It’s no exaggeration to say that banks have to keep ahead of the technology curve in order to deliver the connected experience expected of Banking 2.0. But with budgets and resource continuously stretched, how can banks maintain consumer faith in their systems, while delivering the services they want, quickly, efficiently and securely?

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BANKING TECHNOLOGY 2.0:
USING PARTNERSHIPS AND
OUTSOURCING TO MAINTAIN
A COMPETITIVE ADVANTAGE

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3Banking technology 2.0: Using partnerships and outsourcing to maintain a competitive advantage2
CONTENTS:
pg 05: Introduction
pg 06: The challenge
pg 08: The options
pg 12: Opening the doors is nothing new
pg 15: Conclusion: Customer first

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5Banking technology 2.0: Using partnerships and outsourcing to maintain a competitive advantage
It’s no exaggeration to say that banks have to keep ahead of
the technology curve in order to deliver the connected
experience expected of Banking 2.0. But with budgets and
resource continuously stretched, how can banks maintain
consumer faith in their systems, while delivering the services
they want, quickly, efficiently and securely?
In this Pathway Paper we investigate the challenges for
banks in aligning IT strategy with the velocity of the Mobile
Money market:
• Why issues with banking IT can impact on more than the
consumer relationship
• How an open approach can help satisfy consumer demand –
while lowering the cost of progress
• Where collaboration and partnership work to best effect as part
of an integrated IT strategy
Speed to market and the delivery of engaging,
connected experiences are now the baseline in banking.
As consumers demand easily accessible services and
an increasingly rapid pace of innovation, outdated and
slow-to-respond IT systems place the relationship at risk.
Introduction
4

4. 6
The challenge
For the banks to respond appropriately requires a mind shift from
‘what can we sell?’ to ‘what does the consumer need?’ and
developing an approach to meet this change. The prize of course,
is there for the taking. Those with the foresight to embrace change
and deliver the services consumers want, open up a world of
revenue opportunity, but foresight is the key, and requires banking
IT strategy to be more visionary than ever before.
Unfortunately for the banks however, consumers are fickle.
They actively embrace the new, but so too do they distrust
change. New entrants are viewed with less scepticism than
established brands who introduce new products and services.
In the banking world, this means they stick with the brands they
trust, but have a low tolerance for technical issues – which makes
it particularly difficult for banks to drive innovation alongside their
standard services.
With the advent of Mobile Money, consumer banking is now a
moving target – and increasingly difficult for banks to build on.
Traditionally served by internal banking IT teams, choosing to
retain development in-house is now a huge risk in a fast moving
market. The requirement is no longer simply one of accessibility. In
a converging world, interoperability has become a hygiene factor;
connectivity to retailers, other FIs and tech providers is vital to deliver
the complete mobile experience.
Twenty-first century banking dictates that the consumer
is in charge – and they are the key influencer in forcing
change across the industry. From supplying standardised
services, banks are now required to react quickly to
consumer demand; for new products, as well as greater
personalisation and joined up offers.
We know that doing nothing is no longer
an option. The question for banks has now
moved on from the ‘why?’ to the ‘how?’
Is it realistic then for banking IT to remain in-house and competitive?
Foresight is the key, and requires
banking IT strategy to be more
visionary than ever before.
7Banking technology 2.0: Using partnerships and outsourcing to maintain a competitive advantage
PathwayPaper:#03

