The value of scalability for a financial institution

January 11, 2021

The infrastructure of your bank’s core banking platform should not only meet current needs, it should also anticipate the future needs of a growth-focused institution.

First and foremost, your core platform should be scalable. Your core technology must boost your business, not limit it. Seek a demonstrated ability for your core technology to scale and align as your financial institution grows, which then allows your management team to focus on driving organic or strategic expansion.

Why scale?

Wikipedia determines scalability as a system’s ability to cope with a large workload simultaneously with an increase in resources. Simply put, it’s the ability to increase productivity within an organization as it gets bigger. Banks need to grow to become more efficient, to offer more products at competitive price points, and to ultimately increase value for their shareholders.

No matter what shape your future takes, you’re competing for customers and the services they need. To stay in this game, you must grow. The first step to your larger future is to identify a specific growth path. Next you should work closely with your primary technology partner or core provider to ensure they can provide the scalable resources you need to accomplish your growth objectives. The foundational resources required for this scalability partnership include:

A service bureau delivery model

If your bank wants to rapidly accelerate organic growth, or incorporate an acquisition into your existing platform form, a service bureau delivery model is often best at providing scalability on demand. Investments in hardware and supporting software are shared across one platform, providing all banks with an economy of scale. Banks trying to provide these resources within their own premises often struggle to keep up.

As natural disasters occur with greater frequency, Disaster Recovery (DR) becomes an added element of scalability. Consider how you can team with a core provider partner that offers DR services as a logical component of their service delivery solution. And be certain this is effective DR – naturally it must pass audit and regulatory scrutiny, but it must also stand the test of your unique environment and testing scenarios.

Skilled resources on demand

Staff augmentation allows organizations to acquire the benefits of banking process, product, technology, and project management expertise to support bank-critical activities. There are times when an organization’s permanent staff may benefit from subject experts skilled both with banking procedures and financial services technology. A close partnership with your core vendor should enable them to supply knowledgeable human resources with specific skill sets to help solve problems or take advantage of market opportunities. These resources act as an extension of your staff on an as-needed basis, helping your team accomplish objectives such as the following:

  • Grow your own staff’s knowledge with the precise skill sets while addressing temporary resource needs
  • Provide governance at the project and program levels
  • Develop quality management strategies and test plans

Investment in risk, compliance, innovation and training

Aite defines a core banking provider’s stability as the overall strength of the vendor in terms of financial stability, management reputation, risk management, and global presence. This stability contributes to the core partner’s ability to make continuous investments in compliance, staying current with state and federal regulations. The partner should also provide sound risk management practices and information security, again sharing the value of the investments they can make with all their banking clients.

In addition, a core partner providing scalable resources should offer innovation and training to their financial institution partners. For example, the FIS Fintech Accelerator in Little Rock, Arkansas is designed to accelerate the development and growth of early-stage financial technology ventures. Bank partners can preview and take advantage of new innovation from these partners developed and cultivated by FIS.

In addition, eLearning options from your core technology partner can offer a wide range of training resources, such as a microlearning library, to extend the education available to your staff.

A modernization path with a focus on open banking

Scalability should include a growth path supported by high levels of platform investment in critical modernization initiatives. Modern banking demands capabilities that cannot be met by simply adding new features and functions to existing platform. Remaining competitive requires that financial institutions leverage modern, digital first, component-driven transformative technology and deployment models made available by their technology partners.

A key element of this change is open banking delivered through application programming interfaces (APIs) that can drive initiatives in areas such as digital transformation and data analytics efforts. In addition, APIs create options for new product solutions bankers can deploy to meet unique demands in markets they serve.

A robust acquisition engine

Growth in bank merger and acquisition activity places pressure on the acquiring bank to perform while trying to consolidate acquired institutions. To grow, banks must excel when acquisition opportunity knocks. Banks with strong partnerships can leverage the conversion methodology, proven tools, and experience of their core partner provider.

Banks processing on a service bureau, can leverage a standardized approach their partner has developed for converting many new entities to one platform.

High-level steps in such a planful approach to merger excellence include:

  • Developing a program plan
  • Creating a Target Operating Model (TOM) based on a comprehensive solution design
  • Developing a test strategy and test plan
  • Optimizing business processes of the new entity
  • Executing an M&A playbook

When your institution combines the service bureau delivery model, a pool of veteran subject matter experts, investments in compliance and training, and a strong acquisition methodology, it assembles the scalability critical mass needed to grow successfully through 2021 and beyond.

About the Author
Maria Schuld, Division Executive, Americas, Banking Solutions, FIS
Maria SchuldDivision Executive, Americas, Banking Solutions, FIS

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