The decision to change cores is often cost-driven, but that’s shifting as banks move from product-focused strategies to customer-focused strategies.

“I would say that discussion is moving much more into a strategic conversation around ‘If I don’t change my core, am I actually able to keep up with my client demands?’” said Peter Pollini, banking and capital markets leader at PwC.

Guidance on how banks can prepare for the future is the focus of the recently released “Next in banking and capital markets 2022: Not ‘back to normal’ for banks” by the “Big Four” accounting firm.

“Update your service architecture to enable scalable offerings that can ‘plug and play’ with new capabilities from anywhere, so you can give your customers the differentiated experiences they want,” the report states.

That customer focus is key, as successful banks are focusing more on customers than product, Pollini said.

“When you look at some of the institutions that have seen good luck in their growth strategies, many of them are very focused around a segment of their business that will create balanced, durable revenues,” he said.

Banks are capable of innovation, but where their challenge lies is being nimble enough to respond quickly, Pollini said. That’s a problem, since clients want timely responses to their needs, he added.

It’s partly a technology challenge, which will require shifting to the cloud and integrating with third-party providers such as fintechs, Pollini said.

“As banks migrate to these new environments, i.e. cloud, and it gives them back the ability to be more nimble, it will allow them to be more innovative, both in terms of internal ideation and distribution of internal IP, of internal innovative products and services,” he said. “It also gives you the opportunity to make decisions to say, ‘I’m not going to build something new — I’m going to actually partner with a third party and get to market faster.’”

Long term, that may involve more than one cloud service provider for different use cases, though that will depend on whether the organization is staffed to support multiple providers, Pollini said.

Larger institutions should expect more buying power in the terms and conditions of the contracting process, he noted.

Drivers for future technology investments

The technology required for a modern banking infrastructure depends on the strategy, Pollini said, adding that there are three primary drivers of technology change for banks to consider:

1. Trust: “If you think about cyber privacy and data protection, that’s probably number one — the overall infrastructure you’re managing,” he said.
2. Speed: “It’s very difficult to create advantage in banking and so if you can create an advantage before someone seizes on your idea, the faster you can get that out the better,” Pollini said.
3. Discipline: Banks should be “absolutely disciplined” about their target market, he said.

“Most of the institutions that performed well in past three to five years have a very clear strategy of the client base they’re looking to attract and they’re building their business to be the best in those segments,” Pollini said.