CONTENIDO

Welcome to the Backbase Blog..................................................................................................... 3

https://backbase.com/resources/blog/.........................................................................................3
The home of thought leadership for the financial services..................................................................3
Banks begin final leg of FRTB journey: Significant hurdles remain................................................3
The Path Forward....................................................................................................................................4
Pillar 1 of the Customer OS – Open banking (part 1 in a series of 4).............................................5
Open – the new way to bank...................................................................................................................6
Open APIs – the engine...........................................................................................................................6
Big data – the energy...............................................................................................................................7
The risks...................................................................................................................................................7
Striking the right balance.........................................................................................................................8
Pillar 2 of the Customer OS / Modular Banking (part 2 in a series of 4)........................................8
Customer segments of one......................................................................................................................8
Going big on data....................................................................................................................................9
Bring the agility A game...........................................................................................................................9
Keeping the show on the road.................................................................................................................9
A machine-powered effort....................................................................................................................10
People still count...................................................................................................................................10
Cognitive banking..................................................................................................................................10
The smart pillar of the Customer OS.....................................................................................................11
Pillar 3 of the Customer OS / Omni-channel banking..................................................................11
Doing everything once...........................................................................................................................11
Customer first........................................................................................................................................12
Mobile...............................................................................................................................................12
Seamless customer journeys.............................................................................................................12
Don’t improve customer’s lives – change them.................................................................................13
Pillar 4 of the Customer OS – Modular Banking...........................................................................13
It’s all possible.......................................................................................................................................13
Think Lego not legacy............................................................................................................................13
Agile processes......................................................................................................................................14

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 Agile production and distribution..........................................................................................................14
From fixed costs to variable costs..........................................................................................................14
COBOL and the big tin bank.........................................................................................................15
Why smart technologies are key to banking strategies...............................................................16

2
Welcome to the Backbase Blog
The home of thought leadership for the financial services

https://backbase.com/resources/blog/

Banks begin final leg of FRTB journey: Significant hurdles remain

May 24, 2018

The countdown is on, and financial institutions are getting serious about preparing for new
Fundamental Review of the Trading (FRTB) requirements – slated to take effect in January 2022.
The new standards are expected to dramatically change the way that firms calculate, plan for,
and manage market risk.

The stakes are high, the rules are complex, and banks will have to rework their models and
processes to accurately capture risk. Careful planning and adequate lead time will play vital
roles in FRTB compliance success and in banks’ ability to avoid excessive punitive capital
charges.

There are strong indications that it hasn’t been smooth sailing for many financial services
organizations on this important journey. According to Chartis Research, more than 50% of
financial institutions surveyed in the firm’s 2016 FRTB study said they are not certain their bank
will meet the 2019 deadline (Note, the survey was conducted prior to the revised effective date
of January 2022).

FRTB readiness seems to consistently be top-of-mind for IT decision-makers, but the bulk of
discussion tends to be around a handful of stubborn challenges pertaining to data collection
and analysis, progress in defining methodology and general lingering uncertainty. Keeping these
considerations in mind, there are four key takeaways decision makers must be privy to as they
continue to revise FRTB adherence approach.

 Collecting and managing data – as well as general apprehension about data as it

relates to FRTB – is a major concern. Data availability and data quality are critical issues
for organizations whether they are opting to use the standardized approach (SA) or an
internal model approach (IMA) to calculate their capital under FRTB. When it comes to
collecting data, most say this process is significantly lacking in sophistication.
Furthermore, analyzing and managing data once collected is a challenge for financial
institutions due to a lack of bandwidth to make sense of all the available information at
their disposal.

