Adapting to the New Digital Banking Paradigm FEATURING RESEARCH FROM FORRESTER The Evolution Of Digital Banking Platform Architecture 2 ARCHITECTING FOR DIGITAL BUSINESS REQUIRES AN INTERCONNECTION-FIRST APPROACH The shift to online, anywhere banking has pushed the retail banking industry to compete outside of traditional destination banking centres and is challenging it to deliver superior service on different channels, against new competitors. Branch locations are steadily declining in number as customers choose online interactions, where mainstream banking functions are migrating to smart devices. In an interconnected world where data is shared between banks, credit agencies, insurance companies, government regulators, news services and social media, there will come a time where the data volume will outgrow the capacity of the Internet. Application Programming Interface (APIs) that provide links between applications and data sets that need to be seamlessly and securely connected, may not perform satisfactorily with current legacy infrastructure. New Open Banking rules that are being rolled out in different counties, such as in Australia, will require banks to provide access to their data via these APIs. This will mean having access to fast networks and financial ecosystems will be crucial to IN THIS meet the growing demands of the customers. Leading data centre providers have evolved to become DOCUMENT an ecosystem of networks, clouds and platforms supporting the financial services industry and the rapid digital transformation that is taking place. Software defined networks and edge services will be 1 Adapting required to develop the next generation of applications, that traverse from clouds to mobile devices to the New Digital Banking where everyone is accessing their banking services. Agility and speed will be key to maintaining a Paradigm market edge in the digital banking landscape. 3 Research From To achieve this, the more advanced banks and financial services providers have been deploying Forrester: The regional hybrid cores that provide interconnection hubs to clouds, Software as a Service (Saas) and Evolution Of other business parties for data exchange, linked together by global software defined networks. Once Digital Banking Platform they have deployed their regional hybrid cores, they deploy edge services either virtually or physically Architecture where they need to have a presence close to their customers and operations. This helps reduce latency, providing a better user experience, and capacity can be ramped up or lowered depending on 20 About Equinix demand. In addition, security controls can be easily added to the edge services to provide distributed security where it needs to be. Data hubs can be added at the edge to help solve for data sovereignty, or for data analytics or AI applications adjacent to clouds. This new architectural approach is essential for existing banks and new digital entrants to build or maintain their competitiveness, and to meet the ever-changing customer needs and strict regulatory standards. 3 CURRENT-STATE CONSTRAINTS Retail banks cannot deliver solutions to meet changing customer and market needs fast enough Traditional, siloed IT infrastructures cannot integrate products and services into a single, rich customer experience. Centralised IT also constrains the performance of digital experiences delivered to customers at scale on a variety of devices. Retail banks are unable to bring new solutions to market quickly or take advantage of data and analytics for insights that could drive customer loyalty and growth. The result is an inability to effectively compete with non-bank and fintech entrants. FUTURE-STATE CAPABILITIES A dynamic IT infrastructure provides high-quality experiences and quickly delivers targeted value to customers Interconnection integrates people, clouds and data, enabling the secure delivery of high-quality customer experiences to markets, employees and customers around the world. Access to partner ecosystems allows retail banks to create innovative offerings and accelerate the delivery of those offerings to market. Finally, real-time information and analytics produce fast, relevant insights into changing customer requirements. 4 The Evolution Of Digital Banking Platform Architecture How Connected Instances Of Digital Architectures Can Help Banks Prepare For The Future by Jost Hoppermann April 6, 2020 Why Read This Report Key Takeaways Most banks talk about transformation and Banks Only Talk The Transformation Talk their individual plans for that transformation. Banks have been talking about needing to Nevertheless, banks’ application landscapes are transform for a decade. Yet today only 14% not yet in a shape that would allow them to cope think their applications can deliver great and with the forces that are tearing the industry apart. differentiating customer experiences (CX). This report looks at reasons for this situation Banks Need To Walk The Transformation Walk and offers application development and delivery Layered architectures can help technology teams professionals at banks architectural approaches in banks to move away from vintage banking that ease digital transformation first and prepare applications such as traditional core banking for business models or the API economy later. while mitigating transformation risk. Connected Architectures Enable Banks To Be Ready For The Future Sophisticated layered architectures allow banks to assemble banking application landscapes from cloud-based and on-premises applications and prepare for the heterogenous application scenarios of the API economy. This PDF is only licensed for individual use when downloaded from forrester.com or reprints.forrester.com. All other distribution prohibited. FORRESTER.COM 5 FOR Application DEVELOPMENT & DELIVery PROFESSIONALS The Evolution Of Digital Banking Platform Architecture How Connected Instances Of Digital Architectures Can Help Banks Prepare For The Future by Jost Hoppermann with Oliwia Berdak, Jacob Morgan, and Corrado Loreto April 6, 2020 Table Of Contents Related Research Documents Banks Need To Race Ahead, But Slow And The Forrester Wave™: Digital Banking Steady Is The Norm Engagement Platforms, Q3 2019 Banks Are Just Going Through The Motions Of The Forrester Wave™: Global Digital Banking Transformation Platforms, Q3 2018 Tech Teams Can Use Layered Digital An Introduction To Digital Core Banking Architectures To Foster Change As DBPA Matures, Tech Teams Use It More To Foster Innovation Share reports with colleagues. Tech Teams Take Apart The Engagement Layers Enhance your membership with To Drive Innovation And Efficiency Research Share. Tech Teams Move Toward The Lean Core — Making Traditional Core Banking Obsolete Constellation Architectures Are On The Horizon What It Means DBPA Eases Transformation And Fosters Innovation Supplemental Material Forrester Research, Inc., 60 Acorn Park Drive, Cambridge, MA 02140 USA +1 617-613-6000 | Fax: +1 617-613-5000 | forrester.com © 2020 Forrester Research, Inc. Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Unauthorized copying or distributing is a violation of copyright law. [email protected] or +1 866-367-7378 6 Banks Need To Race Ahead, But Slow And Steady Is The Norm Forces including more demanding customers; digital disruption; increasing levels of supervisory regulation; and the need for greater process efficiency, cost management, and business agility are tearing the banking industry apart. However, slowed or stalled transformation initiatives force many banks to rely on applications that can’t withstand these forces. Today’s banks need to be ready for continuous, broad, and rapid change. Enduring success requires an open culture, an encompassing strategy, available budgets, suitable operating models, technology, and the determination to change to continuously cope with digital challenges. BANKS ARE JUST GOING THROUGH THE MOTIONS OF TRANSFORMATION Only 14% of global financial services firms believe that they have the right technology infrastructure and applications in place to deliver great and differentiating CX.1 However, more than 80% believe that they will be in this desirable position in 2024. This optimism is rooted in ongoing transformation efforts: 61% of global financial services firms are executing a transformation program and 27% plan to start by 2021, while only 5% have no known plans to transform.2 However, banks have been talking about transformation for the past decade and as yet have little to show for it.3 Reluctant to fully transform their application landscapes, banks easily get stuck in the planning stages or focus their transformation efforts on a single functional or organizational area.4 Why? › Ancient core solutions need complex enhancements. Many banks continue to use decades- old core banking solutions and payment engines written in COBOL, PL/I, and assembly language.5 Elsewhere, technology teams need to maintain up to hundreds of old core banking applications, each representing merely one or a few banking products.6 These ancient solutions have almost no flexibility, and the complexity they have accrued over the years makes them both a key driver of and major obstacle to transformation.7 › Lack of skilled and knowledgeable staff causes uncertainty. Experienced COBOL and PL/I