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8 Ways Financial Institutions Fail When Building Digital Technologies

Rudy Mutter
January 26, 2018

In the finance industry, trust is everything. Would you trust a bank with a buggy app to keep digital thieves at bay? Do you think a credit provider without an online banking platform is using the latest tech to secure your card?

If you're a bank or other financial organization, your business isn't digital technology development. But without the latest digital technologies, customers aren't going to select you from the sea of financial products.

No wonder 77% of financial institutions are increasing internal efforts to innovate, according to a 2017 PricewaterhouseCoopers report on the fintech industry. Still others — 82% of them, to be exact — are looking externally to fintech firms for the latest and greatest financial technologies.

Now, there's nothing wrong with building out your own digital tools — most banks certainly have the capital to do it themselves. But remember how high the digital development bar is in the financial services sector. If you don't do it right, customers will wonder how strong your other services are.

Fintech Faux Pas

So before you bank your financial institution's future on a half-baked app, beware of the following 8 pitfalls to digital design and development:

1. Thinking waterfall is the way to go

Why have J.P. Morgan Chase, BBVA Compass, Capital One, and Tangerine Bank all ditched waterfall development, according to American Banker? Because anyone who's helped develop a digital technology knows it's awfully idealistic to think development will cascade quickly or neatly through conception, analysis, design, and production.

José Olalla, interim head of business development at BBVA Compass, explained in the American Banker article that agile is faster, cheaper, and less prone to inter-team miscommunications. "You're designing at the same time as you're developing, testing, and implementing," Olalla said. "... Every two to three weeks, there's some kind of new capability."

2. Betting on an unvalidated prototype

As a whole, perhaps no industry is better at sniffing out cost savings than the financial industry. But when a high-level executive sees "prototyping" on the balance sheet, he or she may not fully appreciate how valuable it is. Prototyping is a small investment in a product's future that can pay off in a big way, ensuring its function, features, and user interface closely match what users want.

Prototyping is particularly important when working with new or untested technologies. That's why Wells Fargo, in coordination with ANZ and Swift, created a prototype that models the role of blockchain, or distributed ledger technology, in correspondent banking. After first proving the concept, Wells Fargo decided to move forward with a technology that promises to improve the security, efficiency, and user-friendliness of its outsourced services.

3. Not consulting users during development

Banks' online services sometimes get a bad rap for being confusing or not addressing users' needs. One banker, Lloyds Bank UX designer Tiago Marques, has set out to change that.

"When it comes to empathy for the user, how exposed are the leadership figures to consumers and their everyday needs? How fluent are they on digital product design, consumer technology, and user experience?" Marques said in a recent Justinmind Q&A. "These are fundamental topics for modern banking, increasingly a digital service."

User consultations shouldn't stop after the prototyping phase; they should continue throughout the design and development process. Try out a technique called empathy mapping, which Yeti uses in its own work, to better understand when, why, and how consumers might use your product.

4. Building a messy back end

Creating an interface that users like is one thing; building a secure, compliant app or other software product is another battle entirely. Especially in the finance industry, digital technologies need to have a buttoned-up back end that stores customer data safely and shares it appropriately.

Perhaps the biggest challenge for financial organizations is creating a back end that communicates well with their central banking system. Most banks utilize mainframes that are 30 to 40 years old, requiring middleware to interface with more modern systems. Remember to factor in resources to bridge that divide. Banks without contemporary central banking systems spend up to 75% of their annual tech investment to maintain and connect their CBS to new systems.

5. Incorporating old or untested technologies

Artificial intelligence may be new to the technological ballgame, but there's a reason 46%  of large fintech companies and 30% of financial institutions are investing in it, according to the PwC report: Consumers want to do business with banks that offer up-to-date products and tools.

Does that mean you have to incorporate AI into your next technology product? No, it doesn't. Your goal should be to create something that's current and functional, so make sure every technology you choose fits the product's purpose.

For example, when we helped Alcatel-Lucent put together an IoT prototype, we used Bluetooth to help the physical device communicate with an associated app. It wasn't the only option or even the most cutting-edge one; it was a reliable, contemporary choice that created a great user experience.

6. Failing to fail productively

Banks have high standards to meet. Even if a digital platform botches one bank transfer in 10,000, that's a problem.

That doesn't mean, however, that every digital financial technology needs to be perfect upon release. Some products or features, such as Citigroup's mobile facial recognition feature, can be developed and rolled out once they function reliably. Citi's fintech arm built the facial recognition system in just 10 months, and it's iteratively improving the system through user feedback.

At Yeti, we call this the minimum lovable product approach. In finance, you might think of it as the minimum compliant product. If you can legally get a product out the door and in users hands, by all means do so. You'll not only beat competitors to the punch, but you'll also be better positioned to tweak the product through users' suggestions and ideas.

7. Amassing technical debt

With their centralized banking systems, financial institutions are kings of technical debt. According to Lev Lesokhin, senior vice president of strategy and analytics at the software consultancy CAST, consumer banks systems often contain components that have been there for decades, some of which are no longer necessary for the bank's functions. Especially in the U.K., Lesokhin claims, some banking applications contain hundreds of thousands more lines of code than necessary.

Don't let the same thing happen to a new tech tool you're developing. It's easy to prioritize new features, but remember that every unnecessary line of code is one more chance for a glitch to crash your product. To get a handle on junk code, consider contracting a third-party firm to audit your product's codebase.

8. Separating teams with silos

It may sound like a good idea to keep each team focused on its respective tasks. But just ask Deutsche Bank co-CEO John Cryan how that turned out. At a press conference in late 2015, Cryan revealed that about 80% of the bank's applications were designed in silos, many of them through outsourced firms.

"Design was basically done in silos or by joint standards where they were either hardly used or not used at all," Cryan remarked. "The result is that our systems do not work together, and they are cumbersome when it comes to the application and often incompatible."

Cryan went on to say that Deutche's situation is not unusual. Banks are dealing with a host of fragmented, uncooperative apps due to decades of siloed development. Especially when using the agile model, siloed teams result in miscommunications and sluggish development.

Developing a financial technology is a high-stakes game. The product has to work perfectly, each stakeholder has his or her own suggestions, and technical debt can be deadly. But financial institutions near and far have mastered the mobile banking platform, and they've moved on to blockchain and artificial intelligence. Surely enough, the finance industry's future is being built on the back(end) of digital technology.

Avoiding money-pit mistakes like waterfall development and pre-launch perfectionism is all about proper planning. To learn more about product planning, check out our free whitepaper, “Product Roadmapping: The Complete Guidebook.”

Rudy Mutter is a CTO + Founding Partner at Yeti. He found his passion for technology as a youth, spending his childhood developing games and coding websites. Rudy now resides in the Yeti Cave where he architects Yeti’s system and heads up project production.

Follow Rudy on Twitter.

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