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  Siloed (or non-existent) systems remain a culprit. The greatest challenge for their
financial institution’s ability to leverage FRTB data in strategic business decisions is the
fact that their data is in disparate systems. Firms even have a difficult time composing
and gathering this data in the first place. Collecting the high volume of data required
across multiple trading desks to comply with FRTB appears to be a monumental task for
firms to undertake. They must collect this data on a daily basis and keep it for specified
periods of time, which is no easy task.
 Process automation and data management (including governance) are the greatest
drivers for success when undertaking FRTB projects. The new rules present big data
management challenges as many banks regard sourcing required market data as a top
challenge. To succeed, banks must better organize/centralize their data and ensure its
accuracy. Banks must also ensure data is consistently treated—this includes ensuring
consistent calculations and sensitivity data between the front office and risk
management teams. Automating areas like back testing and risk reporting can reduce
time, the chance of errors and the overall costs for compliance.
 Firms are making progress with methodology. Especially in the areas of expected
shortfall models, stress period identification for risk factors, default risk charge and
counterparty credit risk. This represents a change from a year ago when bankers were
focused squarely on creating methodologies and models and reconciling front- and
back-office models. Organizations, however, still have some work to do, particularly in
profit and loss (P&L) attribution model development and N-MRF (non-modellable risk
factors) capital calculation methodology.

The Path Forward

FRTB’s extended data demands require unprecedented alignment between front-office, risk
and finance functions, especially for internal model approval. The industry has increasingly
understood the growing need for this alignment in the years since the financial crisis, but
progress in individual institutions has varied widely. Firms can no longer drag their feet as risk
and finance alignment is essential to FRTB compliance.

With these findings in mind and the need for greater alignment between front-office, risk, and
finance, banks should factor several considerations and best practices into their decisions about
FRTB process automation and data management.

FRTB is an extremely complex regulation with fundamental changes to the capital adequacy
process. While P&L attribution and N-MRF continue to be challenges, banks are starting to look
at implementation and automation of the entire process. Firms must prepare today to create a
foundational system for the future that gives them the visibility and flexibility required to
comply with the FRTB standards. By seeking an architecture that encompasses a unified data
foundation, expanded data modeling and governance capabilities, next-generation model
validation and governance, advanced predictive analytics, and extensive automated reporting
capabilities, financial institutions will be well positioned for the new world ahead.

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https://backbase.com/8517/banks-begin-final-leg-frtb-journey-significant-hurdles-remain/

Pillars of the Customer OS

Banks need the right supports in place and these supports are the four pillars of the Customer
OS – Open Banking, Modular Banking, Omni-channel Banking and Smart Banking.

Pillar 1 of the Customer OS – Open banking (part 1 in a series of 4)

What do digital winners like Google have that financial institutions don’t? The answer is a firm
grasp of the Customer OS – they get it, in fact they proactively drive it. These companies have
found a way to cover all the bases and stay relevant for every facet of their offering. Their
customers really have no need to look elsewhere. If someone jumps into a UBER cab, they need
not worry about booking, having cash, or knowing directions, they simply use the app and it’s
all taken care of.

Such comprehensive offerings are what financial institutions must aspire to, but they need the
right framework in place to support them. That framework is the Customer OS. Banks today
require a deep understanding and strong commitment to this OS. It is the key to relevance, the
holy grail of customer targeting, onboarding and retention.

If the Customer OS is so important, how do banks go about creating it? How can they use it to
future-proof themselves in a changing industry? They need the right supports in place and
these supports are the four pillars of the Customer OS – Open Banking, Modular Banking, Omni-
channel Banking and Smart Banking. This first post in a series of four takes a closer look at Open
Banking.

//

¿Qué tienen los ganadores digitales como Google que las instituciones financieras no tienen? La
respuesta es una comprensión firme del sistema operativo del cliente: lo obtienen, de hecho, lo
manejan proactivamente. Estas compañías han encontrado una forma de cubrir todas las bases
y mantenerse relevantes para cada faceta de su oferta. Sus clientes realmente no tienen
necesidad de buscar en otro lado. Si alguien entra en un taxi UBER, no tiene que preocuparse
por reservar, tener dinero en efectivo o saber direcciones, simplemente usan la aplicación y
todo está solucionado.
Estas ofertas integrales son a lo que deben aspirar las instituciones financieras, pero necesitan
el marco adecuado para apoyarlas. Ese marco es el sistema operativo del cliente. Los bancos de
hoy requieren una comprensión profunda y un fuerte compromiso con este sistema operativo.
Es la clave de la relevancia, el santo grial de la orientación al cliente, la incorporación y la
retención.
Si el sistema operativo del cliente es tan importante, ¿cómo hacen los bancos para crearlo?
¿Cómo pueden usarlo para prepararse para el futuro en una industria cambiante? Necesitan los

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soportes adecuados y estos soportes son los cuatro pilares del sistema operativo del cliente:
banca abierta, banca modular, banca omnicanal y banca inteligente. Esta primera publicación
de una serie de cuatro analiza de cerca la Banca abierta.

//

Open – the new way to bank

Banks in Europe were predominantly drawn into open banking though PSD2 regulation. This
‘major threat’ to the industry, actually turned out to be a good thing – and it won’t be
contained within the borders of the EU. Growing customer demands for choice and flexibility
worldwide have made open banking the required modus operandi everywhere.

Handled the right way, open banking creates opportunities to retain and grow the customer
base. Banks can connect the dots and make customer journeys make sense. They can tap into
the open banking marketplace and connect third party services to enhance their own offerings.
By truly immersing themselves in open banking, banks can bring customers unprecedented
convenience and choice, and a whole lot of new reasons to stay loyal.

//

Los bancos en Europa fueron atraídos predominantemente a la banca abierta a través de la

regulación PSD2. Esta 'gran amenaza' para la industria, de hecho, resultó ser algo bueno, y no
estará contenida dentro de las fronteras de la UE. Las crecientes demandas de los clientes de
opciones y flexibilidad en todo el mundo han hecho que la banca abierta sea el modus operandi
requerido en todas partes.

Manejada de la manera correcta, la banca abierta crea oportunidades para retener y hacer
crecer la base de clientes. Los bancos pueden conectar los puntos y hacer que los viajes de los
clientes tengan sentido. Pueden acceder al mercado bancario abierto y conectar servicios de
terceros para mejorar sus propias ofertas. Al sumergirse verdaderamente en la banca abierta,
los bancos pueden ofrecer a los clientes una comodidad y opciones sin precedentes, y una gran
cantidad de nuevas razones para mantenerse fieles.

//

Open APIs – the engine

Open APIs are protocols that allow different parties to connect to each other and exchange
data. They facilitate open banking, powering organizations to connect and share data. Banks

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have historically used open APIs to connect internal functions within the organization. Today,
that’s not enough, they need to connect to external third parties – even competitors.

To begin, banks can use open APIs to join up their internal systems and ensure a smooth
customer journey across all touch points. Then next step is to connect to other organizations in
the open banking marketplace – that’s when the magic really happens. The marketplace is filled
with additional value and opportunity, built by other organizations. Banks can connect to this,
add value to their own offering, and delight customers in the process.

Aside from happier customers, open APIs endow banks with new innovative powers. The
selection of raw materials becomes almost infinite in the open marketplace, which means
product and service design has so much more potential. To extract this value and drive
innovation, banks must open up those APIs. They know this and slowly but surely, have started
to do so. Now it remains to be seen who can pick up the pace quickest.

Big data – the energy

With open APIs connecting everything, there is a lot of data flowing around, data which can be
organized and exploited. Big data offers massive opportunities to customize and differentiate.
Every banking transaction is a nugget of valuable intel, and with years of data built up in
disparate silos, this is one industry that sits on vast stores of information. Add to this vast store
of outside information from CRM systems or social media and the result is a powerful
concoction of data potential.

By using data science to collect and analyses big data, banks can improve or reinvent nearly
every aspect of banking. Data mining has become a science that uses these insights to drive
targeted marketing. It also allows banks to personalize every aspect of the customer experience
and drive customer loyalty.

Many large data projects are aimed at improving service, while driving sales and customer
retention. By getting a true understanding of each and every customer, its possible to
communicate in a relevant way. This is the essence of big data and we are at the tip of the
iceberg with it’s potential.

