Modernizing banking technology ecosystems to drive revenue and efficiency

Data is the lifeblood of a financial services organization. Yet Carlos Lopez, Strategic Initiatives Analyst at Jack Henry, says too many banks and credit unions fail to take full advantage of the priceless insights hidden away in their ever-growing stacks of data.

Developing a clear strategy to optimize that wealth of data is critical to developing an efficient and profitable organization, he believes. An enthusiast in open banking and AI, Lopez helps organizations identify important market trends.

What do you consider key as financial services organizations enhance their technology systems to boost efficiency and revenue?

We’ve heard a lot about AI and how it can drive efficiency, especially with back-office operations. But we need to pump the brakes and realize that AI is only as good as the data you’re putting into it. The sheer volume of data that financial institutions are collecting now is much larger than it’s ever been. And that requires developing and evolving a data strategy: How are we collecting data? How are we managing our data? How are we cleaning it? Just because you clean it the first time doesn’t mean it stays clean through all iterations of the model. Banks and credit unions that efficiently manage their data stacks will produce a variety of benefits, such as greater personalization, better fraud mitigation, more targeted loan offers and more precise cash-flow forecasting for clients.

An administration change in Washington always produces some uncertainty. To what degree do you foresee a shift in the regulatory environment for banks and credit unions?

I don’t see big changes, but financial institutions still need to get ahead of any potential policy shifts to capitalize on upside opportunities. You don’t want to be continually reacting to regulatory changes and scrambling at the last minute to adapt. You want to define your own strategy and stay ahead of where the market is heading. In open banking, for example, the farther along you are, the better positioned you will be relative to the data required to capture new value and pursue growth opportunities like embedded finance.

You have talked about “composability,” a design system principle that refers to combining or connecting different elements to create larger, more complex systems. How does that principle apply to banking technology?

With these next-generation core platforms, it’s no longer necessary to rip and replace your entire core system at once. You have modules for each function, such as a module for payments, a module for lending and a module for wire activities. The payoff is that it allows you to adapt quickly with the pace of innovation. It improves speed to market. And there’s less risk because if you put in one additional module and something breaks, you can roll back that one module instead of an entire system to figure out what went wrong. You can continue to test and iterate incrementally. These new banking platforms are cloud-native and very scalable.

What is the biggest technology gap for banks?

It’s human capital. You need people who understand how the technology works. Your people need to know how to roll it out successfully, how to manage the data and how to do it securely in a modern cloud environment. While modern infrastructure and most forms of innovation de-risk your tech stack over time, they also carry different risks that require different expertise to manage well. Change management and the co-innovation risk inherent in complex ecosystems require the right expertise. That’s why talent is so critical.

Do you see any other trends unfolding in banking this year?

Everyone knows about the great wealth transfer underway that’s reshaping inter-generational banking; however, banks and credit unions must understand where their next generation of accountholders is coming from as their current accountholders continue to creep up in age. Otherwise, financial institutions will continue to experience large outflows of capital over the next 10 to 15 years. They need to connect with younger accountholders looking for a seamless mobile and digital banking experience. And the younger generations inheriting wealth will be looking for wealth management options. Expertise may not necessarily be in-house, but banks and credit unions should be able to direct younger generations to those resources. Hyperautomation, which uses advanced technologies like AI and machine learning to optimize operations, reduce costs and enhance efficiencies, will play a critical role in this generational change. Finally, financial institutions will need a smart strategy to position themselves for the great wealth transfer.