Banking

A guide to the modern financial services ecosystem

Discover what the modern financial services ecosystem entails and how your bank can leverage its benefits for lasting business growth.

14 minutes to read
With insights from...

Is your bank paralysed by legacy systems? Are you struggling to keep the costs of ownership and maintenance under control? Does it take too long for your organisation to expand product offerings and compete with agile challenger banks?

You’re not alone in facing these challenges. Traditional banking systems have become the shackles that restrict innovation, hinder time to value, and strain customer relationships. But it doesn’t have to continue this way.

Digital transformation is no longer an option; it's your lifeline. It's time to make a shift to a modern, cloud-based banking platform and leverage a thriving ecosystem of specialist third parties. It’s the only way to speed up time to market, make data-driven decisions, and offer personalised customer experiences that boost engagement and loyalty.

The time to act is now. Are you prepared to not just survive, but thrive?

Setting the stage: key drivers of digital transformation in banking

In the rapidly evolving landscape of the commercial and retail banking industry, many institutions now find themselves at a pivotal juncture. For years, they have relied on internally developed systems, traditional infrastructure, and well-established processes and channels to attract and serve customers. But this approach has become a stifling anchor that can drag you into the abyss of stagnation. It hinders innovation and slows time to value for those keen on embracing open finance, composable banking, and other modern technologies.

Don’t think your institution can fall victim to these challenges?

Currently, there are six key factors exerting pressure on traditional banking businesses and driving the need for digital transformation. Does your bank struggle with any of them?

The cost to serve the customer is spiralling as a result of owning and maintaining aging legacy technology. Although many banks have made investments in updating their IT infrastructure, tight budgets and shifting priorities are causing various areas of modernisation initiatives to be overlooked.

It is taking longer for banks to realise value and expand product offerings as they are straitjacketed by outdated systems that lack agility.

Maintaining control of the ever-evolving customer relationship with the bank’s brand requires a seamless user experience and a single point of access for the customer.

All Tier 1 banks are planning to enhance their core banking platforms in the next five to seven years. Those that fail to do so and do not find key points of differentiation will risk falling behind rapidly.

Popularity of investment platforms, ‘Buy Now, Pay Later’ (BNPL) financing solutions, and the like, is continuously growing. If your bank doesn’t provide access to these competitive offerings, you run the risk of significantly reducing your customer base.

The financial services industry operates under stringent regulations that are constantly evolving. Innovative technologies introduce additional complexity for ensuring compliance with these legal requirements.

With so much internal and external pressure, digital transformation can no longer be postponed. It is time for forward-thinking banks to act and transition to a modern, cloud-based banking platform that merges internal capabilities with an ecosystem of specialist suppliers for areas like the general ledger, card processing, KYC, anti-money laundering, and more. This shift will not only streamline operations but also significantly reduce cost to serve, enabling the bank to introduce new, innovative products and services swiftly.

This whitepaper discusses the basics that banking business leaders need to understand about emerging financial services ecosystems and highlights what elements they will need to address to get their business ecosystem-ready.

Specifically, we'll discuss the following:

What is a financial services ecosystem?

A financial services ecosystem is an evolving collaboration model among various financial institutions that helps leverage their complementary offerings. This multi-lateral, dynamic environment enables the delivery of a unified and seamless customer experience that is underpinned by mutuality and shared value across participants.

In the UK market, there are already several examples of companies engaging in the ecosystem approach and proving that its benefits extend beyond financial compensation:

  • NatWest’s and Lloyds Bank’s digital ID apps: companies partnered with identity service providers to help customers securely verify their identities online while helping other businesses streamline their verification processes. Thus, improving the customer experience, reducing information sharing risks, and helping all organisations reduce costs through automation.
  • Klarna’s BNPL integration: Klarna now integrates with payment flows of various UK banks, enabling customers to spread payments across longer time frames, improving sales for retailers, and increasing transaction volumes for banks.
  • Apple’s UK open banking integration: the company recently soft launched a UK open banking integration for the iPhone wallet, enabling users to view their current account balance and transaction history directly from the app. This change improves the customer experience on the Apple platform and helps customers manage their finances while supporting brand presence of partner banks outside their own apps.

