Banks are winning from the back-office: Here’s how

By Robert Turner

Banks compete on customer experience.

Since the iPhone debuted in 2007, industry leaders have dramatically increased technology investments to make financial services more personalized, convenient, secure, and accessible for customers.  

Front-office initiatives, such as digital customer onboarding and servicing, have received a great deal of attention and investment. But findings from Kyndryl's survey with American Banker suggests banking leaders are shifting how and where they invest. When asked which legacy technologies banks are prioritizing for modernization over the next two years:

• 36% of respondents are prioritizing internal IT systems
• 32% are prioritizing digital channels and data analytics stacks
• 28% are focusing on processing  

The findings speak to a trend we see in the banking sector: building a next-generation back office to continue the evolution of customer-centric experiences.

Listed below are several factors which I encourage customers to keep in mind for back-office modernization efforts. North America-based Comerica Bank is already applying some of the ideas to become a cloud-first bank. I share a bit of their story as well.

Defining the purpose of your modernization

Every back-office modernization effort must have clarity of purpose—organized around the specific value you want to deliver to satisfy customer needs. With the purpose defined, you’ll need to ensure that target-state technology solutions and operating model transformations will drive better risk-weighted business outcomes. To accomplish this, you’ll want:

1. An actionable roadmap that brings business and technology together
2. Internal alignment, confirming the right people are doing the right things at the right time, and in the right sequence
3. An ecosystem of curated partners that bring domain specificity, best-practices, and speed to market

Take a fit-for-purpose approach

To modernize back-office technology, build a strategy and solution that is fit-for-purpose.

Mainframes have remained relevant in many banks because they provide unparalleled reliability, speed, and performance for high-volume transactions. It is not an easy task to move off mainframes. Architecting a target state that can meet business needs requires high skill, experience, determination, and persistence.

While there are many pathways to modernize mainframe-based back-office applications, including cookie-cutter approaches, a fit-for-purpose approach enables banks to tailor their modernization efforts to their specific needs.

Standardize back-office operations

The back-office is often comprised of fragmented, aging systems and millions of lines of convoluted code with embedded logic—which can be intimidating to those looking to modernize.

Central to back-office modernization is organization around a set of architectural standards and guiding principles. Standardization allows banks to get to a level of industrialization with different markets, segments, and product sets.

Our own transformation journey at Kyndryl mirrors what many banks face. Many of the disparate systems that Kyndryl inherited were developed over the course of more than 40 years. We’ve learned firsthand how a streamlined portfolio of standardized processes enables business agility and innovation.

Use APIs to improve employee and customer experiences

Employees and customers expect seamless, personalized, and effective digital experiences. Fully utilizing back-office data to drive insights for contextual personalization of services and products can drive improved experiences.

Mainframes handle 90% of all credit card transactions¹ and host critical core IT for 92 of the world's top 100 banks² and top 10 insurers. Mainframes are also counted on for 29 billion annual ATM transactions³. Yet most banks have not unlocked the true value of their mainframe data, especially related to employee and customer experiences.

APIzation—allowing different applications to talk to each other and share data or functionality—can unlock the data. By using AI-based tools, back-office data can be aggregated across multiple customer touchpoints and new insights can be generated, allowing for a thorough behavior analysis of customers. This can enable a true understanding of customer preferences and delivery of differentiated, hyper-personalized, digital, omnichannel experiences for the bank's customers at the point of interaction.

A use case for back-office modernization

Comerica Bank is successfully applying the preceding four tenets to become a cloud-first bank.

Comerica's on-premises, mainframe-hosted core banking system needed modernizing. Shrinking talent pools, increasing costs, limited resiliency at the platform level, and delays imposed by legacy systems on digital innovation could all soon start constraining Comerica’s ability to deliver intelligent banking experiences.

The Comerica team developed a compelling vision for change. They quantified, qualified, and prioritized their problems in the context of the bank's strategy and desired customer outcomes. And the team developed a detailed roadmap and engaged proven and safe partners to develop their target state solution.

Aligning IT and product leadership around a shared modernization approach from the outset empowered the extended team to migrate Comerica’s mainframe to the cloud in half the time a typical mainframe migration takes. Bringing the bank out of the legacy era was necessary, and a tight linkage between plans, people, and partners facilitated success.

Modernize to become future-proof

Increased resiliency can also be a strategic entry point for back-office modernization. For many banks, there is still significant work to do to embed security and resiliency into architectural standards. (And that’s a whole other conversation!)

In a time when the economic future is uncertain, banks that unlock the value of their back-office can build a significant competitive advantage to drive positive business outcomes and revenue.

Robert Turner is the General Manager of US Financial Services at Kyndryl

¹  “Are Banks Breaking Up With Mainframes?” Monica Hovsepian, Forbes Councils Member
²  “From Shopping To Space Travel, How The Mainframe Changed Our World,” Forbes, April 2014
^3. “Mainframe 2020: A catalyst for transformation,” MIT Technology Review Insights, produced in association with IBM, 2020