The risks

The rise of the open network economy will continue as more and more organizations
collaborate and exchange data to bring the full range of capabilities to their customers. Those
that do so in a clever way will acquire value from other players, strategically opening up APIs to
add value, expand their offering, and drive traffic to their platform.

So open is good – but there is a downside. There are inherent risks in sharing data, which is
why it is critical to incorporate the right processes and governance. The very value of open
banking is in how it promotes data access, yet at the same time, infrastructure must control

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how data is accessed and shared. The two objectives of openness and security, while both
crucial, are seemingly at odds with each other.

Permissions and access rights must be properly designed to allow access while protecting data
where security is needed. This can be automated and any technology partner a bank works with
for their open banking solution should have a sophisticated permission component.

Banks need to ensure they get something out joining. The open marketplace must be joined in
a way that allows a bank to get value from the network. Joining must enable the bank to get
those value components. A proper strategy is also needed for how a bank will open up their
APIs to others. If they don’t think this through, they run the risk of a huge, harmful data
giveaway.

Striking the right balance

Being a player in open banking economy needs some thought, and a strong business model.
Decisions have to be made, like whether to charge for open APIs, how to encourage developers
to connect, and more. How can banks selectively open up whilst keeping the business secure?
How can they add value, rather than just giving away their data? The line between a beneficial
collaboration and a data giveaway is a fine one. Banks can make open banking work, but they
must be primed to work this pillar of the OS the right way.

https://backbase.com/8231/open-banking-customer-os-pillar/?
utm_source=marketo&utm_medium=email&utm_campaign=customer_os_blog_and_whitepaper&mkt_
tok=eyJpIjoiWXprNE9XRTFNekExWkRBMSIsInQiOiJFbGNTTWllTXlvYzB3VytJdzdCdDgxUlNFd3NPRXM1bllj
UEYzRTVpTHp4UllwVzhYSjgxeHl3a045VU1jUDVpTGdkSUNsWTEyYzRzQXp0M3hnMGdmcmhmTW1ZWm
ZjR0U3SFpxajNMTFFhNWV0anJGcEFQZDJ3YzZGMGd3NTk4RSJ9

Pillar 2 of the Customer OS / Modular Banking (part 2 in a series of 4)

It’s time for the financial services industry to get smart. High-flying concepts like big data,
artificial intelligence (AI), or cognitive banking have gotten very tangible. In fact these things are
all part of daily banking – at least they are for customers. Question is – do banks feel the same
way? If not, they are not really tuned into Smart Banking – if they are not tuned into Smart
Banking, they simply cannot get the Customer OS right.

Customers already acquire products and services via a few clicks on any device, without being
forced around different channels. Everything happens in an intuitive way, tailored to their
immediate needs. The average customer would say that banking should be no different. Enter
the importance of smart banking – a key pillar of the Customer OS.

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Customer segments of one

Hyper-individualization is today’s modus operandi when it comes to customer onboarding and

service delivery. Customers expect the VIP treatment, and why wouldn’t they? Companies the
world over are slicing and dicing data to match offerings precisely to their requirements. Smart,
relevant journeys are the norm most of the time. Yet banking remains an exception. This makes
no sense – if there is one aspect of their lives where people want a personalized approach, it’s
in the management of their finances.

Recently, as part of the winning showcase at Finovate Europe, Jouk Pleiter, CEO of Backbase
noted how Smart Banking brings each customer exceptional, personalized experiences. He
discussed three key aspects of Smart Banking.

 Smart actions – enabling customers to define smart actions that help them easily
automate manual tasks, transforming mobile banking into a personal concierge service,
tailored to their exact needs.
 Aggregation – combining capabilities from within and without the bank, like PSD2 APIs
or 3rd parties such as airlines, telco or e-commerce providers – all directly integrated in
the mobile banking application.
 Thinking outside the box – being imaginative enough to create 10 times better customer
experiences.

