key. Even institutions reliant on legacy systems can look to aggregate relevant data into one consistent format, creating one version that everyone is accountable to. That means anyone pulling up capital ratios, concentration reports, or other metrics will all see the same data presented in the same manner — and when business leaders begin establishing thresholds and planning for the future, everyone will be speaking the same language, regardless of their department or business area. It may sound simple, but this is part of the reason having a cluttered tech stack presents such a problem. When systems and applications struggle to talk to one another or output their data in a timely, consistent manner, this task becomes much more difficult.

The end goal for any bank is to provide better data than competitors. It’s a significant advantage for a bank when customers can quickly and easily pull up the information they need, and that information is structured and displayed the same way it is in (for example) Oracle. Fortunately, this can be an iterative process — it doesn’t need to be done all at once. Vendors can help financial institutions understand how to begin moving in the right direction with minimal disruption. They can also help banks understand how to put stopgaps in place to avoid issues during the migration — basically, to ensure they can continue to use the product even as they adopt a new one. That’s an important factor, because as much as customers want banks to modernize, they also don’t want to lose access to their data — even temporarily. 

Streamlined Integration and Real-Time Data Are Critical

It's also critical for banks to move away from batch-driven systems. Evaluating the institution’s security or compliance posture on a yearly or even quarterly basis is no longer enough in today’s risk environment—banks need to be able to engage in risk assessment on an ongoing basis. Too many institutions are still tracking critical information in spreadsheets and uploading them manually, forcing them to work with information that is days, weeks, or even months out of date, and leaving themselves open to the inevitable human error. Once the relevant data has been standardized, the process of entering it into risk metrics needs to be continuous and automated, ensuring leaders have the most current and accurate information possible to make risk-informed decisions. This is equally true on the customer side: financial data is a major factor in every business decision, and customers need to be able to trust the information they see.

Finally — and perhaps most importantly — banks need to prioritize open architecture. Coordinating data across a wide range of tools, platforms, and applications isn’t easy, and open API architecture is essential to making it work. For example, to operate securely, banks need the ability to authenticate an identity, verify that it is what it claims to be, and determine whether it is behaving normally. That sounds simple, but it requires a lot of information shared between a variety of different solutions — and open architecture is what ensures those solutions can be seamlessly integrated with one another in a way proprietary solutions cannot. If a bank can’t get to its data assets in real time, they’re going to have a hard time enabling and securing their services in a way customers will want to engage with.

Modernization Is No Longer Optional

Financial institutions are in a unique position. They’re heavily reliant on legacy technology in an industry that is currently under substantial pressure to modernize. Choosing the right solutions can be a challenge on its own — especially since relying on too many point solutions can create a whole new set of problems. Fortunately, they don’t need to go it alone. There are vendors today that can walk banks through the modernization process and help them evolve in a modular manner that minimizes disruption. As the financial industry rapidly modernizes, banks can no longer afford to operate with a cluttered and opaque tech stack — remaining competitive in today’s world means adopting agile solutions and providing customers with real-time access to the data they expect from their financial partners.

Author:

Matt Kunkel, CEO, LogicGate