In the aftermath of the 2008 housing market collapse and recession, “predictable” is not the word most would use to describe the modern financial services industry. Rapid regulatory changes, coupled with evolving customer expectations and powerful FinTech competition, have created a market environment that is flipping many time-tested financial institution (FI) workflows and back-office processes upside down—and more importantly exposing a lack of operational agility in the process.
Take, for example, the retirement of the London Interbank Offered Rate (LIBOR) as the primary key benchmark interest rate. As the transition away from LIBOR nears its fourth calendar year, many banks are still working frantically to set up their existing banking systems to use the Secured Overnight Financing Rate (SOFR) when it replaces LIBOR as the standard beginning Dec. 31. According to some estimates, the mandated change necessitates the redevelopment of as many as 75% of all bank loan models and documents. Due in part to the slow development times needed to tackle these projects, many banks will not begin to execute SOFR-based loans until November—just one month before the deadline.
More recently, the creation of the Paycheck Protection Program (PPP) early in the pandemic offered a glimpse at how FIs would fare when given an even more aggressive “go-live” plan, as banks and credit unions scrambled to put together the right automated application ingestion steps, underwriting, and processing workflows to execute the program in a matter of weeks.
Compared to their agile FinTech competitors, legacy banks and credit unions increasingly find themselves at a considerable disadvantage when it comes to adapting to rapid market adjustments like these. While the next-gen competition is founded on flexible, scalable cloud solutions, many mid-size banks and credit unions remain tied to on-premise solutions that don’t lend themselves well to agile operations and on-the-fly integrations. One recent Financial Brand executive survey found that 62% of legacy financial institutions would place their current digital lending maturity in the laggard category. Unfortunately, these laggard organizations stand to lose out on tremendous revenue opportunities when they can’t pivot quickly enough.
Broadly targeting greater “business agility” can feel like an impossible task—and trying to do too much at once can quickly overwhelm limited internal IT resources. To avoid this frustration, it’s beneficial for financial institutions to consider how they can focus their efforts.
Here are three key objectives banks and credit unions can use to help define the North Star for their transformation strategies.
1. Data Agility
At the center of any business agility transformation is a financial institution’s data and data processes. Private on-premises data centers tend to create limited and siloed data connectivity across the organization, which in turn can affect operational decision-making and slow down the broader transformation process. They also leave room for significant risk as security, data privacy, and governance expectations grow in complexity. Investing in a modern cloud strategy is one way FIs can move past these limitations to speed up customer onboarding, improve loan and account lifecycle management, and support smoother technology transitions. Many of the top cloud providers also continue to integrate cutting edge AI and machine learning capabilities that can augment existing data ingestion processes throughout the organization, without the need for considerable upfront budget and time investment from your team. As a result, your data management can become a key competitive advantage in the race to stand up new products and services—not a threat to your organization’s profitability.
2. Team and Partnership Agility
Business agility requires buy-in from the top down. It also requires the right budgetary process, team structure, skills, and tools to be in place to enable Agile operations. Cloud-based solutions that include low and no-code systems complement Agile IT teams by empowering quicker reactions to changing market conditions. Oftentimes, these simple—yet powerful—solutions can be built by an internal subject matter expert and product owners in a single Sprint, without requiring highly specialized technical skills. Even better, open API architecture enables the integration of new third-party technologies and point solution partnerships that deliver powerful plug-and-play capabilities—while avoiding the cost and time-consuming system upgrades of on-prem deployments.
3. Customer Agility
This final objective refers to an organization’s ability to deliver customer-facing features and powerful customer experiences that directly align with growing expectations. In the post-pandemic world, service and loan delivery is equally as important to a prospective buyer as the products and rates a financial institution can offer. For example, being able to originate and approve loans quickly remains a baseline expectation, but customers also expect to be able to seamlessly apply and fill out forms from the comfort of their mobile device or check in on their balance from the convenience of a customer portal. As a result, financial institutions don’t just need the technical ability to adjust quickly to new regulations and new program offerings, they also need to prioritize ongoing voice of the customer (VOC) and future state journey mapping efforts to better understand evolving customer needs and identify the right capabilities to prioritize in their tech stack.
In the rapidly evolving financial market, it’s clear that the future is in cloud. Large legacy systems constrain a financial institution’s ability to change and adapt. By migrating to cloud-based systems, and supporting those systems with teams and strategies designed to enhance business agility, FIs can protect their competitive differentiation and unlock transformational initiatives that meet their present and future needs.