Going big on data

A new era of personalization means banks must get comfortable with their own data and that
of other parties. New analytical skills are required to handle data from users, CRM systems and
other networks. A valuable mine of intel is already available to drive smart banking, it just
needs to be brought together and utilized. In this way, customers can be targeted with relevant
offerings and retained for the long term. The right technology turns disconnected data sources
into actionable information and with the right technology partner behind them, banks can
finally bring it all together.

Bring the agility A game

Banks must get granular with their data to attract, serve and retain customers, but that has to
be backed up with agility. Aside from having the right systems in place to gather timely
information and get it to make sense, banks must be ready to act. There is no point having the
right information if real-time, cost-effective actions don’t follow. This is what Google and the
big techs are doing, they collate, analyze, and act – quickly and at zero marginal cost.

Having made a good impression, banks must consolidate that with smart processes.
Technologies like dynamic case management or dynamic forms come into play here, making
onboarding as easy as possible. Such capabilities let banks quickly enhance services, without
major organizational upheavals.

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Keeping the show on the road

All of this new dynamism should be introduced to a bank’s systems without shutting current
services off from customers. While innovative ideas and technologies are added to the mix,
everything else should be business as usual. This is where cloud technologies come in. They
support a flow of new functionality by making deployment easy. Long deployment processes
that used to limit the number of new releases are no more. Upgrades and improvements can be
rolled out frequently and in line with the needs of the customer.

A machine-powered effort

Machines have become a living, learning part of the customer journey. Previously programed to
act in a certain way according to hard coded rules, they now think for themselves and learn as
they go. They can handle the jobs that got too big for humans, one of them being data
crunching. It’s difficult for people to digest massive volumes of data, so this can be automated.
Machines faithfully handle compliance, customer engagement and operational efficiency, and
they get it right a lot of the time. Technologies like customer service chatbots, automated
reporting, and automated risk assessment are all testament to their diligence and effectiveness.

People still count

Despite the fact that AI and machine learning tackle complex tasks once reserved for humans,
the people factor remains crucial. The number of branches are in decline, and less encounters
are face to face, but quality still counts. AI plays a huge role in making customer experiences
great, by supporting smart processes, driving efficiencies, and creating a range of powerful
marketing tools to support a flexible, innovative Customer OS.

Cognitive banking

Customers are targeted everyday with highly relevant proposals based on their online search
behaviour. There is no reason why banks can’t do the same, in fact, they already have all the
data they need to do so. What’s missing is the proper use of that information. Banks that bring
AI, big data and open banking together properly can proactively boost digital sales.

This move to smarter digital sales gives rise to the concept of cognitive banking. While rules-
based engines have used real-time information to track behaviour, segment and target for
years, smart banking is more than that. It’s about reaching into the future and actively crafting
customer journeys. It means mining the data sources banks already have to support customer’s
decision-making processes.

When they know what’s missing from their offering, banks need to go out and find it. This
means filling in any gaps by tapping into the open banking ecosystem. One organization could
not be all things to everyone before, but that’s not really the case anymore. By getting smart
and adding incremental value from the open marketplace, banks can put all of the pieces
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together to create a smart platform, a platform with magnetism, something customers want to
be a part of.

“Disaggregation is here to stay and banks will increasingly operate as part of an ecosystem. This
creates opportunities to build banks on a platform model and it demands some decision-
making. If I can’t play the role of all the parties in the ecosystem – which one do I specialize in?
Answering this question sets the stage to build on social platforms, allowing a bank to
essentially disaggregate itself and by doing so, specialize for success.

Kwafo Ofori-Boateng of IBM, speaking at Backbase Connect 2017.

The smart pillar of the Customer OS

Smart banking is the science of combining the technological and human elements to delight
customers. It’s about collating and mining customer data already present in disparate systems,
it’s about observing, watching for patterns and applying learnings. All of this is backed up with
flexible smart systems and a connection to the open banking marketplace.