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8 9Banking technology 2.0: Using partnerships and outsourcing to maintain a competitive advantage
The options:
Proprietary banking IT – the state
of play
Many existing banking IT systems are
complex and have been built over time
by a small number of people.
As a result of a ‘patchwork’ approach to
updates, development strategies are often
disparate, or adapted from one another,
risking overloading and lack of scalability.
First generation mobile banking, for
example, was too often launched as
a mobile version of a bank’s Internet
banking platform. Although a quick route
to market at the time, it didn’t account for
the unique characteristics of mobile, or for
future requirement.
Though banks are moving towards Service
Oriented Architecture (SOA), allowing the
partitioning of service areas to enable
expansion and incremental updates, many
are still legacy systems with a complicated
and closed infrastructure.
It’s not to say that there aren’t benefits
to proprietary development. Retaining
ownership in-house allows products and
services to be developed as an absolute
fit for customer requirement and provides
total control for business continuity and
disaster recovery planning.
It’s also true that for many banks, either/or
isn’t an option. Many will have to continue
operating their existing core systems,
meaning ongoing investment in in-house
technology and resources must continue.
But when it comes to developing new
mobile products and services, the costs
to build and maintain in-house are less
attractive. The need to keep up with the
complexities of international regulation and
the continuity risk of retaining IP in-house
aside, the delay in time to market and the
capex investment required to develop
in-house far outstrip the value of retaining
control. Indeed, faced with the ‘hidden
cost’ of testing every mobile service and
update across thousands of platforms
and devices, it’s a wonder any bank
would even contemplate building the
future in-house.
What do we mean by ‘open’?
In the retail banking arena, a technology
strategy that embraces external support
to scale services and accelerate
deployment could fall into two camps;
open API development, or drawing
down on licensed or subscription
based cloud services.
Open API
Put simply, an API (or Application
Programming Interface) allows software
to interact. Consider social media, where
Facebook works with Twitter, works with
Pinterest, works with Instagram and so on
– this is all made possible through APIs.
In the banking world, banks can open
up an API to developers and partners, to
connect and build products and services
with each other. The result is a quicker
route to market, and often, new and
enterprising revenue opportunities.
Capital One, as an example, established
Capital One Labs to deliver rapid
prototyping of new products and services
through open APIs. Its deals, rewards and
user identities are now available to partner
organisations to develop personalised
offers for its customers.
Their philosophy? ‘We know the most
interesting ideas may come from outside
our walls, so we’re empowering our
partners to create new and awesomely
creative experiences for our customers.’
Opening up user identities may be a
step too far for many financial institutions,
but the sentiment is unquestionably
customer-centric, which in the world of
Mobile Money, has to be the number one
priority. Imagine a seamless transaction
experience, in which a retailer, bank and
mobile operator’s APIs are linked to allow
one click mobile shopping – it’s certainly
a compelling argument.
The additional advantage of APIs is that
they can be opened up across banks to
enable collaborative service development
for the greater good; in Turkey for example,
an open API strategy across the entire
retail banking industry is helping to bring
new banking and retail services to Turkish
consumers as a whole.
And APIs are certainly gathering pace,
with around 900 APIs currently available in
the financial and payments markets alone1
– a figure which has doubled over the last
18 months.
1. Retain core infrastructure and
deliver new digital services in-house
2. Embrace an open approach
to deliver new agile services
As a result of a ‘patchwork’ approach to updates,
development strategies are often disparate, or
adapted from one another, risking overloading and
lack of scalability.
Faced with the ‘hidden cost’ of testing every mobile
service and update across thousands of platforms
and devices, it’s a wonder any bank would even
contemplate building the future in-house.
The sentiment is unquestionably customer-centric,
which in the world of Mobile Money, has to be the
number one priority.
1
Source: Programmable Web, April 2014

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10
Licensed or subscription
cloud services
A second option for banks looking to
maintain a competitive advantage is to
work with cloud providers and draw
down on licensed, or subscription
based services.
With the requirement for robust data
protection and high security, in the
banking context, this typically means
services based in a ‘private’ cloud – a
secure environment in which only a
single specified client can operate.
Software as a Service (SaaS) of course,
is nothing new. For many years
organisations have paid a licence fee to
integrate cloud based offerings with their
own technologies.
The difference now, is that mobile banking
and payments are moving towards a
subscription model, where banks can
draw down services and products on
a per-user basis.
This next generation in cloud-based
banking technology removes the capex
spend of a licence fee – yes, there
are set up and integration costs, but
thereafter, payment for services becomes
incremental, based on usage.
The key benefit of a subscription model is
the opportunity it provides banks to dip a
toe in the water of new technologies and
service offers. Research and development
time, not to mention customer analysis to
assess appetite, are massively reduced,
while the likelihood is that the services on
offer have already been hammer tested
and proven to work elsewhere. The result
is more agile service delivery; quicker time
to market and greater ability to flex with
customer demand.
Cloud is also inclusive, removing the
monopoly on service innovation from
the bigger players. Subscription based
‘plug and play’ apps give smaller FIs the
opportunity to offer a broader range of
services and compete on a level with
their larger counterparts.
There are some drawbacks to subscription
and cloud based services. Updates can
often be at the mercy of the market and
risk disruption to services. So too can
banks risk losing control over product
features being added or disappearing,
but there is an opportunity to manage
these changes – when banks buy into
cloud based services, they’re essentially
purchasing an SLA, and can ensure
that this is robust enough to mitigate
for this risk.
The open ‘ideal’
Open API and cloud services offer
complementary options for banks to
build on their core banking platforms.
The likelihood is that over time, they will
continue to operate core functionality
in-house, supplementing with API
development and subscription services
where they see the most benefit.
The result is more agile service delivery;
quicker time to market and greater ability
to flex with customer demand.
11Banking technology 2.0: Using partnerships and outsourcing to maintain a competitive advantage
CONSUMER

