Red Hat: banks must reinvent themselves

Nobody likes to grow old, especially traditional banks that have found themselves straddling two financial worlds – old tech and new tech – while all the “cool kids” try to steal their customers and their business.

If these banks want to survive, said Ramon Villarreal, global financial services architect at Red Hat, they have no choice but to reinvent themselves.

“They need to stop thinking they’re banks, and instead think, ‘Well, I’m actually a tech organization with a banking license,'” Villarreal told Karen Webster in a recent interview. “They need to innovate more. They must implement new ways of thinking and working. They actually need to stop being the traditional bank and start seeing their customers as partners. »

He said that although the big banks are different today than they were 10 years ago and are always trying new things, this is mainly due to customer demands for more services, as well as ” an enormous weight of competition” which comes from neobanks and FinTechs.

“It’s not because [legacy banks] can transform. It is because they to have to do this,” noted Villarreal.

Migrate to the cloud

He added that traditional banks don’t need to migrate everything to the cloud to stay competitive with their cloud-native newcomers, but they need to embrace cloud-based technology and think of hybrid ways to use it at the within their organizations.

And while many banks see moving to the cloud as a way to cut costs, Villarreal believe it’s a common mistake. “One of the biggest misconceptions is how many organizations approach cloud transformation: Cloud migration is about cost reduction,” he said.

But cloud transformation done right isn’t really about that, he noted. “It’s a matter of flexibility. It is a question of the ability to innovate. It’s about the ability to build things easier and faster. And it’s about delivering value to the customer faster.

Another misconception is that many organizations believe cloud data security is much more burdensome than it actually is.

While acknowledging that this is important and needs to be done correctly, Villarreal said automation tools allow banks to secure infrastructure in the best possible way. He said these tools can meet their diverse regulatory compliance and security needs, whether banks’ services are global or more localized.

A new twist on an old idea

Certainly, migrating to the cloud has been a hot topic in the banking industry for nearly a decade, with institutions of all sizes looking to implement the technology securely and reliably.

Villarreal said that while COVID-19 has been a catalyst for most forms of digital automation and innovation, the work banks have done over the past six or seven years has laid the groundwork for cases. of use that they have now implemented.

“It’s about the cloud paradigm, it’s not about the cloud,” he said. And ultimately it’s about what the audience wants. “It is the application of the cloud paradigm that benefits this change.”

Villarreal said finding ways to use innovations like artificial intelligence (AI), microservices and automation is characteristic of cloud technologies.

“It’s about the power of having a platform that doesn’t limit the evolution of technology,” he said. “That’s the real thing, and that’s the important part.”

ISO 20022

At a time when we are seeing all kinds of changes in the way financial institutions (FIs) operate, transact and communicate with each other, Villarreal noted that there are many questions about ISO 20022, the new standard for exchanges. electronic data between banks.

But he said ISO 20022 “can be really easy to understand” as long as you look at payments as a transactional process and don’t look at participants. Villarreal noted that the value of this new messaging system comes in the form of the additional data and functionality it brings to financial services companies.

However, Villarreal said ISO 20022 also brings new kinds of challenges, as it forces banks to operate with a higher level of processing, requiring faster transactions that use data more efficiently.

While that’s the value banks should get from these innovations, Villarreal said how these messages will actually work in the future is still “uncertain”.

“There are so many options that it’s hard to predict the real impact of ISO 20022 on the markets right now,” he said. “I think he’s going to be a big player, but he won’t be the only option for payouts going forward.”

The path to follow

Villarreal said the payments ecosystem is exploding with new and different ideas as new capabilities emerge that could eliminate physical cash.

As for how it all plays out next year, it is looking for an acceleration of new capabilities and innovations in the payments market in the second half of 2021. But Villarreal also expects to see “new challenges in terms of regulations” due to the current climate.

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