Smart banking increases a bank’s understanding, uses that understanding to predict and act in
the right way. It creates the right back end systems and delivers a superior service that attracts
customers and encourages them to stay. Smart banking will be one of the most relevant, highly
discussed topics in the years to come, and the revolution has already begun!

https://backbase.com/8345/smart-banking-pillar-2-of-the-customer-os-part-2-in-a-series-of-4/

Pillar 3 of the Customer OS / Omni-channel banking

We already know that financial institutions need to complete their omni-channel
implementations pretty quickly, and that a host of issues have been holding them back. Legacy
IT systems and rigid, outdated cores are major impediments, and with the competition racing
ahead, banks are literally running out of time.

The competition is not what it used to be either, banks are now facing into a decade where big
techs like Google and Amazon enter the financial services arena. As they do so, banks are ill-
equipped to fight their corner.

The traditional modus operandi is inherently inefficient, so much so that it stymies

competitiveness. Functionality is created over and over again to cater for each product, service
or channel, leading to a duplicated effort of such gargantuan proportions that major resources
are depleted. Worse still, focus is taken off adding value for customers – and this is a key
weakness.

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Expensive personnel and systems keep this heavy machine lumbering along, while banks lose
pace and fail to innovate fast enough. Facing tough competition from the big techs, who grew
up free from outdated core systems, the situation for banks gets more and more precarious.

Doing everything once

It’s time to move beyond improving channels, to seeing them as part of a holistic omni-channel
platform. Banks need to get to a place where everything is created once, then replicated and
reused. This delivers massive both time and cost savings and customer experiences that make
sense.

The reality today is that customers don’t really want channels anymore. A smart, integrated
platform is worth so much more than each separate channel, no matter how good it is. Each
one must contribute to the sum of its parts.

Customer first

It all begins with the customer, this is the mantra. As a key pillar of the Customer OS, omni-
channel requires a customer-first mentality. Having seen what the customer wants, banks must
evolve to match it. This is a far cry from what’s gone before, when banks created value and
simply launched it onto the (often unsuspecting) market.

The traditional setup of network, legacy apps and distribution channels is not customer centric,
and no longer relevant. The structure must change to place the customer at starting point.
From there, banks can work back, moulding the various parts of their organization to deliver.
New tools are needed, so it’s time to tap into the open banking marketplace, open APIs and big
data – all should combine to support superb customer experiences.

This is not about setting up a new programme or fixing up channels, it’s about changing the
very structure of the bank to bring everything together for the best impact.

Mobile

Mobile banking is huge and it is growing. It’s unique ability to facilitate real-time
communications is the ultimate in customer centrism. An immediate resolution to queries is
available via the smartphone, in fact, competitors already offer this. Mobile is complicated and
it threatens to drag any digital transformation off on a never-ending tangent. Nevertheless, it is
a vital part of the equation, so must be handled in the right way.

Seamless customer journeys

Once a customer has begun an application for a financial product, the process should be easy
for them and cost-effective for the bank. This is omni-channel at it’s best, but that needs a good
design behind it. The same rules apply as for designing organizational structures – customer is

12
the starting point and they go from there. Companies like Uber, having thought about each pain
point we experience in getting a taxi, have removed them all. That’s how they have grown so
fast. It is players like this banks are up against, so they need to think in the same way.

It’s not over when the customer journey is created either, the setup must meet the challenge of
the latest needs. Innovation and tweaking are constant, that’s how the offering remains
relevant. Banks must make things the best, analyse how they measure up and continue to
optimize.

Don’t improve customer’s lives – change them

Big techs like Google are leading the way with smart platforms that make sense for customer.
Banks must go beyond offering services via divergent channels to changing customer’s lives
with platforms that pretty much manage their financial lives. If this sounds like something that
is very far away, that probably means it’s time to move faster than ever.

https://backbase.com/8361/omni-channel-banking-pillar-3-of-the-customer-os/

Pillar 4 of the Customer OS – Modular Banking

A new raft of digital capabilities is driving ever more sophisticated sales and service
experiences. Modern front ends, intuitive customer journeys, surprising products and services –
all are there for the taking. Fast-moving fintechs and agile big techs are wasting no time in using
these capabilities to differentiate themselves, and as part of this, have turned traditional
banking on its head.