A well-functioning ecosystem requires a modern banking platform that is, ideally, composed of cloud-based services. That way, it can enable the intricate integration and orchestration of product offerings and customer experiences among participants to ensure security, integrity, and resilience.

The diagram below is an example of what a modern bank's platform architecture could look like when composed of cloud-based services orchestrated via APIs. This composition of ecosystem players providing critical capabilities is just the first step. Modern banks can also take advantage of expanding the ecosystem with other partners to extend their products, services, and brand reach beyond their own digital channels and into areas that may be ancillary to their core propositions (e.g., investments, loyalty schemes, insurance, small business loans, etc).

Learn about the future of banking architecture
financial-ecosystem-diagram Figure 1: Wheel of finance: modern banking platform to enable interactions with the financial services ecosystem.

Why become part of a financial services ecosystem?

Traditional banks must evolve and adapt to remain competitive within a changing industry landscape as costs get higher, time to value grows, and customer relationships become ever more complex. By leveraging partnerships, new channels, and modern technology solutions, you can address these challenges and become more agile, evolving faster to meet the everchanging customer needs. The financial services ecosystem allows you to do so most effectively.

Existing challenges Future benefits
Lack of reliability, resilience, and agility Fast time to value, time to market, and ability to scale
High cost to serve Competitive cost to serve
Difficulties in leveraging data Data-driven decision-making
Limited product and service offerings Ability to innovate and expand offerings
Poor customer satisfaction and loyalty Personalised experience, higher satisfaction, engagement, and loyalty
Inability to easily integrate with third parties Seamless integration with third parties

A great example of the benefits a financial ecosystem can deliver is our recent project with Asia’s innovative virtual bank. The bank was looking for assistance with building core banking systems from the ground up using various cloud-hosted third-party products, including the general ledger, customer identity, card issuance, payment systems, and anti-money laundering tools.

Our multidisciplinary engineering and DevOps expertise were instrumental in supporting the cloud-based bank throughout the entire development process, from license granting to market deployment which was achieved in an impressive 18-month timeframe. Zühlke’s experts were also in charge of maintaining relationships with partners and adapting processes to ensure smooth data flows between them. 

Now, the near real-time ledger, KYC, payment systems, and other services run on Thought Machine in AWS and provide the client with a core banking solution that performs seamlessly, improving the experience for customers and staff.
 

How to move from a banking system to a data-driven financial services ecosystem

So, what are some of the steps your bank has to take in order to be a part of an innovation ecosystem? At Zühlke, we’ve identified five crucial elements that banking leaders need to keep in mind. While some of them may seem obvious, it’s imperative to get the basics right. Without a solid technical foundation and strategy in place, you can only go so far in your digital transformation efforts.

1. Understand the problem and set the strategy

In the journey towards becoming ecosystem-ready and modernising your banking platform, the first and crucial step is to gain an understanding of the bigger problem you’re trying to solve. This will lay the foundation upon which your ecosystem strategy will develop.

You’ve got to define the key objectives you’re trying to achieve and think about how you’ll be able to reach them. These goals will influence every subsequent decision, from your desired role within the finance ecosystem to portfolio strategy, partner selection, and even risk and compliance management.

Here, it’s crucial to let service design and business architecture take the lead. That’s an optimal way to build services and products that address your customer needs and organisational challenges. For example, user research and testing was vital in one of our recent projects with three+one, a financial services company, as it allowed the team to replace pre-existing assumptions with concrete evidence and identify precisely what the end users needed.

Learn more about the value of user-centred design in setting the strategy

Explore user-centricity's role in HSBC's award-winning app

2. Get the people and culture right

Based on our past experiences in banking projects, both regionally and globally, people and culture are arguably the most important things to get right. Together, they represent the one factor that can impede a transformational effort before it even has a chance to begin.

To overcome this, it is important to find ways to communicate the need for change to internal stakeholders, motivate teams, and foster a culture that encourages co-innovation, positioning change so they view it as an opportunity rather than a threat.

