The 101 of Bank Integration Strategy
Available On Demand – 24 minutes
Join the CCG team for a fireside chat with Scarlett Sieber and financial services veteran John Macaluso discussing the 101 of bank integration strategy.
A primary component of a successful digital banking strategy for community banks and credit unions is a strong integration framework. They are expensive to build and maintain, particularly if leaders do not understand the basic’s of how they are best utilized. This discussion will provide a foundation for leaders who are beginning to plan for an integration strategy.
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Welcome back to CCG’s Webcast series, we are here again for yet another episode of the Consumer Banking series. Not surprisingly, I am once again joined by my incredible colleague John Macaluso, who is Principal here at CCG Catalyst. I am your host, Scarlett Sieber, Managing Director, Chief Strategy Innovation Officer here at CCG Catalyst. John and I have been talking a lot about our next topic. We are so excited that we’re finally bringing it to you. So this week is going to be about the 101 of bank integration strategy, which, is going a little bit into APIs and whatnot but we really wanted to start with the very high level. For those of you executives who don’t know where to start, don’t know what to do with this, we just wanted to kind of set the stage and get you excited about a concept that I’m sure you’ve heard a lot about and that’s we’re going to do today. So, Mac, thanks again for being here, looking forward to our conversation.
Great and thanks for having me. I’m excited because integration, the concepts around integration, the strategies, where we’re heading as an industry, it’s really important that banks and credit unions begin to think about this early on in their strategy.
Absolutely, and I think having a integration framework is really critical for a successful digital banking strategy. Before we get started, let’s do the housekeeping quickly. As always, at the bottom of your screen, you’ll see a variety of buttons. The middle one is a picture of our faces. That one is used for you to see our bios and backgrounds. You can connect with us on our social channels and of course, email us if you have any specific questions. To the right of that, you will see a CCG logo. That is your go to place for all resources. You will see some articles that we have written, in fact that one of the ones on there is a recent article that that Mac and I coauthored on Financial Brand, really about mobile strategy, but there is a ton of stuff there. There’s another article I wrote on open banking on Financial Brand on there and some stuff from our colleagues like Joe Spatarella and others as well. So please use that resource at your disposal, there are a lot of links there and you can get lost in all the content. To the left, you will then see a Q&A section. We will do our best to answer questions during the session if we do not get to them, I’ll stop and give you feedback or we’ll respond to them on chat. Worst case scenario, we will respond to you after the fact with any questions that we did not get to, so have no fear, we will get to your question. With that, let’s get going, Mac, let’s dive right in. To get started here, there is a lot of talk around integration. A common thing that I hear about is lack of integration capabilities. Let’s get to the base of what this is, what actually is integration? Is it a technology? Is it a strategy, a product? If you were speaking to a bank CEO or an executive team, how would you qualify or quantify what that is?
Well, integration or actually lack of integration, has been thrown around for years as a huge issue that banks and credit unions have. My mobile product is not well integrated to my bank core and that’s generally the problem that people are trying to resolve. Well, the reality of it is, it’s not a product. I don’t buy integration, it’s not a discipline. Integration is a strategy. It is a wide array of capabilities that will take two platforms and make them as one, or at least appear as one for your customers. That’s what a good integration program provides. And it’s essential if we’re going to move forward, certainly on of the things you and I have been talking about in terms of digitization and consumer and business internet banking.
So I appreciate that, that’s helpful. When we think about integration, we have the framework set up at the high level, what are some top examples that come to mind when you’re thinking about integration that people can connect and relate to?
Over the past 20 years or so, it really became a big issue primarily between core banking or core credit union processing platforms and web platforms. Well, we truly we spun it up and made it hypercritical when we moved from the web to mobile. But now, and this is why it’s so important we’re talking about this today, Scarlett. Now, it’s not just integrating, putting name and address on the mobile app or or printing history information on the web. Now it’s incorporating payments and it’s connecting into third party products because as a consumer, I want to open up my portal to my bank or my credit union and I want to see everything I’m doing with them, not one thing and then I have to open up another product to look at another thing. I want to look at everything in a single platform which requires a very comprehensive, well-thought out approach to integration.
I agree there. If we think about that banks have aspects for sure of integrated products and cores and they’ve had this for a very long time, so this is not something that’s necessarily new. I mean, some of these things are different with the new versions of integration, but with all of these things that have been around for a while. We talk, you and I about strategy. We’re getting a little bit technical here and we start getting to the integration component. Why is the strategy still important in this process? And what role does it play?
We’ve actually talked about this a couple times. Why this is important today is because of customer expectations. Our expectations are very different today in 2020 than they were in 2015 or for that matter, 2017 or 2018.
