For more than a year, customers haven’t been able to easily walk into a bank and talk to a banker face to face. So it’s not surprising that financial technology (fintech) enterprises experienced strong growth. Indeed, fintechs that focus on capabilities such as digital asset exchanges, payments, savings, and wealth management reported a 13% increase in the number of transactions and an 11% increase in transaction volumes during the COVID-19 pandemic, according to a survey by the World Bank, the Cambridge Centre for Alternative Finance at the University of Cambridge’s Judge Business School, and the World Economic Forum. Corporate banks that had to move to digital self-service almost overnight due to COVID-19 also had to ensure they had adequate insight into the profitability of their customer portfolio so they could adapt to negative patterns as they emerged (for example, around loan defaults or supply chain interruptions). On top of that, they had to institute processes for quick disbursement of pandemic-related economic stimuli.

Now, as various regions around the world begin to move out of the pandemic, banks of all sizes are looking for better visibility into working capital and for tools to quickly put that money to work to improve their banking customers’ bottom lines—and they expect to work with software vendors that can move fast. “The pandemic put a lot of pressure on financial institutions across the globe,” says Sonny Singh, executive vice president and general manager of Oracle Financial Services. “As a result, they want to see value in nine months, six months, or less.”

The clearest path to that, according to Singh, is to move away from time-consuming, monolithic financial services implementations that claim to encompass the entire financial services suite of offerings and move to a “microservice”-based, cloud native architecture.

“Banks want to be able to absorb change in faster, bite-sized pieces,” says Singh. Bank leaders are becoming expert at identifying components of their service offerings—either a revenue-generating area, such as lending, or a customer-facing area, such as mobile banking—and embarking on an outcome-driven transformation that allows banks to bring new services to their customers as quickly as possible.

Despite encouraging signs of growth over the past 18 months, fintechs’ biggest challenge is to build their customer base. The good news for the new breed of financial services ventures is that younger consumers—30 years old and under—are looking for digital banking solutions that provide them with a more personal banking experience. In fact, according to research on millennial and Generation Z banking attitudes, sponsored by Oracle Financial Services, 56% would switch to a banking solution offered by Apple or Google. But it’s not enough to acquire customers, according to Singh. “You need to give customers a great experience, bring them the right product, the right service, at the right time. Then you need to make sure that you can actually originate the products that they need and service those products over time.”

To deliver the new banking services customers want, traditional banks need to digitally transform their core banking operations. What looks to the consumer like a simpler, better customer experience actually sits on top of an extremely complicated technology implementation—for example, with security issues and transaction volumes that didn’t exist before, according to Singh. “It happens every time you do a transformation,” says Singh. “When highways were introduced, cars could travel at faster speeds, but needed a whole new type of safety testing and new brake technologies. As you modernize, you need to be prepared for the side effects that those transformations bring.”

To respond to those changing needs, Singh’s team recently launched new cloud services for financial institutions for supply chain finance, liquidity management, and virtual account management. Since each cloud service is built on an adaptable microservices architecture, banks can strategically “plug-in” these new services, which include built-in AI and machine learning capabilities.

This approach to technology for financial services could dramatically change the way banks do business—no small effort in a heavily regulated global sector. Fortunately, regulators have become more open to the cloud, implementing guidelines around data privacy and security and putting in place rules around data residency, or where citizens’ data resides. “Many governments are reluctant to even put the data out of the four walls of the country itself,” says Singh.

Another huge regulatory change is around the move to mandate or strongly recommend multicloud environments. Regulators from the European Union, Singapore, and the Bank of England’s Prudential Regulation Authority are making these recommendations to forestall vendor lock-in and mitigate the risks of downtime.

In addition, the customer experience of banking is changing. It’s primarily digital, based in the cloud. Customers see fewer paper checks and those they do receive are deposited by taking a photo of the check. They use their mobile device to move money to their child to pay for lunch at school. As friction in the customer relationship is reduced or eliminated, fintechs that are “born in the cloud” are well placed to offer unparalleled customer experience, and traditional banks will need to up their games to compete in the modern marketplace.

In his 31 years at Oracle, Singh’s role has changed to reflect the dynamism of the financial services industry. “It's not just about supplying traditional data management security and business capabilities,” says Singh. “It's about helping banks incorporate modern, innovative, transformational technologies into the very fabric of their banking systems.”

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Illustration: Wes Rowell