Digital Interconnectivity – the Reformation of Banking

James Maudslay
Digital Interconnectivity – the Reformation of Banking


Banks and other participants in the financial services industry are all subject to intense and growing regulation, which could explain why the banking industry seems to not have experienced any true digital disruption because strict regulations make the fast adoption of new technologies very difficult. However, the expectations of modern consumers for always-on, customer-focused service standards are very real, and banks, like all other services, will need to respond to these changing demands.

The sources of banking digital disruption

Over the last 50 years, banking has actually experienced multiple waves of digital disruption. While each of these threatened industry disruption, they’ve actually had the effect of reinforcing and supporting traditional banking organizations as they extended their reach, optimized service delivery and lowered the cost of supporting customers.

In the new digital era, banking is again facing major disruptive forces. According to the Surrey Center for the Digital Economy, these forces are:

  • Hyper-connectivity
  • Explosion of data
  • Cloudification
  • New software and systems architectures

This combination of digital developments has the potential to transform the banking sector by enabling small, agile Fintech startups to compete with or coexist alongside the large incumbent banks.

The use of multiple specialists to provide an overall service to the end consumer is likely to be the mainstay of the next-generation financial services industry. This, in turn, will require deep levels of digital interconnection between the participants, so that data can be exchanged rapidly and securely to make the service seamless.

The dawn of a new digital era for banking

In most leading economies, the banking sector has been dominated by a small number of large players. Up until now, only the largest players had the financial, technical and managerial resources to knit together all the components for customer-ready services.

However, digital technologies can help smaller organizations to break into new areas in the banking sector. In the digital era of hyper-connectivity, enabled by web-based services, distributed processing and open standards, it may become possible to disaggregate the individual banking components into separate, free-standing enterprises based on their distinct roles.

The concept of disaggregating everyday banking processes, such as customer onboarding, into their individual components has been understood for many years. In the book, “Atomic: Reforming the Business Landscape into the New Structures of Tomorrow,” authors Roger Camrass and Martin Farncombe describe a bipolar world of small, highly adaptive organizations that work in partnership with large, process-driven platforms. This is described as a coral reef – populated by brightly colored fast-moving fish – and a deep, blue sea – inhabited by sharks and large, slow-moving mammals such as whales. Together, they create a balanced ecosystem.

The challenge today for large incumbent financial institutions is to exploit their strengths and mitigate their deficiencies, so that they can make room for the small, innovative Fintech companies. There should be a natural harmony between these two-different “species,” so that they can deliver much-improved services to the customer.

Based on experiences in other domains, this may play out in the following manner:

  • The “coral reef,” or Fintech players, thrive on their ability to constantly develop and launch new customer propositions that find rapid acceptance in the marketplace.
  • The “deep, blue sea,” or financial utility players, continue to sustain themselves by operating secure, compliant and efficient processes that work at global scale.

Today, we are still some distance from achieving such harmonious co-existence, but the financial institutions recognize that in the emerging era of distributed ledgers, such as blockchain, and digital currencies, such as Bitcoin, there is an imperative to adjust to this new and radical paradigm.

Digital practices for the banking revolution

At Equinix, we are witness to the emergence of new Fintech companies competing for lucrative niches in this sector, such as currency exchange, payments and peer-to-peer lending. Often, they are doing this through monetizing parts of the value stream the incumbents find it difficult to access or provide, such as fast reaction times to customers or the customer’s “digital exhaust” – a data byproduct of the online activities of internet users. The upstarts’ energy and ambition is creating an onslaught of new customer requirements and data that far exceeds the ability of the large incumbents to react or respond.

As the operator of the world’s leading interconnection platform, including an ecosystem of more than 1,000 financial services companies, Equinix is equipped to help companies in the financial services space deal with these radical changes. In our latest report, “Digital Interconnectivity – a Reformation of the Banking Sector,” you can read more about how this new ecosystem is evolving to address the disruptive forces that are reshaping the banking industry, and the implications of this new digital ecosystem for senior banking executives, regulators and investors in the Fintech community.

Also, if you’re participating in the FT Banking Summit 2016 in London on Nov. 16, please attend our panel session, “Big Data Discussion: The Use and Abuse of Big Data.”


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