Banks have historically spent a large amount of their IT budgets on maintenance and stability rather than innovation. Viewing Fintechs as disruptors and competitors, traditional banks are closed entities that have been guarding their proprietary assets, and defending their businesses and customer bases from these new organizations.
The good news is that this is slowly changing, with many banks realizing their models will soon become irrelevant if they don’t keep an open mind around new technologies and begin to collaborate with third parties. For Hong Kong, what are the technical and cultural roadblocks to moving into a new era of smart banking? Can HKMA’s Open API framework and Faster Payment System potentially change the game?
In my view, the two biggest barriers to transforming the financial ecosystem of Hong Kong are legacy systems and legacy thinking.
Banks are recognizing that a new IT model is needed and are increasingly moving their operations to the cloud and adopting a platform approach. Finastra’s Open Banking Readiness Index showed that 45 percent of the top banks across Asia Pacific have moved their digital channel workloads to the cloud. This, coupled with third-party collaboration via open APIs, allows banks to develop innovative products and services that meet customers’ demands.
While banks can leverage safe and market-proven third-party cloud platforms for open innovation, legacy thinking still needs to be addressed. Open APIs enable business units to think differently about how they deliver services, but banks need to realize that it is not purely an IT problem and the majority of innovation is happening outside of the bank. Collaboration with Fintechs in the wider financial ecosystem may be the way forward instead.
In the past, there was a tendency for banks to avoid changes as they carried high risks and costs. Their resources were mainly spent on maintaining their legacy systems that were becoming obsolete. However, with the introduction of virtual banks in Hong Kong, banks have to stay relevant in an age of accelerating technology and rapid innovation. Falling behind on technology and innovation may compromise them altogether.
Emerging best practices
So how can banks stop playing catch up? Is there a better and faster way to digital transformation? Can businesses work smarter, not harder, and find new ways to crack this puzzle?
Emerging best practices include the adoption of agile methods as well as embedding digital skills within business units. These practices introduce smaller pieces of work that return value quickly to the business units. Other ways to accelerate innovation include hosting hackathons and setting up innovation labs such as Standard Chartered’s Hong Kong eXellerator and HSBC’s ASTRI Research and Development Innovation Laboratory. Banks can also consider developing collaborative sandboxes where employees operating on the customer front-line can share ideas with developers.
An agile approach plays an important role in enabling banks to demonstrate value through a continuous delivery model, where new products and services can be quickly developed and rolled out to customers. This opens the door for banks to experience fresh ideas.
In fact, there’s increasing recognition that good ideas can come from anywhere: across the business, from partners, suppliers and academia. Ensuring these ideas are captured is a key element of removing roadblocks, delivering change and remaining competitive.
Harnessing innovation is vital but must always be managed within a controlled and well-managed process. For example, quality assurance and security need to be included in apps from the beginning of the development process, rather than tacked on at the end.
As technology gets smarter, governance models are themselves becoming more simplified and automated. But for now at least, app development is some way from being code free.
The opportunities presented for banks in this new age of innovation and creativity are immense. Whether it is developing innovative solutions within the bank or with a Fintech start-up or university students, the only limit to turning ideas into reality is imagination and proactivity.
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