What does big tech moving into the banking sector mean for traditional players?

In Mambu’s partner predictions report 2023, industry leaders across fintech and financial services including Persistent identify the key trends shaping finance in 2023.

In this excerpt from the report, Abhiram Modak, Chief Principal Consultant – BFSI Vertical at Persistent Systems explains how traditional players in banking have an edge in domain knowledge, trust, and regulations, but are increasingly losing out to big tech alternatives, which will eventually erode their advantage.

In the last 20 years or so, ‘bank’ and ‘banking’ have no longer remained synonymous. Both terms were one and the same for earlier 200 years. Now, many non-banks are able to offer banking services. This includes retailers, telecom providers and tech companies to name a few. When a retailer is allowing you to defer the payments for things you buy, they are actually giving you a loan. While this practice has been in existence for hundreds of years, it has now become a monetized and standalone service offering.

Now when we look at the big tech companies offering banking products, it means several things for technology players. For one, they have a technological advantage. They can use the latest and best technology to deliver and manage their offerings. Second, the tech players who typically want to jump into banking already have a very large customer base. A case in point is Apple and Facebook. When these established brands introduce banking products, they often provide a seamless and convenient alternative to their end customers. As a result, traditional players are likely to increasingly lose out to these emerging alternatives. Where traditional players still have an edge is domain knowledge, trust (at least of older customers) and deep knowledge of regulations. This will however fade with time.

What does the future of mortgage technology look like?

Apart from product innovation, mortgage lenders will need to invest heavily in technology modernization. Most mortgage lenders are still operating with very old platforms and technology. In many cases, the legacy technology is 15-20 years old – and sometimes older. This tech debt often makes it difficult, or even impossible, to launch new products and offer product variations for increasingly demanding customers.

One area that has been a challenge is with regards to repayment schedules. Today’s customers often want to change the schedule frequently, add a balloon payment at will, ask for installment holidays, change between a fixed rate and variable rates, and so on. These customer requirements are typically a nightmare for legacy IT systems to support. As a result, many lenders end up configuring thousands of mortgage products.

New IT systems with lean cores offer the flexibility and modularity to support the myriad of variations that customers expect.

In addition, the integration to internal and external systems is becoming increasingly important and requires that a microservices-based integration layer is a part of any modern mortgage tech stack.
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