For most financial institutions, modernization and digital transformation are top priorities, yet many still struggle in these efforts. Many are unsure where to start and also wary of the potential risks with modernizing legacy systems. Therefore, a large number of banks and credit unions are still in the beginning or exploratory phase of digital transformation.

Yet these projects are more important than ever. Financial institutions face more competition than ever. This is not only from other financial institutions. But they face competition from fintechs and digital-only neobanks, too. This also includes consumer expectations derived from nonfinancial firms such as Amazon and Uber.

Digital transformation and modernization may seem a monumental task, but by using open architecture and taking advantage of partnerships, financial institutions can make great strides. To learn more, PaymentsJournal sat with Lance Homer, Global Head of Digital Payments and Banking Ecosystems for digital infrastructure company Equinix, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service for Mercator Advisory Group.

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What Makes a Better Bank?

Ultimately, modernization projects are embarked upon to create a better bank. There are several aspects of what constitutes a “better bank,” noted Homer.

“It’s about being greener, connected, smarter, modular, distributed, and automated,” he said. “These are the things driving digital transformation across the landscape.”

All of the above are byproducts of moving out of legacy data centers and into the cloud. That includes using open application programming interfaces (APIs), breaking up the legacy tech stack, and moving toward a platform model. As one example, Homer noted that moving to the cloud and operating fewer data centers mean banks can reduce their carbon footprint and reach ESG goals quicker.

Furthermore, by adopting a platform model using open APIs to connect with best-of-breed partners, banks can offer more innovative products and services to their customers and bring them to market quickly.

“It’s difficult for banks to differentiate on the thing they used to, like interest rates,” said Homer.