7. 12
Opening
the doors is
nothing new
PathwayPaper:#03
13Banking technology 2.0: Using partnerships and outsourcing to maintain a competitive advantage
Individual financial institutions meanwhile, have also pioneered open
door policies to improve the customer experience. LINK in the UK
set a benchmark for effective collaborative working when it opened
up the ATM network across the banking ecosystem back in 1986;
while VISA’s networked, outsourced SaaS approach has enabled
customers and partners to participate, interact and transact with
each other across borders for many years.
It’s this joined up approach, made possible through partnership and
the interoperability of banking platforms, that is critical to the new
consumer ideal. Over time, all the innovation in the world will be null
and void if a customer’s bank is unable to deliver the connected
experience they require. Indeed, it’s one of the reasons the
Payments Council has recently launched its peer to peer payment
system, Paym – for consumers who are currently unable to make
payments to multiple recipients across different banks via their own
bank’s app.
It’s also the reason that CaixaBank, Santander and Telefónica have
joined forces to launch Yaap – a new alliance to bring ‘exciting and
innovative digital services to improve the everyday lives of people’.
With open shopping and peer to peer payment services on their
way, accessible to all consumers, regardless of their bank or mobile
operator, Yaap may well provide the benchmark for others to follow
– a marriage between banks, telcos and retailers to deliver a wholly
effective Mobile Money experience.
To suggest an open approach to IT is a new concept
for the banking industry would be misleading. Banks
and financial institutions have long trusted in technology
partners to provide fundamental services, including
running their operating systems and databases. In the
US for example, many banks have always outsourced
their core systems.
Over time, all the innovation in the world will be null
and void if a customer’s bank is unable to deliver the
connected experience they require.
Choosing partners wisely
If collaboration then is proven, and banks realise that in order to stay
ahead of the technology curve they need to embrace partnership
working, how do they select the most appropriate partners?
Much like the dating game, it’s about compatibility and sharing
similar ambitions.
Some pointers for consideration:
1. Do they understand the banking and payments industry?
The regulatory climate? The importance of PCI compliance
and the absolute urgency around outages?
2. What are their capabilities to connect with your infrastructure?
Can they operate with your legacy systems, or a Service Oriented
Architecture (SOA)?
3. Can they introduce you to a broader network of partners to extend
your reach and your revenue opportunity?
4. Can they provide the agility to scale their services as you grow?
Can they provide a comprehensive roadmap of future services
to meet your ambitions?
5. Are they tied to specific technology solutions, or can they provide
an agnostic approach?
6. Is there an option to work in true partnership with a shared risk
and reward model?
The very best mobile alliances work when both
parties share a vision and each bring essential
skillsets and added value to the relationship,
whether from experience, expertise or connections
to other service providers.

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15Banking technology 2.0: Using partnerships and outsourcing to maintain a competitive advantage
Conclusion
Why have so few banks followed a path of
continuous improvement in their technology
and back office processes?
For many, it’s been a case of ‘if it ain’t
broke, don’t fix it’. With regulatory change
and industry developments hard to
predict, ring-fencing funding for large scale
updates has traditionally been difficult, and
there have been few compelling market
events to force a change.
But right now there’s a serious
business case. Aside from banking
competitors, the bigger Internet players,
and even telcos, are moving into the
traditional banking arena. Some banks
have managed to implement new services
in-house up to now, but the Mobile Money
opportunity is still in its infancy, and if
banks are to remain ahead of the curve
they need to collaborate to pull in the
blend of services they will need to offer. If
they don’t, and the consumer’s needs are
better served elsewhere, there’s a very real
risk to the entire customer relationship.
There’s certainly a window of opportunity
for the banks. In the future, data ownership
will be a key driver in developing new
services. The consumer will be in control
over who accesses their data, and right
now, they trust the banks.
Crucially, in order to deliver the vision,
decisions around technology can no
longer sit solely with IT. With its impact
on brand, reputation and revenue, the
banking IT department needs to become
more business-focused than ever before.
The priority for the in-house team should
be on banking and the development of
a coherent banking strategy. Technology,
processes, customer service and
products should evolve from this
central tenet.
A new mindset
It requires a shift in thinking for the banks,
whose technology budgets have long
been sapped by necessary upgrades,
or reactionary development in response
to market or regulatory change. ‘Cost to
serve’ needs to be replaced with ‘revenue
opportunity’. With Internet banking many
institutions missed a trick by focusing
on service need only. Mobile is the first
platform that can reach consumers
where they are and provide a completely
personal experience. IT strategy then,
must maximise this massive opportunity.
But in a dichotomy for the banks,
customers want the new, but don’t want
to see the banks spending too much.
In-house development, we know, is costly,
and takes time. It could be argued then,
that collaboration is the only way for banks
to deliver the innovation the consumer
demands in the fast paced environment
of Banking 2.0.
The key is to understand the value chain
for new products and services all the
way through. Banks could provide many
services by developing or purchasing
individual slivers from partners and building
the rest themselves, but the investment
and energy required to integrate these
slivers could be better served by
subscribing to full end-to-end services.
The very best subscription services
provide added value way beyond core
functionality. They connect banks with
a global network of retailers and mobile
operators to provide the interoperable
payment and shopping services that
place the mobile at the heart of the
consumer lifestyle.
By drawing down on these services as
they need them, banking clients are able
to direct their energies towards improving
banking itself – and the shift towards ‘what
does the consumer need?’ that the next
generation so demands.
14
If banks are to remain ahead of the curve
they need to collaborate to pull in the blend
of services they will need to offer.
The priority for the in-house team should be on banking and
the development of a coherent banking strategy. Technology,
processes, customer service and products should evolve
from this central tenet.

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