Myth-Busting ‘Plug and Play’ Banking Claims

Ove Kreison, CTO and Co-Founder of Tuum, reckons banking technology has long been a hugely complex, cumbersome area. So... what part can 'plug and play' play?

If you asked anyone to name an industry that’s slow to change, there’s a good chance you’d get banking as a response – and not without reason!

Banking technology has long been a hugely complex, cumbersome area. Traditional banks’ stacks are largely still legacy systems dating back to the 80s and contain vast stores of highly sensitive customer data. Not forgetting that banking – and rightly so – is one of the most highly regulated industries, making maintenance and updates even more of a challenge.

The recent tale of Citi bank accidentally paying back $500m to its loan provider due to a complex intersection of siloed technology and humans filling the gaps between the spreadsheets, is a perfect illustration of banking technology’s challenges.

The advent of ‘plug and play’ providers has however, brought with it a tide of change and optimism in the industry. But how big an impact has it had?

What Is ‘Plug and Play’

In the simplest terms, ‘plug and play’ providers are fintech companies that offer a product via a cloud API, meaning banks can simply plug in something new and activate that service or feature very quickly.

Some of these players offer cybersecurity services, onboarding, anti-fraud measures…the possibilities are endless. Banks are paying attention because it opens a far easier and more efficient route to innovation than developing in-house.

Undoubtedly, ‘plug and play’ providers have changed things, but some of their claims about just how good are worth taking with a pinch of salt and placing in the reality of banks’ experience. Let’s mythbust…

  • Banks can connect to new services in a matter of hours

Providers do make big claims about speed and sure, they offer the capability to connect in a few days or weeks – maybe even hours! But are banks – considering the speed they usually move at – making the connections that quickly? Most likely not.

Ultimately, the time to connect depends on how urgently the bank needs the service and their existing internal resources and capabilities. Connecting an API in a day or two is theoretically possible; but in practice, banks would need to commit themselves to moving super-fast to even complete the integrations within a couple of weeks. After all, their systems are both heavily relied upon and contain hugely sensitive data, so banks need to ensure any new integration is workable and not jeopardising business operations before switching on.

  • Banking has become an experimental industry as a result

Absolutely, banking has made incremental moves towards becoming more innovative, and ‘plug and play’ has a big part in that. Banks can try out various service providers far more easily, conveniently plug in services or disconnect them if something doesn’t work. It’s provided a scope for experimentation that simply didn’t exist before. Banks are also looking at how things are done at tech companies, and trying to move towards the approach of R&D, testing with prototypes and then developing, instead of jumping into lengthy projects which usually fail.

To describe banking as ‘experimental’ might still be a stretch, though. Banking is certainly thankful to have much greater agility and flexibility, but service providers are still bound to certain expectations, mandated requirements, and complex regulation. Being truly experimental suggests doing something where the outcome is a bit unknown, which, frankly, isn’t really how the banking world works. When it comes to managing someone else’s money, banks are still cautious, and rightfully so.

  • Banking is starting to look a lot more like Lego 

This is true! Finally, banks are getting the chance to be like most other industries: to choose service providers based on their offering, skills, pricing, and suitability. This ‘luxury’ is something that’s not been afforded to banks for too long, with dominant players creating vendor lock-in and forcing banks’ hands in terms of digital transformation.

To date, banks have had to largely accept what their existing provider offers, or risk building everything themselves at the cost of time, money, and resources. Now, banks have the power to choose a provider or a combination of providers that give them the freedom, efficiency and cost-effectiveness they need.

Slow and Steady Wins the Race

Of course, ‘plug and play’ isn’t without its limitations or challenges. Dealing with multiple providers means handling various contracts and ensuring all the ‘pieces’ work together seamlessly. Some providers may have done some of the legwork for you – a core banking tech provider may have pre-integrations with certain third-party providers for AML (anti-money laundering) and KYC (know your customer) – but it’s not always the case and often banks need to take care of the integrations themselves.

There’s simply more work involved than the ‘plug and play’ fantasy might suggest. Banks can’t expect to suddenly sack all their engineers in favour of just using providers – that internal expertise will remain imperative to both understanding what services are needed and making sure that these operate in harmony with the wider business.

All in all, however, with realistic expectations and a good understanding of how to choose the right partners, ‘plug and play’ is a gamechanger. The shift away from vendor lock-in is a phenomenal success of this concept. While there’s a long way to go before banking is fully agile and there needs to be a level of caution with any change, there has been a mindset change for banks. For example, during the pandemic we saw banks adopting e-KYC and digital onboarding processes instead of relying on branches.

The real opportunity now, however, is to go into core operations. Core banking, payments processing, fraud, AML, regulatory reporting – the list goes on, but updating this technology stack right at the heart of banks’ systems is what will really unlock innovation.

Banks have begun to taste ‘plug and play’, and there’s tangible progress. The next phase of plugging in will be looking to ensure the core of banks’ system is strong enough to truly bring banking technology to the next level.

By Ove Kreison, CTO and Co-Founder of Tuum.

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