It’s all possible

It really is all possible, but such dynamic creativity requires a pretty malleable back end.
Supporting systems and architecture must be able to handle all of this dynamism. Legacy coding
and monolithic central banking systems are just not designed for all of this. In fact most banks
are busy pumping resources into maintaining the status quo. Rather than dreaming up new
digital offerings, they are grappling with reams of spaghetti code and pouring resources into
system maintenance. Keeping it all running is tricky enough, but constantly changing features or
functionality to keep pace with changing customer demands – that is often a bridge too far.

13
Think Lego not legacy

The problem here is that banks are missing out on one of the most crucial building blocks of a
strong, future-proof Customer OS – the ability to move fast. The inflexibility of the existing
architecture means they are sorely lacking the agility they need to compete. Simply throwing
out the old and bringing in the new is not an option, but the good news is that’s not necessary.
It’s still possible to win with digital, by bringing in a digital orchestration platform and thinking
Lego rather than legacy.

When a company like Google wants to introduce new features for its customers, huge
deployment efforts are not needed. They simply pick from a selection of Lego-style building
blocks to create and alter processes, products or channels as needed. They can do this because
they have a flexible, modular architecture in place. Incremental changes are easily made, by
small business teams, with minimal impact on the business. Component-based system design
allows the same modules to be shared across processes using standardized exchange principles.
Modules are created once, reused and infinitely combined, creating a fluid structure that can be
used to respond to the latest customer demands.

Banks have started to decouple the bank end from the front end, which is a step in the right
direction. In a digital competitive environment however, they need an architecture that makes
them agile enough to track customer needs, respond quickly, and change on a whim.

Agile processes

Customers don’t want to travel to a bank branch, or fill in a collection of forms, yet they are
often forced to. Employees should not have to enter and re-enter data, but they still do. There
is actually no need for any of this, it can all be automated. Dynamic case management uses
smart technologies to assist human operatives by speedily handling the intricacies of each
customer case. Dynamic forms can be used and reused to consistently deliver relevant,
common sense customer journeys, via any channel. Process digitization, working in tandem
with technologies like Blockchain gets everything done on-screen, in real time. This has an
incredible impact – mortgage applicants can, for example, get approval within days, rather than
weeks.

Agile production and distribution

The Googles and Facebooks of this world frequently introduce clever new features, quickly and
at almost zero marginal cost. It’s all low risk, so they roll out new offerings, then scale up or
down instantly. The impact this has had on their competitive advantage is already clear. It’s not
only about new features either, distribution channels can also be adapted, deleted or added as
the market demands.

14
From fixed costs to variable costs

Modular architecture and the agility it brings impacts on costs too, in a positive way. It’s
cheaper to work off a modular architecture. The fixed costs associated with traditional
production and distribution formats become replaced with the lower variable costs of
streamlined, digital-ready channels. Resources are then freed for continuous improvement and
added value. Banks can then focus on what matters to customers, save money, and boost
revenues.

Modular banking is essentially ground zero in a digital area. It is, without doubt, a crucial factor
in any efforts to create a future-proof Customer OS.

https://backbase.com/8388/pillar-4-of-the-customer-os-modular-banking/

COBOL and the big tin bank

In 2017, Reuters published the following findings from a piece of research conducted by Celent,
Accenture, IBM and others, into the technology supporting major US banking systems:

 43% of banking systems are built on COBOL

 80% of in-person transactions use COBOL
 95% of ATM swipes rely on COBOL
 220 billion lines of COBOL are in use today

For the less tech-savvy among us, COBOL is a computer programming language designed by an
astonishing woman, Rear Admiral “Amazing” Grace Hopper, in 1959. And no, that’s not a typo.
At a time when trillions of pounds are transacted every year, and with the UK economy
depending on six banks to keep the show on the road, regulated banks are relying on a
computer language that’s nearly 60 years old, designed for an age when computers as powerful
as your smartphone filled entire rooms.

