Sibos 2017: The death of ‘rip and replace’ digital transformation: Nadeem Syed interview

By Alex Hammond | 20 October 2017

The Finastra CEO sits down with bobsguide to discuss banks’ changing approach to overhauling legacy systems


What are your key takeaways from the customer meetings you have had at Sibos so far?

One of our key beliefs, and something that has also been confirmed as we speak to our customers at the conference, is that the appetite for large wholesale monolithic transformations of systems just doesn’t exist. Banks don’t have the appetite or the capability to undertake those projects. They take too long, the risks are too high, and the ROI isn’t immediately apparent.

What banks are demanding from fintechs now is access to better digital functionality and differentiated services for customers through incremental evolutionary development, without orchestrating an entire replacement of legacy systems.

And this approach is frankly taking the page out of the retail playbook with PSD2. PSD2 is all about opening up banking systems so that consumers have the flexibility to be able to aggregate content from multiple places, we’re seeing that same thinking play out on the corporate side.

How does Finastra’s strategy as a provider align with financial services’ goals?

Legacy Misys had a strong presence in trade finance, supply chain finance, and corporate channels, and with the D+H combination we added the missing component in our corporate banking strategy, which is largely centred on cash and payments.

By bringing those elements together we have created a complete connected corporate banking solution. Throughout the joining of our two companies we already had customers who understood the market logic behind the combination and wanted to know when they could take advantage of the consistent end-to-end capabilities we have created.

Have you noticed a dramatic change in financial institutions’ attitude to the digitisation of corporate banking recently?

I think it has been a gradual change, but the momentum has grown to the extent that we have probably reached a tipping point now. Interest has grown recently because previously it was assumed that in order to digitally transform banks would need to embark on a wholesale monolithic project which didn’t appeal, not least because there plenty of anecdotal evidence that the banks who had taken this approach couldn’t finish these projects. Now the benefits of incremental evolution are being appreciated.

Is the pace of change of the banking landscape too quick now for a ’rip and replace’ digitisation program to be viable?

The landscape is constantly shifting, meaning the technology solutions are constantly evolving too.

The second factor that makes any ‘rip and replace’ project unviable is a recognition that it would be inordinately complicated. There are simply too many moving parts for a wholesale transformation to be feasible.

Is digital transformation a project that a bank could undertake purely in-house?

If you look at the average IT budget for banks, it’s growing incredibly slowly, in the low single digits. On the other hand, the pressures banks faces to improve their technology, such as changing regulation, continue to augment. So banking IT budgets are being stretched all the time.

The approach we are advocating to solve this issue is to think of the digitisation journey incrementally. Tech upgrades need to be evolutionary not revolutionary. The end result will be revolutionary in the fullness of time, but each of the incremental steps is evolutionary.

The additional benefit of adopting a platform implementation approach to enabling digital transformation is that banks will be creating an opportunity to be masters of their own destiny. By implementing an open platform the bank can provide access to third parties to install technology to sit on top of the platform, and for in-house IT staff to accelerate innovation, affording the best of all worlds.

With the change in attitude, will there be a radical alternation in how banks actually act on transformation in 2018?

The process will take longer than a year, but the journey is already underway so the market will deliver tangible changes in 2018 on a gradual basis.

Even though the pace of change is accelerating, banking is one of the largest and most complicated industries in the world from an IT perspective so transforming the industry will not happen overnight, but it is certainly already on the path to doing so.

What’s going to be the outcome for banks that aren’t focused on digital transformation yet?

Frankly, I think it’s going to be hard for those banks to survive. The reality is many banks and even some non-banks are making strides in this area, there will come time when if a bank cannot provide a rich digital experience, the customer will move to a provider than can, much like the scenario PSD2 will create in the retail banking space. That dynamic will exist across every segment of the banking industry, and forward-thinking banks are aware of that, which is why they recognise the urgency to invest.

Would you go as far as to call that sense of urgency panic?

I don’t think so. It’s not that the old business models are dying on the vine immediately; there is a shift and the shift is accelerating but we are not at that point of no return yet. Panic is the point where people start making foolish decisions, and there is no systemic panic in the market now.