Our expectations of the experience we’re going to have when we look and communicate to our bank through our mobile app are very different. They are very comprehensive, very thorough. When I want to make a payment, I don’t want to exit my application, I want that to occur now. Most importantly, we talked about this when we talked about online account opening. I don’t want to enter data two times. A well integrated solution says if I have data, somewhere in the ecosystem of my bank or credit union platform, take that data, bring it to me, have me verify that data and use that data, don’t make me reenter it. That is all about customer experience. That’s what’s so important, it’s your expectation, my expectation, and the expectation of future customers, both business and consumers, is far different than what it was a few years ago. There’s really not a tolerance for platforms that are not well integrated because they become clumsy.
For those of you, I do see your questions coming in, and we’re gonna try to wait until the end to get to those if we can, we want to keep it short. Mac, let’s get pretty literal here. I get the idea of the value of a strategy as it relates to integration. But what are some examples where a strategy has improved that integration or that process?
We talked about this last week, online account opening. Online account opening is actually a number of different processes linked together. For example, when I onboard a customer, I take information about that customer, I validate that customer with KYC (your your customer) requirements, I check them against the BSA requirements. But in addition to that, I am going to onboard them onto my processing system. I may be offering them another product, so I want to run them through a marketing engine. These multiple processes are actually standalone processes that a well integrated platform brings together into a single experience. Online account opening, as you and I have discussed, needs a lot of work. When you drive into it, when you try to understand what are the issues there, the issues really are, is that it’s not a well integrated approach. It remains separate processes that make me put information in multiple times, that make me validate multiple ways through the process. When we talk about account opening, that’s a great example of how we as bankers can improve that experience by actually having a strong integration strategy.
Yeah, I agree with you there, and account opening is a perfect example of this done well.
I think one thing I would add that is going to become more and more relevant and critical as we move forward is payments. Today, making a payment, me sending you money is one process via one set of integration. Very quickly, me making a payment to a third party within my bank app is another set of integration. The reality is, I want both of those things to work the same. So integration, as far as payments is concerned, is going to be critical as we move forward.
I’m happy you brought that up because that’s something else I know we talked about in the past and there is so many opportunities on the payment side still and a lot of movement over the last 18 months, to say the least. So obviously we’re talking about organizations of different sizes, capacities, resources. Are their different approaches that you’ve seen that these banks and credit unions are taking to integration? If so, what are some of the ones that you’ve seen be more successful?
So there’s definitely different approaches. We’re going to have another session actually where we dive in a couple of weeks, some of our peers are going to have a very deep conversation on the granular components of things like APIs, application program interfaces, or conversation around micro services, or just legacy point to point integrations. There are many approaches that are available. Many of them are driven by the underlying core, some of them are driven by the competency of the bank or the credit union to absorb a large technology platform. Actually, I would put them in three broad buckets. 1. APIs, the bread and butter that have been in the industry, particularly in a real time environment. They’ve been available for a long time and most of the core account processing platforms that are in play today have a pretty decent API library. 2. There are dedicated point to point type interfaces for third party products and, the way we sit today, payments would fall into that. There is not a lot of question that if I’m going to use Zelle, I’m going to do that around the ISO rails for payments. That is a very dedicated payment rail for ISO 8583 connectivity used for a lot of things, it’s part of the Zelle world, it’s part of the debit environment and the credit environment we run. But that’s a very dedicated point to point integration product, versus the API that I referred to earlier, which is an array of core driven application program interfaces that can set up a customer, get me a balance, setup my product type, change my address, things like that. APIs have a lot of capability. Things like the ISO 8583 are dedicated to one payment stream. And then there’s 3. and that’s where we’re evolving to and those are things like micro services and micro services begin to aggregate things like APIs and ISO into many, if you will, composite services that, if I am building an online account opening platform, I can onboard my customer, I can validate my customer, and then I can fund that account. Micro services take the more granular ISO transactions or APIs and bring them up a level. So there are many different approaches to this and it comes back to organizational competency, core processing, vendor capabilities, and frankly how much you as a bank want to invest. But this is the point, all of that is out there in the mosaic so we have to really focus on it.
One question that did just come in. Can you give us an example of a micro service?
Some of the best micro services that I’ve seen attack particular functions. For example, know your customer or BSA. That’s a set of functions that are generally done together. A micro service would be a validation service. So a mobile app, for example, would say, I have to validate John Macaluso. It would hand the data that is needed to the microservice, the microservice would convert that into multiple individual functions then come back with an answer for all of that and hand that to the mobile app. It’s kind of like where do I want to put my logic? If I’m going to reuse customer validation in multiple places, my website, maybe my branch operation or my call center and my mobile, I want one service that will support multiple different functions. That’s where you start to look at micro services and then composite services as better than an individual API because the individual API requires you to put business logic for that in all of those inputs. I love that question, by the way.
