Executive Summary: ISG Provider Lens™ Digital Banking Technology and Platforms - Global 2023
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Evolving business environments encourage banks to adopt digital banking technology and platforms
Customers expect a seamless experience from banks. The rising wave of challenger banks, neo banks and Big Techs entering the banking industry has led customers expect the same level of experience from their traditional banks. Banks today are creating digital and phygital (physical-digital) banking journeys to provide their customers a complete and seamless experience. Extending consistent omnichannel experience to banking customers has become essential to increase the bank’s reach to acquire more customers and serve them through their channel of choice. Customer retention has also become a priority. Banks are now building the capability to leverage customer data to gain a deeper understanding of customer preferences and generate contextual insights. They are providing the right product and service offerings for enhanced customer satisfaction. Small and midsize businesses (SMBs) are also looking forward to their banks for a superior hassle-free experience, and banks are directing their efforts to provide a digital banking experience that is paperless and low touch. Hence, many banks today are on a journey to modernize their legacy platforms. They either do it via a progressive modulebased digital transformation to unwind the existing spaghetti architecture or an out-of-the-box implementation of a new platform to create a modern bank with fully functional digital capabilities.
Rising cost of legacy platforms impedes innovation
There are multitudes of challenges in maintaining legacy platforms, which increases the cost of maintaining IT landscapes and running business operations. Technical debt and the rising cost of keeping mainframes running are just a few impediments to such legacy platforms. As customer evolution leads to new business models and revenue streams, legacy-ridden banks cannot exploit the latest and rising business opportunities. They also need the means to capture the correct and relevant data, maintain granular data for business and governance needs and quickly process customer data to generate revenue insights for upselling and crossselling at the right time. Banks today look forward to rapidly launching their products and services and providing superior user experience (UX) to gather customer loyalty. Legacy platforms with monolithic and interdependent architecture are not agile to seize market opportunities when compared to a cloud-native platform with componentized and microservices-driven architecture. Today, most banks with legacy platforms are progressively shifting to modern platforms with multi-geo and multi-tenancy environments for seamless digital experience according to their business needs and future aspirations.
Real-time transaction processing is a differentiator
Real-time processing is becoming a key differentiating factor for banks’ ability to match customer expectations and suit the market reality. Non-cash real-time payment processing is gaining traction for domestic and cross-border payments.
Real-time processing is also imperative for quick customer onboarding, digitally performing the know-your-customer (KYC) and anti-money laundering (AML) checks. Fast credit decisioning is leading banks to embed banking services in new business models such as buy- now-pay-later (BNPL). Real-time risk decisioning enables effective treasury services management and cash flow forecasting. Banks today are looking forward to technology enablers and modern API-first platforms to cater to their real-time transaction processing needs.
Payment regulatory changes are more than just a regulation
With ISO 20022 already being live for SWIFT’s CBPR+, banks are looking for platform vendors that can help implement domestic real-time payment rails with ISO 20022 standards and embrace SWIFT gpi for cross-border payments. Transitioning from SWIFT MT to MX format will also lead to ISO 20022 adoption with data-rich message formats. Regulatory changes will also lead to enhanced risk screening and fraud detection, paving the way for open banking to create personalized offerings and services for increased customer satisfaction and new revenue streams. Other than the global mandates, banks today look forward to having an agile, resilient and flexible payment platform to accommodate and adhere to local-level data regulations and payment standards for smooth business operations.
Digital banking platforms offer modular and cloud-native architecture
Digital banking platforms offer composable modular solutions to build core platforms and enable ecosystem partners to quickly augment functional capabilities as per banks’ requirements. This helps banks implement banking modules according to priority, business and strategic needs in their progressive digital transformation journeys. The API-first design principles of the platform permit a seamless interface for modules, creating open API opportunities where banking ecosystem partners can augment and innovate on capabilities. Due to this, the use of critical and differentiating banking capabilities from an ecosystem of technology enablers, including many fintech companies, is on the rise. Such platforms also possess comprehensive out-of-the-box capability with low-code and no- code configuration-based feature implementation for quick go-to-market. The interactive user interface (UI) and intuitive self-servicing features are also the differentiating capabilities of modern digital banking platforms. Banks now adopt cloud-native digital banking platforms that support multiple cloud infrastructures and leverage their capabilities, reduce the cost of maintaining legacy platforms and provide a resilient infrastructure with almost zero downtime. Cloud-native architecture enables banks to implement mature technology practices such as DevOps to rapidly integrate new functionalities and continuously deliver software modules with new features and the latest upgrades.
Emerging technologies fill critical gaps
Digital banking platform vendors leverage multiple advanced and emerging technologies to support banking functions with enhanced, real-time and resilient capabilities. From automating banking processes for operational efficiency to offering pre-filled forms for enhanced customer experience, platform vendors add value to customers’ banking lifecycle journey and create intelligent solutions leveraging technologies. Platform vendors are adopting artificial intelligence (AI) and machine learning (ML) for fraud detection, effective payment risk management and providing superior and contextual customer support. Platform vendors also use analytics to build real-time and effective treasury management services and support supply chain finance with superior invoice and cash flow management tools. Emerging technologies such as AI, ML and analytics are the focus areas of R&D investments for most platform vendors to support and enable banking needs.
As-a-service model gaining prominence
Platform vendors offer managed services in payment transformation and for building and maintaining digital customer interfaces and engagement portals to reduce banks’ total cost of operations (TCO) and increase operational agility. Banks are also adopting as-a- service models to extend their offerings, such as treasury and risk management services, to equip other financial institutions with banking-as-a-service.
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