All these things will help people realise what’s at stake and what the end goals are. Thus, motivating them to make the effort required to move towards well-architected, data-driven financial services ecosystems.

Collaboration in finance

3. Focus on effective orchestration

Data is an asset which can unlock considerable value when used effectively, but if you lack the ability to integrate and orchestrate data, it is useless. Business processes create, consume, and transform data as it moves around your company, which is why it becomes worthless if it remains static – data must flow to generate value.

Ecosystem orchestration is the process of managing and coordinating the interactions and relationships among various parts of a data ecosystem. Connecting and automating workflows across different systems, applications, and data sources allows users to collaborate across multiple departments and a variety of systems, automating tasks such as data entry, data transfer and notifications. Effective integration is essential as it enables the acquisition of genuine, timely insights which can then be acted upon and used for predictive purposes.

With data being pulled from multiple sources by a wider set of possible consumers, access controls can be a headache and solving this pragmatically and safely is central to the success of an ecosystem.

Discover how we helped a financial services start-up integrate securely with multiple FX providers and crypto exchanges.

Get the full story

4. Balance build and buy approaches

The choice between buying and building new solutions will depend on the objectives you are trying to achieve and your chosen strategy. It’s worth noting, however, that rather than thinking about buying vs. building as an “either-or” scenario, there ought to be a balance.

With the rapid pace of innovation in the FinTech sector, buying and implementing reputable third-party solutions has become more appealing. After all, building your own technology stack and digital capabilities offers greater control but typically comes with large upfront costs, a significant time commitment, and a challenge around migrating users onto new platforms.

For example, it took TSB Bank six years to build a new IT platform and migrate users. The new system immediately experienced a technical malfunction, creating a significant disruption to its customers and leading to a £48.6 million fine by the Financial Conduct Authority (FCA).

Women in office working together

On the other hand, with the buying approach, you might be worried whether the chosen vendor will be around in the next 5-20 years and able to maintain the same level of service. However, you will have a faster return on investment, time to market, and a more resilient infrastructure as individual services can be replaced more seamlessly, should the need arise, than a large platform. Plus, you’ll enhance your brand differentiation efforts by making discerning choices about service providers and partners in your ecosystem.

The previously referred to Asia’s virtual bank spent significant time defining its partners and that’s precisely what allowed the company to differentiate itself and provide best in-class services for customers. So, when buying, make sure to consider the following:

  • Vendor reputation and stability in the marketplace
  • Availability of internal resources to manage the product or the implications of having an external partner operate it
  • Maintenance cost implications for each third-party solution
  • Optimal ways to get the API and orchestration right
  • Safety measures to minimise security risks and ensure regulatory compliance
  • Strategies for owning the customer experience to effectively differentiate while boosting retention and business growth
  • Speed to market and the delivery approach of the partner
  • Cultural and technology alignment
  • Geographical coverage of the vendor in conjunction with where you expect to be operating in 3-5 years
  • Commercial and contract flexibility

Ultimately though, what you choose to build vs. buy will depend on your unique business situation and is bound to change over time as new market factors, technologies, and regulations come into play.

5. Consider the cloud

Most traditional banks are currently on a hybrid cloud model or are migrating away from what they have on-premises as many understand the value of creating a strong digital core, accessing API ecosystems, and getting rid of expensive and cumbersome legacy platforms.

However, it is important to remember that with the cloud, the right approach is essential. Just like any other technology, cloud implementation and maintenance come with challenges. To do it well and de-risk the investment you are making, you or your cloud transformation partner needs to consider several things:

  • Operating jurisdiction and relevant data regulations
  • Customer location and latency risks
  • Vendor lock-in threats
  • Cloud availability levels
  • Future-proof landing zone design
  • Cloud network connectivity 
  • Long-term cost implications

Discover the importance of a cloud optimisation strategy

cloud banking

Why partner with an experienced financial services ecosystem integrator

As you can see, there are many things to consider when it comes to transitioning to a financial services ecosystem model. Yet, what it all comes down to is how you can de-risk all these investments you might be making into the cloud, the implementation of third-party solutions, and the overall rethinking of your entire IT infrastructure. That’s precisely where an experienced ecosystem integrator like Zühlke comes in.

