SoftwarePlant is now BigPicture! Learn more
Nov 03

Agile in Banking. How can a regulated institution become customer-centric?

Agile in banking

Banks, with their physical branches, have been suffering from the competing services of technological companies. Banks, credit unions, and financial institutions that fail to digitally transform their businesses might ultimately share the fate of Sears, Blockbuster Video, Pier 1, and MC Sports. The digital transformation of a bank implies a change in management methods, too. The traditional sequential/predictive management, very common in the highly regulated financial sector, must give way to agile management. What exact steps does a bank need to take to embrace agility?

Agile is still relatively new to the world of banking. Due to the commonality of in-house developed systems, mergers, acquisitions, and aging core platforms, banks’ access to their data comes with complexities not faced by many of their fintech competitors. However, banks can benefit from using agile practices on a business-wide basis, including customer service, wealth management, and marketing.1

What does Agility mean for a bank?

Let’s begin with key takeaways on agile management vs. traditional practices, in the context of the banking sector.

Table 1. Traditional and agile management in the banking industry

Traditional Agile
“What the bank has to offer” – checking accounts, mortgages, and personal loans.

Building products and back-end technologies

Satisfying customers’ needs. Focus on customer experience

Membership – hyper-personalized customer experiences, Banking as a Living Business2. Cross-selling: investment products, insurance, retirement on top of traditional banking products.

Sales channels designed and controlled by a bank Omni-channel banking experience. Customers switching seamlessly between physical and digital (mostly mobile) channels2
Long-term strategy Hackathons, ideathons. Changing priorities. Inspect & adapt.
Departments.

Steered top-down both on the what and on the how. Hierarchical, there is a limited collaboration between siloed teams.

People over process.

Steered on the what and less on the how. Autonomous teams are multi-disciplinary, less hierarchical. Product owners and tribe leads are rather entrepreneurs than administrators.

Teams own a particular mission or business outcome, yet are supported by performance management and governance structures, and empowering activities.

Management practices Management practices + organizational culture + change in mindset

Not just agile adoption, the agile way of working. Also agile mindset (in both employees and managers)3

Command and control Leadership

Mid-management could be questioned.

Individuals and individual achievements Teams and team performance
Historically banks have not been viewed as fantastic employers for the next generation of talent. Banks realize they need great digital and tech talent, and so they become attractive employers.4

What specific steps do banks take to convert to Agile?

Online banking and connecting with customers on social media only heralded the change in the banking industry. The real change stems from refocusing the development direction to adapt to the customer and integrally involve change.5 Such complete agility, known as agility at scale, surely calls for a reputable solution, such as PRINCE2 Agile or Scaled Agile Framework.

Nevertheless, some institutions develop a solution on their own. In what order to implement an agile approach at a banking institution? Here is what insiders say.

— I’ve seen two ways of beginning an agile transformation – says Santiago Comella-Dorda4The first is to begin with your IT department and – after succeeding there, look at the wider organization to speed up decision making. Then maybe moving on to the customer-facing areas like marketing and financial product design, before moving on to the support functions.  The second way to start is a bit more aggressive. If a bank understands what their landing point is, and perhaps can take examples from other players in the industry, they can roll out agile end-to-end in one area of a business. This could be a product, a service, or a customer journey.

A 2021 session on agility in the banking industry,

involving senior innovation leaders and decision-makers at leading financial institutions, made the following recommendations6:

  • Reduce the number of applications running at your institution. Have enterprise-wide systems rather than product-based approaches to doing things. This improves agility over the long term.
    Have fewer partners along with fewer systems. Multiple technology environments clash with monthly product update cycles. As a bare minimum, operate with centralized governance and software vendor management.
  • Consider running non-custom, vendor-provided applications, as they offer cost and agility advantages, as opposed to many applications developed in-house. Market platforms (open banking APIs built upon a microservices architecture), rather than in-house solutions, represent the future for banks.2
  • Install a new CIO (chief information officer) and expand the IT (information technology) team.
  • As a banking institution follow Big Tech companies in how they provide value in return for the users’ data. Armed with that insight, identify white gaps – underutilization of products or channels by user groups.
  • Senior-level leadership is a must. Agility must be a top-down initiative because it demands collaboration across the entire organization.
  • Have client-centric metrics and KPIs in place. Credit union members’ level of satisfaction, banking app user count, and star rate are good examples.

All that in an effort to develop a new, intelligent, flexible distribution engine – that combines the digital and physical to help grow market share without traditional branches. An agile banking institution improves distribution costs by transforming fixed costs into variable costs.7

One author put it this way: Follow what software development companies do. Iteratively build and test banking products rather than wait until the completed project is delivered. Address problems sooner rather than rebuild. Speed time to market by providing a minimum viable product (MVP).5

Why agility in the banking industry?

Why all the hype regarding agility in banking – a pretty traditional sector? Isn’t getting online banking enough for an otherwise traditional institution? Can’t banks retain the functional departments and the traditional management model without bothering with agility?

There are very specific reasons why the banking institutions might favor the “above-average” agility:

  • FinTechs are emerging with their own financial solutions (Klarna, Adyen, Revolut). Winners are growing at speeds hard to match by major institutions. Change in the industry has been accelerating. Market and client behavior is changing – think artificial intelligence, big data, cryptocurrencies, and blockchain. Eventually, some people might no longer need a traditional bank.
  • The banking industry is digitizing quickly. When it comes to developing software, agile management simply performs better. Incremental management tackles business risks more efficiently, too.
  • Banks have grown quite complex and functionally siloed, especially amid regulations (MiFID II, PSD2, GDPR, labor law in Europe) and the diversity of channels. Financial institutions compete with purely digital players.5 It is time for simplicity.

Nevertheless, Deloitte in the paper on scaling agile in financial institutions makes a clear distinction between:

  • areas fit for agile, such as initiative prioritization, design, and development,
  • and processes that can be managed traditionally, namely IT systems, compliance, finance, vendors, and partners8

BigPicture has also advocated hybrid (mixed waterfall-agile) project portfolio management, for most industries, including the banking sector.


Bibliography

1 Why Agile Is Now Essential for Banking, Dan Biewener, Apr 2021
2 Accelerating Digital Transformation in Banking, Peter Kirk, Alan McIntyre, Miguel A. de Tomás, Asheeth Govindia, Patrick Rood, 2019, Accenture, Backbase
3 Agile in the Banking Industry, Damai Taribuka, Chintan Amrit, University of Amsterdam, 2020
4 A discussion on Agile in banking: Beyond buzzwords, Deepak Mahadevan, Santiago Comella-Dorda, Belkis Vasquez-McCall, Quentin Jadoul, Francesco Di Marcello, Aug 2019, McKinsey & Company
5 3 Characteristics of Agile Banking – and How You Can Apply Them to Grow Your Business, Sep 2020
6 Becoming an Agile Bank, Bob Meara, Jun 2021, International Banker https://internationalbanker.com/banking/becoming-an-agile-bank/
7 Stealing From Silicon Valley: Four Steps to Becoming an Agile Bank, Jeffry Pilcher, Feb 2018, The Financial Brand
8 Scaling agile at financial institutions, Joseph Cody, Divakar Goswami, Rajiv Ahuja, page 8, Deloitte, 2015

 

About The Author

With his automotive background Marcin goes beyond the 'Jira + software development' standard. He likes simple, up-to-five-sentence answers to complex questions.