Smart virtual assistants: efficient experiences

A study by the FDIC (Federal Deposit Insurance Corporation) in the United States found back in 2001 that around 80% of people between the ages of 15 and 44 use online banking or the mobile applications of their banks as their first point of contact. The number remains above 70% for consumers up to the age of 54 and above 60% in the 55-64 age segment.

Digital transformation has enabled finance companies to expand their coverage without risk and with controlled costs: it is no longer necessary to open a branch to access a new set of customers; it is enough to bring the right tools to the device of their choice.

This approach, with its many benefits, has led to new challenges in the industry. On one hand, increased competition with the arrival of fintechs.  Although these companies encountered high barriers to entry into a highly regulated market managed by giant companies, they managed to impose themselves in many cases because they have the innovative gene in their DNA and, therefore, are more agile and have a faster response capacity to deliver digital solutions to their customers. 

On the other hand, the heavy burden of legacy solutions: solid and reliable systems that have been in place for decades but can be a significant obstacle for the future of the business, as they are difficult to maintain, difficult to upgrade and, in many cases, border on technological obsolescence or prevent the implementation of cutting-edge technologies.

The key concept to answer both dilemmas is app modernization.

Different approaches to modernization

There are different approaches for a traditional bank to modernize its applications, ranging from subtle upgrades or modifications to ensure that old systems work in a new technological scenario to a redesign from scratch.

The market consulting firm, Gartner, has identified seven modernization models that apply to all industries:

1. Encapsulation (making legacy system data and functions available as a service)
2. Rehosting (bringing legacy system elements from some old architecture such as mainframe to a new one such as cloud)
3. Restructuring (migrating it to a new execution platform)
4. Redesign (backend changes to improve performance)
5. Re-architecturization (code changes to adapt it to a new architecture)
6. Rebuilding (redesign to bring it to a cloud-native environment)
7. Replacement (discarding the existing one and implementing a new one)

In the case of banks, the most common is to bring the usual functionalities to a digital level and launch an app or a home banking page that reflects the main operations, taking advantage of the power of new technologies that abstract the application layer from the underlying technology, such as APIs (application programming interface) or containers. 

New migration models

A new migration model is also emerging: that of creating a neobank, i.e. a parallel brand designed in the fintech style, i.e. directly with a technological profile. In this way, the bank has the option of going to market quickly with innovative proposals while gaining time to achieve an orderly and thorough modernization of its legacy systems.

Another path that many traditional banks are taking to add new technologies quickly and effectively is to partner with fintechs – the same ones that were initially perceived as competitors – in collaborative ecosystems in which the traditional institution contributes its know-how in processes and the startup adds its agility and technological vision.

There is no such thing as a single path, each banking institution must find the optimal way in order to modernize its applications. That is why the support of a technology partner with experience in the industry is key to achieving the desired results while keeping risks under control.

Banks’ legacy systems were essential for the sector to develop and grow, but today they take the risk of attaching institutions in the past. And just at a time when the industry is rethinking its future.