Technology was already changing banking rapidly when the pandemic hit. Now, we’ve seen disruption of service models, purchase methods, and consumer behavior. And even the recovery is impacting banking, as supply chain shortages spike inflation, driving up interest rates and sending us into a likely recession with unpredictable delinquency and chargeoff curves.
This highlights more than ever the need for financial institutions to be able to respond rapidly to new regulations, market demands, and customer expectations.
Products are evolving rapidly
Virtual cards have created entirely new use cases for payments. Business owners can now receive payment funds on prepaid cards, fundamentally altering their interaction with banking services. And consumers have changed their shopping habits.
Such change opens growth opportunities for banks in all kinds of new lines of business, including healthcare, commercial, small business, private label, retail lending, and more. But too often, non-bank competitors are the first to enter these markets because they can move more rapidly.
Customer segments are constantly changing
Fintechs have aggressively tested expansion into areas traditionally owned, but underserved, by banks, particularly with younger customers that financial institutions rely on for future growth. Rewards cards have become commoditized, leading innovation to new places, such as holistic benefits suites targeted for ever narrower customer segments.
Financial institutions are at a disadvantage when testing expansion into these segments because it takes so much time and resources to launch a new product that only the most proven segments are served.
Regulatory changes are more challenging
Increased polarization in Washington means that every election brings a potentially dramatic new direction for regulations, as well as compliance and oversight. For banks, that means whiplash-fast changes that strain their ability to focus on growth and investment.
Banks and credit unions are unable to adapt with speed to these changes because their underlying platforms are based on decades old technology that is too rigid to change quickly.
The poster child for this is the dreaded green screen. How is this still a thing in the 2020s? Making any change not already enabled by the green screen cannot be accommodated, and changing the green screen requires weeks or even months of coding, assuming the technology provider can accommodate it at all. Some platforms are starting to add a web interface to the system, but like a 1990s online library catalog, it just highlights how far it falls short of a truly modern platform. Even adding APIs does not solve the problem, it just adds further complexity and rigidity should anything need to change.
In order to compete with non-bank competitors that are peeling away products, segments, and interactions, banks must do more than replicate branch and call center experiences in a mobile app. They need to be able to innovate more quickly. That means testing products, segments, and experiences that can’t be justified with months or years-long lead times. Just as tech companies wouldn’t build Netflix or Amazon on a 40 year old mainframe, banks can’t either.
Modern processing stacks are available to banks which are designed for speed, flexibility, and scalability, using cloud-based, 100% API-enabled, microservices architecture. Benefits include:
Legacy platforms traditionally require you to subscribe to their front end UX services, or work extensively with them to manually enable the experience you want to create. In order to give more API access directly to clients to quickly build these experiences, they have been hollowing their platforms and wrapping them with API layers – increasing the complexity of the overall system while still not providing the API access that financial institutions truly need.
A next-gen platform should be built foundationally as an API-first, headless platform – where everything is operable and accessible via APIs that allow issuers to develop and customize their own experiences on a self-serve basis, without needing heavy intervention from engineering/IT or outside providers. It should also provide a rich & intuitive web-based Issuer back office with integrated cardholder views that cater to all personas such as product managers, servicing, operations, risk, IT, and other departments.
Legacy processors not only launch more slowly, but changes are harder to undo once implemented. A next-gen processor based on microservices-based architecture can overcome this limitation. It can support multiple small and isolated concurrent changes across the platform even as frequently as multiple times a day, unlike legacy systems’ infrequent and disruptive upgrade cycles – helping issuers respond effectively and rapidly to any needed changes. This allows Issuers to limit any risk to business operations and also innovate and build new functionality with greater velocity.
Currently, legacy code, mainframes, decades-old technology, and monolithic architecture handicaps the ability of Issuers to respond to shifting market trends. Issuers often need help to scale up and down based on the market trajectory, exposing them to scale inefficiencies. These challenges can be resolved by cloud-native processing stacks, which enable issuers to scale elastically and improve their ability to respond to significant changes to volumes with minimal effort and investment.
Using modern technology, Issuers can get access to event streams, data marts, and reporting dashboards which will give them access to granular, reliable, and real-time data about market trends, customers, and their programs – equipping them with all the details they need to predict change as well as respond effectively.
Conclusion for Next-Gen Credit Card Experiences
Issuers need to assess how legacy technology is effectively limiting their ability to respond to a constantly evolving market landscape. Issuers will overcome several handicaps of the current legacy processors by moving to cloud-native, API-first, and micro-services-based platforms like Zeta Tachyon, the only issuer processing, and core processing platform that was entirely written ground up in the last seven years, leveraging cloud architecture principles and modern technology. This completes our four-part series on Next-gen card experiences. For issuers to truly deliver on customer expectations and shifting market landscape, they need to consider moving away from legacy tech to a next-gen platform to: