April 13, 2021 at 09:00AM

Banks have not always been the most technologically forward-thinking organizations out there. Go back in time a short four or five years and start throwing the term “cloud computing” around and the response would more likely be blank stares or frowns than any kind of enthusiastic reception. But over the past two years the cloud and banks have become well-acquainted, with one report finding “tremendous acceleration” among financial institutions (FIs).

Time, and the demands generated by the black swan event that was COVID-19, has a way of opening people minds, Red Hat Chief Technologist Vincent Caldeira said in a conversation with PYMNTS and Infosys Finacle Head of Cash Management Rahul Wadhavkar.

“Almost every bank today that we talk to no matter the size, may not be ready for immediate cloud deployment, but they ask us for a roadmap to take them into the cloud and four or five years,” Caldeira  said.

And it’s not just cloud computing, the panel agreed. Banks across the board are entering 2021 with a mandate to embrace digital change in a big way, as Wadhavkar explained. The pandemic exposed a lot of glaring inadequacies in the system and focused the lack of digitization and data strategy that was setting the industry back.

“Businesses suffered because of that,” Wadhavkar said. “We as a community have paid a pretty heavy price. Now, some banks did better than others but the gaps that existed in our system were pretty obvious. So one thing that we are going to have to do, and we are already seeing banks starting to move in the direction, is adopt a sense of urgency.”

The five- to 10-year investment cycles that defined planning in banking, he said, are going to become a thing of the past as the new metric in banking is going to be how quickly banks can provide the value of what they’re implementing to their customers. If it’s a couple of years, Wadhavkar said, it’s too long — the consumer may no longer care about the upgrade if it takes that long to roll out.

Which means, Caldeira said, that implementation and getting it done right from the word go becomes critically important, because being willing to upgrade technologically is only the beginning of the battle for both enterprises looking to enhance their cash management and for the FinServ providers hoping to help get them there.

There’s a lot of bad old back-end silos and legacy tech standing in the way.

Cleaning Up Cash Management

According to the latest edition of the PYMNTS Cash Management Handbook, CFOs aren’t using digital technology to manage cash and manage capital very heavily, with fewer than 14 percent pursuing such solutions. And the problem, Caldeira noted, isn’t lack of available technological solutions, but an internal structure that is hostile to it. Data silos abound, he noted, such that locating and integrating data is a real challenge.

“The data integration challenge is probably the biggest, a whole block to adoption. Now at the level of a corporate it’s even worse because based on their scale, they may have a very limited number of people who actually understand the topic of cash management,” he said. “It’s a small crew of busy people running the business or helping the business to survive using tools such as spreadsheets. Now, can you really ask these people to stop whatever they are doing and start a one- or two-year technology platform implementation project and help the corporation to adopt new tool?”

Moreover, he said, even if one makes the business case for how much better cash management would be, it is not easy to know at the outset how much investment of time and treasure will be required to make it happen. But make it happen they must, because as of 2021, in the wake of a global pandemic, better cash management isn’t something that is theoretically nice to have — “now it’s become a kind of a need for firms to survive,” he said.

“There is just no more ability for to decide to postpone this type of project at all at this point,” Caldeira said.

Upgrading The Legacy Tech

Making those digital upgrades to cash management happen for enterprise customers, however, isn’t going to be easy or straightforward work in a lot of cases — because it isn’t about accessing an application programming interface (API) and flipping on new functions overnight. If only it were that easy, Caldeira said.

But the APIs — which will enable better cash management solutions like real-time payments, or any other product or service like open banking — aren’t the hard part. The hard part is getting them to play nice with the mainframes and other pieces of legacy technology that the bank is actually built on that was never designed to be integrated with modern tech. Batch systems, he said by way of example, are very efficient mechanisms by which to process a lot of payments at once. But they are nearly useless if what one is trying to build is real-time payments function to provide businesses with better cash flow control.

“When you look at what’s really required, and the bulk of the effort here is actually more in the integration platform,” Wadhavkar said. “The first building block for a bank is actually not the API; it is to build what we call cloud-native integration which uses very small bits of logic that can easily be composed and integrated together to build in real time processes in a very effective manner. If you don’t choose the approach of a journey integration, what you will find is you will spend so much time to integrate your core and they get the system in bits and pieces, but you will never reach a situation where you actually give capabilities back to your customer.”

It’s a challenge, both agreed, but not one a bank has to take on alone. Partnership is the best option here. Both Caldeira and Wadhavkar agreed that they partner with firms that are able to help them stay agile in an environment that is consistently evolving. Cash management and moving money, Wadhavkar said, are at the end of the day pretty commoditized activities.

“You want to make a payment from point A to point B, you can go with bank A or bank B and eventually your money is going to reach its destination,” Caldeira said. “So what else is it you as a bank are offering? And especially in this day and age, where change is the only thing that is really constant, you need to have a vendor who’s agile. You need to learn from some of the other customers. You need to think of how you can do some of the things creatively.”

Because they agreed, for all the change we’ve already seen in banking thus far over the last few years, the best is still yet to come, as embracing technology in the banking segment has the potential to open up new floodgates of innovation in financial services.

The Tip Of The Iceberg

The most interesting thing about a financial services world that is working overtime to upgrade its legacy systems to provide more digital services for customers isn’t anything we see around us today. The most interesting thing, both men agreed, is going to be what comes next — what services and offering banks are going to be able to leverage the technology to build as they attempt to distinguish themselves and draw in new customers.

The pace of innovation is going to speed up, as long product development cycles and 10-year plans are incompatible with the current environment. But it is going to be more than faster, Wadhavkar said — it will also be better.

“Concepts and ideas out there now, they’re literally just the tip of the iceberg of what could potentially be,” he said. “I think we will find better examples of the use of API, and APIs to be able to integrate with other partners in some of the other industries outside of financial services and banking. I think this is really an area to watch for the potential of what we could do that is not defined by three or four or five use cases — banks can get creative on their own. They can expose their services through the use of API layer. There’s just a huge amount of scope for what we can do with this whole concept.”

Bringing Corporate Cash Management Into The Digital Future …

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