Yeah, there’s a few more, but I’ll try to at least get to one at the end but I do want to wrap up here because I have one question that is how we try to end most of our sessions, which is the role of three. Let’s go back to the strategy because that’s the high level focus that we’re starting here. What are the three things that banks and credit unions should consider when they’re developing this integration strategy?
My first one is always going to be figure out what you want to be. What do I really want to do here? And that has to align with your business goals. If your goal is to establish a strong digital footprint, then you need to have a strong integration strategy. That’s number one. Number two, you need to evaluate your current state. The reality is right, when I say current state, it is my current state of products, my core products, my ancillary products, my organizational capability, my infrastructure capability. You have to have a great understanding of what am I truly capable of doing today? That’s hard because that takes that takes some honest assessment of where you are. You may be on the wrong core, you may not have the right capability, you may have products that aren’t good at integrating, all of this is key for you to understand that. Then the third thing and I think this is very important. You need to define future state, not future state with the three products I’m trying to integrate to, but a future state to where I want to be, future state to when I bring in these other products and capabilities, I’m going to integrate those too. So let’s define future state and that’s a hard thing to do and I understand it, but it’s important because you’re going to spend a lot of money to do this and you need to spend it one time, not two times or three times. That’s generally where I see failings in banks and credit unions and that is they’re looking at current state and assuming that’s future state and that’s the fail point right there.
As usual, you get the tweetable moment at the end. Thanks for that, Mac. Thank you all for joining, we really appreciate you taking the time. As a reminder, all of the buttons at the bottom, you can connect with Mac and I directly on our social channels or e-mail us. There is that Q&A. I will ask Mac at least one of these questions now. For those of you that we did not get to, we will e-mail you afterwards. So don’t worry, we’ll get to you. Let me just really quickly get to that one question, Mac. This is from Henry, this is great in theory, but my bank is having major issues getting this through processing. How would you suggest we do this?
So I’m assuming that what’s happening is the execution is difficult and when you look at integration strategies, where the execution is flawed, that generally comes into not having a good understanding of what you want to do and you get into this cycle. I’ve seen this and this is very unfortunate, I’ll try to wrap this up real quick, but somebody will say, I’m going to create this minimally viable product, which means I just need name and address. Well, when you deliver a name and address, then you realize I need these other five things. The starting and stopping and the continually under achieving on the goal of what you’re trying to do overall is where the failing is. So the thing that you need to do, spend the time at the beginning understanding what you want to do. You need to level set that in the organization and then you need to work with that goal. The worst thing that we can do is buy two products and start developing code to lash those two together.
I have seen that far too many times. For now, we are going to have to wrap up. So if you do have other questions, please let us know, we will follow up afterwards or if you have ideas on things that you want us to dive into, we would be happy to do so. We have a big list of ideas that we would love to discuss with you, but of course we want to make this as relevant as possible to you and be here as a resource for you. Mac has mentioned a lot about how important it is about really setting that future state and that vision. If you want to talk to us about a strategy session and getting started or a strategy engagement, let us know. We are here as a resource for you. And if not, you have opinions or you disagree with what we say, we would love to hear that as well. We certainly are open to different feedback and opinions. Mac, again, thank you so much, as always, really appreciate your perspective and looking forward to our next episode as part of this consumer banking series. So from CCG Catalyst, the whole team, we thank you for taking the time today. Or if you’re watching this afterwards on demand, thank you again, and we look forward to next time. Stay safe and we’ll see you then.
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Chief Strategy & Innovation Officer Scarlett Sieber is one of the world’s premier voices in financial services. She is among the industry’s most sought-after speakers as a thought leader and innovator with expertise in driving organizational change at both startups and enterprises across the financial services and fintech ecosystem. Scarlett has been invited to speak at over 100 prestigious financial services and technology conferences globally, including Money20/20, Finovate, South Summit, and NASA’s Cross Industry Innovation Summit.
Scarlett’s experience includes founding her own startup as well as working at banks such as BBVA, USAA, and Opus Bank. She is a leading fintech influencer, included on lists such as Top 100 Women in Fintech 2019 and Top 10 Fintech Influencers in the U.S. Scarlett also has deep experience in digital strategy and innovation implementation, making her a key asset to building cutting-edge programs for our clients.
As Principal of our Technology Strategy, John Macaluso has built a reputation within financial services as a trusted advisor to banks and fintechs. With over 30 years of proven leadership, John’s experiences include all areas of information technology, business planning, innovative solution design & deployment, business & operational leadership and business & technology transformation. John advises a vast area of technology within financial services from fintech startups to established global financial institutions. Specialties include digital transformation to established core technologies.
Previously, John held senior roles at Fiserv (a fortune 500 company) driving large-scale change from multi-channel to traditional and non-traditional banking services, national to international markets. Additionally, he served as a CIO for the MLB New York Yankees diving innovation and technology to major league baseball.
