The banking sector has been one of the first industries to use computers, and yet, has somehow failed to reap the maximum benefits of the internet revolution. From an IT perspective, the payment and backend infrastructure of many of the oldest and largest banks across the US and Europe is archaic. In today’s world of smartphones and the internet of things (IoT), these banks must transform their infrastructure to stay ahead of the curve and ensure a superior and seamless customer experience. In the following interview, Antoine Larmanjat, CIO at Euler Homes, discusses the importance of modernization and innovation in the banking and insurance industry and how banks and insurance companies can bring this transformation to fruition.
"Delaying the adoption of new technologies and innovations may result in your organization being disrupted by startups"
What are some of the challenges prevailing in the banking and insurance sector?
Most of the existing banking infrastructure was set up in the pre-internet era, leading to a monolithic and poorly-connected banking industry—a misfit in today’s highly connected world. It resulted in the emergence of payment networks like Visa/ MasterCard and American Express to combat banks’ inability to seamlessly exchange data with each other. Many banks still largely lag behind in terms of IT infrastructure owing to their persistent use of old technology and delays to embrace modernization, the banking industry is ripe for disruption
Recently, the US government decided to independently introduce a real-time payment system. Also, in 2019, the European Commission under the European Parliament and PSD2 pronounced to open up their infrastructure to Application Program Interface (API), with an aim to start the revolution of open banking. Some Banks resisted this idea of open banking because of its possibility of being more of a threat than an opportunity while other banks embraced the opportunity. From a technological perspective, although we live in a world where money transactions from one bank to another via the internet are considered to be safe, banks chose to focus on various security concerns—which aren’t entirely correct—to advocate their use of the proprietary networks for exchanging information. That has led to a lack of innovation in the payments world. For the past five years, the payments industry has been tremendously challenged by the newcomers, and banks have clearly struggled to catch up. On the brighter side, various countries and their banking industry are taking up the initiative to make better use of new technologies with alternate payment options like Payconiq in the Benelux, Paylib in France, Paydirekt in Germany, Venmo in the US, to mention a few.
Besides, more emphasis is laid on the use of cardless payment methods like Apple Pay and many more with the purpose of opening up the world of payments. As new legislation— Payment Services Directive (PSD2)— has been implemented in Europe, APIs are now used to make payments without resorting to Card schemes that were essential to the economy 20 years ago in the internet’s absence.
What must banks and insurance companies do to successfully modernize their infrastructure?
To run operations flawlessly while continually transforming the business is what is expected from me. At Euler Hermes, we are a credit insurance company for financial and commercial transactions, and we manage hundreds of thousands of API calls every day, which makes our business model closer to the one of a bank. Our goal is to build a strong foundation underneath the system that is anti-fragile, robust, and scalable, where I don’t have to invest 75 percent of my time on the operational activities and, instead, devote more time to transformation. Modernization of infrastructure and architecture is critical; therefore, we introduce new paradigms and put API at the center of our interactions with partners, platforms, and marketplace. We are securely inclining towards the cloud to eventually kick-start our pace of innovation and reduce the time to market for new products and services. At the same time, we focus significantly on the robustness, scalability, security, and data management capabilities of the new infrastructure.
What must banks primarily focus on while identifying the right technology vendor?
The first and most important criterion is that the technology should not only be adaptable to an organization’s unique requirements but also align with its work culture. Hence, we focus more on creating technology rather than buying it. It is very important because, as we evolve as a technology company, if we continually outsource technology, it won’t always add significant value to our business and organizational culture. Hence, I believe, technological advancements should come from the inside. You need to effectively nurture a culture of technology and innovation as well as tech scouting and monitoring across the entire organization. Of course, developing everything on your own does not make any sense; none of the organizations can be 100 percent self-sufficient. But over the years, we have seen that some of the vendors were increasing the price gradually and not bringing enough innovation on the table to justify the increased cost. Hence, we must select vendors with customer-centric approaches— those with a roadmap for innovation and multiple research and development initiatives to sustain in the long run.
Generally, we prefer to rely on open source products, although open-source has been considered risky for a long time. But what we have observed is that proprietary vendors are sometimes a more uncertain choice because they could face a financial crunch, which might result in obstructing the roadmap of innovation and put your company in a difficult situation. Hence, we select a vendor that has a real sense of innovation and partnership.
As an experienced CIO, what would you advise your counterparts in the banking industry?
I would advise CIOs to open up their horizons soon and broaden their minds to digital banking, open payments, and APIs. Delaying the adoption of new technologies and innovations may result in your organization being disrupted by startups which often start with payments (Revolut). There has to be an internal revolution coupled with the continual modernization of the existing infrastructure.