The way consumers engage with technology is constantly evolving. For financial institutions, where consumer channels are often rooted in legacy, back-end technology that can be slow to adapt, staying ahead of the curve can be a daunting prospect. Customers expect an optimized user experience, similar to what they are used to from today's services or retail industry. Following the rise of open banking and the arrival of thousands of fintechs looking to disrupt traditional banking over the last several years, financial institutions are faced with more challenges than ever before when it comes to selecting the hardware and software infrastructure that will power their offerings and service their customers.
To bundle or unbundle? The dilemma of integration
One of the most important choices that financial institutions currently face is whether they should bundle, or unbundle, all of these hardware and software components when updating their technological infrastructure. The reality is that there is no one right, or wrong, way to do this.
In the past, financial institutions had a tendency to pick and choose from different vendors to build their solutions. While this process can work to help build systems that are optimized for individual processes, it can also prevent you from gaining key, system-wide optimizations and integrations. Vertical integration, the process by which a financial institution connects all the various processes and services that it provides through a single connected ecosystem, offers unique advantages in the current banking environment. At a time when a seamless customer journey is more important than ever, vertical integration allows organizations to prioritize customization, increase connectivity and develop software and hardware systems that keep customers happy and engaged.
The power of vertical integration
Historically, the integration work required to optimize the consumer journey using third-party software and hardware providers have been the crux of all offerings not only within the financial services environment but also broadly across technology, healthcare, and retail industries. Now, as firms want to improve their solution stacks towards integrated journeys, the friction between the tech and the end-user is still apparent. When you're combining a piece of hardware from Vendor A, and a piece of software from Vendor B, one is able to deliver all basic functions. However, you may not be able to exploit the full potential and additional features of an optimized stack that is built with extra value in mind.
Think about the seamless integration that you encounter within Apple, Samsung or other consumer eco-systems. With Apple, your iPhone, iPad and other Mac products all sync together. Hardware like your AirPods is automatically optimized to work with your other Apple products, with your data seamlessly connects through iCloud. Meanwhile these devices all stay up to date through background iOS software updates.
The connectivity of that ecosystem allows for the flawless consumer experience that we know of with Apple and others today — and it can be no different with financial institutions implementing these tactics into their solutions.
Lessons from consumer technology ecosystems
Think about cash recycling as a customer journey. To get to the optimal cash recycling customer journey you need the best recycling machine, the OS, the optimized terminal application taking advantage of those hardware features, the terminal handler that is capable of managing this through a modern protocol, and finally, a host that is capable of running enhanced transaction switching in a modern payment's world.
While you can bring all those pieces in separately and assemble the customer journey from different parts, you're inevitably going to be spending more time and energy building something that inevitably falls short of a fully integrated and frictionless system. Ultimately, having the connectivity of an integrated stack enables optimization and tight turnaround to deliver an out-of-the-box solution that will make consumers come back for that seamless journey.
The pioneering computer scientist Allan Kay perhaps said it best when he mused that "people who are really serious about software should make their own hardware." Engineering simplicity is the most difficult piece of the puzzle to implement vertical integration, but it allows for product management scenarios that drive end-to-end migration. In the past, consumer technology had the default of being an outlier and lived up to the expectations of those end-users. However, in B2B technology (and particularly financial services) that is not the standard today.
When you especially consider the need for both customization and connectivity in optimized customer journeys, back-office systems need an eco-system where they can talk to each other — and advancements where they eliminate the need for third-party solutions that alter the fluidity of the consumer experience. The cloud-native paradigm is delivering to those needs today.
Achieving optimal customer journeys
As the demand for optimized user experiences continues to shape our industry, vertical integration has emerged as a compelling strategy for financial institutions looking to create the ultimate consumer journey that provides more value to customers while reducing overall TCO. While there is no one-size-fits-all, and a successful solution can be built via many different channels, it's worth considering what are the most important factors when fostering lasting customer loyalty. The parallels with successful vertically integrated consumer technology ecosystems, such as Apple's, underscore the importance of connectivity and optimization for financial institutions looking to revolutionize their technology stack. By embracing this strategic approach, financial institutions have the potential to not only meet customers where they are but also set new standards for the seamless customer journeys that will define the modern banking experience.
Originally published in
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