The frustrations of not knowing the recipe to your favourite dish or, if you’re a more traditional bank, not knowing how your payment systems work.
Lockdown has been tough. Particularly because it exposed my lack of indoor hobbies other than watching Netflix and eating. My love of food gave me an idea - cooking! The Holy Grail for me has always been my mum’s spaghetti bolognese, so I set out to remake her classic.
But this simple task soon became a challenge. It seems you can’t make Mum’s spaghetti without the recipe. The recipe was written down years ago on a scrap of paper which now is the home of multiple sauce stains and unreadable. And it turns out Mum has made tweaks without recording the changes – how will I ever trust her again?
My spaghetti saga may seem irrelevant to banks and digital transformation. But it got me thinking about how often we set out trying to recreate something seemingly simple, only to realise there’s a surprisingly large number of ingredients and process timing. Which is very similar to how incumbent banks look to deliver operational and technological transformation in payments.
As with retail consumers, SME customers want to move money as quickly, safely, easily and cheaply as possible. To meet those expectations, banks must design their payments capability to be simple and flexible. And, as the pace of recent technology and regulatory change is unlikely to slow, building a modular and extendible payments architecture should be a top priority, too.
New digital propositions built within or to the side of established banks have the advantage of centuries of banking heritage baked into their DNA, and ready-made access to the major payment schemes. For incumbents, their existing payments infrastructure is my mum’s spaghetti and the bank is my mum – she can make that dish effortlessly, as the banks can with payments.
But consider a new digital payments proposition built to the side of the core infrastructure that allows banks to adopt digital technologies, move away from legacy and work in new, more effective ways. Now the bank has to try and recreate or leverage that valuable payment infrastructure in a new digital world. However, much like my mum’s stained recipe, very few in the bank understand how it works and the one developer who understands the code base has left or retired.
So how do I recreate my mum’s spaghetti and how do the banks rethink payments in a way that is repeatable, well understood and still tastes as good?
For me it was straight forward. I had a go at cooking this sacred dish every Wednesday and eventually it tasted pretty good. It was a little different* but now I can recreate that great symphony of flavours with certainty whenever the craving comes along.
For the banks it’s different. They could expose their existing payments infrastructure to service their new digital proposition. But they’ll still have the problem of not truly understanding how it works, meaning making changes in future will be lengthy and high-risk – even more so as the complexity of payments increase beyond domestic to cross-border and international.
So banks must be careful about how they execute. Leveraging legacy in a new way and having instant access to all schemes and underlying operations functions is brilliant but often comes with challenges around a short supply of change windows, tangled and complex systems, manual processes and over-stretched support teams. Before adopting internal or existing solutions, it’s vital to understand how these solutions and capabilities function, alongside a strong understanding of what could be achieved through new build and FinTechs. Leveraging the in-house payments capability may seem cost-effective upfront, but customer experience and operational efficiency could ultimately suffer in the long term.
Adopting a modular architecture approach and including third party technology to concoct your new recipe for payments can get you to market quickly while you learn to remaster your special sauce. Over time you can swap out ingredients for your own in-house capabilities where and when you’re ready, while continuing to deliver propositions that meet your customers’ needs.
*Mum if you read this, my food is trash compared to yours but I couldn’t make my point unless I stated otherwise. See you at Christmas.