It is hardly a secret that most banks must continuously ingest a great deal of
No bank can do everything in-house. Even the nation's biggest banks leverage a range of fintech products from young and older technology companies, from customer-facing solutions to back-office activities. Some will adopt point solution strategies, others platform strategies. Most will have a bit of both. But no bank will be able to grow and prosper without a thoughtful strategy in this area.
This article begins what I intend to be a multipart series of op-eds that will explore in greater detail the topics discussed below, each of which is a critical part of a modern bank technology architecture.
For the vast majority of banks, the basics of good banking — strong balance sheet, customer- and risk-focused top talent — will remain crucial. But technology will, over time, increasingly be a defining differentiator between winners and losers. It will be a handmaiden to the traditional good banking factors, but it also will be a wellspring of new products and safety tools. In my experience, there are several key ingredients for becoming an innovative, high-efficiency, technology-forward bank.
To paraphrase James Carville, "It's the data, stupid." No bank I know has a seamless data environment where relevant data from all business units are uniformly readable and accessible throughout the entire organization. For many, this means leaving real opportunities on the table — getting the full picture of the bank's various customers becomes difficult. And it is often not possible to fully leverage many technology tools without more complete data integration. For most, it means that key data needed for risk management and improved compliance techniques is hard and slow to access. Ultimately, this lack of data integration often means customers are not serviced as fully in real time as they could be if the bank's data was fully integrated. Improving data integration — and ensuring with acquisitions and new product changes it doesn't get worse — is a must.
All banks need top-tier leaders in data and technology — in the C-suite, such as CIOs, CTOs and CISOs, but also in more junior roles — who are either capable managers themselves or are paired with capable managers. Some banks have this talent in place, though often not uniformly. Many others lack it entirely. The hunt for such talent can be daunting, but the cost of settling for second-tier talent can cost banks greatly — through project delays, poor product choices and failure to identify and/or effectively address true tail risk dangers. We all have seen instances where technology mistakes have cost banks hundreds of millions, if not billions, of dollars.
First Internet Bank and Nbkc bank are among those exploring ways to automate the traditionally manual task of verifying business customers.
Banks should heed the lessons in Fleetwood Mac's "Don't Stop" and keep a focused eye on the future.
First, don't stop thinking about the tail risks. There are tail risk vulnerabilities that must constantly be covered effectively in the technology area as in other areas. In technology, they have their own characteristics. In this regard, every bank should establish a committee that regularly meets with and reports to the CEO to review tail risk issues generally, with a particular emphasis on tech-related tail risks.
Tail risk problems can lurk in multiple areas, depending upon the technology. But three common risk areas to focus on include: large projects where vendors oversell, become overloaded and relegate the project to a secondary team with no independent, day-to-day oversight; cybersecurity weaknesses, where vulnerabilities in their own systems or those of their vendors are either not understood and/or monitored with sufficient care; on the cheap implementation of new upgrades, where a lack of careful checking and monitoring can prove a disaster. I investigated this once for senior management where close to a billion dollars had been lost because a relevant technological "fix" had been installed backward and, accordingly, it produced the exact wrong results.
Don't stop thinking about the regulators. While regulators may be slow to do a full examination into whether new products and services are creating unacceptable risks and violations, their scrutiny will eventually come. Banks can do themselves great good by having rigorous risk management and compliance standards consistent with regulation, that they themselves monitor. While a truly knowledgeable independent audit function is always essential, it is often not enough, and a strong second line or third-party, self-initiated review will and/or may catch issues too late. But, of course, identification of a problem is only the start. Fixing the problem is the next crucial step.
Third, don't stop thinking about the technology of tomorrow. The "vision thing," as former President George H.W. Bush characterized it, can be critical for the bank. Often, insufficient time is spent crafting the bank's technology vision. While some modifications and adjustments are inevitable, establishing goals for how the bank wants to operate and serve its customers through the use of modern technology is critical to the bank, its spend and, ultimately, its success. Here we often find that even good CTOs or CIOs with solid technical skills cannot fulfill the fundamental aspect of their job if they do not have a clear company technology architecture.
Of course, the comments above are just the visible tip of a much larger iceberg — one I expect to examine more closely in the articles to come.