Against this backdrop, it’s easy to see why new fintech’s get so excited:
“I’ve never seen a big bank do something cool – if they did, we wouldn’t exist.”
– Nikolay Storonsky, Founder of Revolut (Daily Telegraph, 10 April 2018).

Innovation among the big banks is slow at best, and it’s easy to see why – the technology that
promised to liberate banking in the 1960s has today cemented the industry in analogue
processes. But when asked the question “why do 80% of transactions and 95% of ATM swipes
still rely on COBOL?”, the answers from those in banking have ranged from “if it isn’t broke,

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don’t fix it” to “it’s too big, too risky, and too expensive to change”. Imagine you’re the CEO of a
major bank – would you bet on a migration project that could destroy your entire company if it
went wrong? Perhaps it’s easier to keep the underlying ‘dead ware’ on life support and pass the
problem on to your successor.

So, what happens when the expertise to support COBOL literally dies off? That’s a real scenario.
The rumors of one bank even making calls to a nursing home seem credible.

The position of those of us in fintech is that the retail business of major banks is in terminal
decline because of their outdated attitudes towards customers. But below the surface there is a
greater truth – their 1950s attitudes survive largely because of the 1950s code designed by a
person born in New York in 1906, just after the end of the Boer War.

Alex Letts is founder and Chief Unbanking Officer of U. His disruptive career has brought digital
technology into the advertising industry, electronic trading into the Lloyd’s of London insurance
market and, now at U, a transformation of the retail banking current account model.

https://backbase.com/8456/cobol-and-the-big-tin-bank/

Why smart technologies are key to banking strategies

Smart technologies like AI or machine learning have become so prominent that banks should
ensure they feature heavily in any strategy. The superior segmentation and targeting potential
these technologies provide has powered a new era of personalized, highly-targeted
communications. Competitors use AI to segment and target and customers to perfection,
crunching big data to present each customer with highly relevant offerings. Customers have
become used to these personalized efforts, so any bank that has not gotten to grips with
technologies like AI is most certainly missing a trick.

Effective segmentation is done when data from a range of sources, including CRM, online
behavior, or even emails, is analyzed and combined to create a 360-degree picture of a
customer’s needs. Working with big data in this way creates a need for unprecedented
analytical capabilities – so sophisticated they can consume huge amounts of time and
resources.

Gathering data, analyzing it, and molding it into meaningful information is a huge task for
humans, especially when it comes from disparate, unstructured sources. This is where AI and
machine learning come to the rescue. AI easily brings clarity to huge amounts of data, turning it
into useable information. In fact, this really is the only way banks can do this efficiently.
Machine learning picks up trends from the data, producing models and predictive analyses to
help target their efforts much more effectively.

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By conducting hours of analysis in seconds, AI frees employees from this task and significantly
reduces overheads. Accurate segmentation makes wasted customer acquisition or retention
efforts a thing of the past, driving further cost savings. In addition to saving time and resources,
AI can boost sales by pointing out new cross-sell and up-sell opportunities. Modelling a
customer’s income and typical investments, for example, can help to predict their investment
preferences.

Smart technologies empower customers to easily automate manual tasks on their banking app,
while empowering the app to offer timely, relevant services or product suggestions. Keeping
the customer interested in this way gives them good reason to stay with their current bank,
supporting retention efforts and reducing churn.

AI and machine learning are without a doubt, disruptive innovations. They handle huge,
repetitive tasks in a more efficient, consistent way. They don’t get bored or tired, and results
are always consistent. Smart technologies complement human beings in their work, and can be
programmed to fill in the gaps where needed. Banks that familiarize themselves with them and
use them effectively will ensure both the bank and end customer get exactly what they want –
every time.

https://backbase.com/8464/why-smart-technologies-must-feature-in-banking-strategies/

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