An ecosystem integrator can help:

Due diligence is crucial when selecting FinTech or cloud providers because you’re only as good as your weakest link. As such, having an ecosystem integrator who understands the pros and cons of all major vendors, keeps abreast of the marketplace, and is aware of what regulatory bodies like the FCA are concerned with can be game-changing.

By collaborating with ecosystem integration specialists, you’ll benefit not only from their concrete skills but also their significant experience and the lessons they’ve learnt during previous projects. They’ll be able to guide you in developing a strategy that minimises the risk of vendor lock-in since they’ve already worked with various providers and know all the intricacies.

Moreover, they’ll likely prioritise solutions built on open standards, technologies that promote interoperability, and those with well documented APIs.

An ecosystem integrator will help you migrate onto the cloud in a way that minimises the likelihood of future issues. Skilled architects will design flexibility into the infrastructure by considering potential scenarios your bank might face in a few years. Having seen various permutations from other projects, integrators can factor them in at the initial design stage.

Plus, at Zühlke, our clients also benefit from our partnerships with the major hyperscalers like AWS, Microsoft, and Google Cloud since we can consult their internal teams about specific queries.

The truth is, if you lack the ability to integrate and orchestrate data, it’s useless. Data becomes meaningless if it remains static; it must flow to be valuable. So, effective integration is essential as it enables the acquisition of genuine, timely insights which can then be acted upon and used for predictive purposes.

One of the primary roles of an ecosystem integrator is to smoothly integrate all of your required platforms together. A partner can help test the chosen technologies under different volumes of requests to examine stability and ensure top-notch performance.

Begin your bank's digital transformation journey

Rising costs, extensive time to value, complex customer relationships, increased competition, and other market factors are exerting immense pressures on banks today. That’s precisely why digital transformation can no longer be postponed. It’s time for banks to act decisively, modernise their banking platforms, and harness the opportunity offered by the ecosystem approach to secure their market position and ensure future growth.

If you’re interested in transitioning your bank to be a part of a thriving financial services ecosystem, don’t hesitate to reach out to our team. With years of practical experience in executing complex integration projects and supporting data orchestration initiatives globally, we can guide you through the entire cloud transformation, architecture design, data integration, and partner assessment journey. Thus, letting you focus on providing stellar banking services while our experts ensure everything works well behind the scenes.


The authors would like to thank the contributors for sharing their expertise for this article:

Mark Hipperson
, Founder & Executive Chairman at Ziglu
Brendan Gilmore, Managing Director at BPG Strategy
Wolfgang Emmerich, CEO Zühlke UK & Chair of the Board of Directors
Mark Venn, Head of Cloud & DevOps Practice at Zühlke UK
Liz Wray, Principal Enterprise Architect at Zühlke UK
Chris Joyce, Principal Solution Architect at Zühlke UK

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Contact person for United Kingdom

Maurice Roach

Managing Director Financial Services UK

As the Managing Director for the UK Financial Services, Maurice leads a team of talented consultants, engineers, and designers who deliver customer-centric digital products for ambitious clients in the financial sector. Maurice has over 20 years of experience across the entire range of the digital delivery domain, from design and development, server builds and cloud engineering, UX, team leadership, and programme delivery.

Maurice is dedicated to helping financial service providers transform and grow by leveraging data, technology, and design thinking. He is passionate about creating innovative, customer-centric digital solutions, solving real problems for real users.

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Contact person for Singapore

Ruchi Singhal

Business Development Director APAC

Ruchi is an experienced technologist with over 20 years of IT industry experience working with global financial institutions, enterprises, and start-ups. In her role, Ruchi has led interdisciplinary teams building & supporting successful digital solutions, products, and platforms for the financial services sector. She is passionate about solving complex business problems using innovative digital solutions to transform and grow businesses.

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