Nobody likes getting old, especially traditional banks that have found themselves straddling two financial worlds – old tech and new tech – while all the “young, cool kids” try to steal their customers and business.
“They have to stop thinking that they’re banks, and instead think, ‘Well, I’m actually a technology organization with a banking license,'” Villarreal told Karen Webster in a recent interview. “They have to innovate more. They have to implement new ways of thinking and working. They actually have to stop being the traditional bank and start thinking of their customers as partners.”
He said that although big banks are different today than they were 10 years ago and are always trying new things, most of that is due to customers’ demands for more services, as well as “a huge weight of competition” that’s coming from neobanks and FinTechs.
“It’s not because [legacy banks] can transform. It is because they have to do this,” Villarreal noted.
Migrating To The Cloud
He added that traditional banks don’t need to migrate everything to the cloud to stay competitive with their cloud-native upstarts, but they do need to embrace cloud-based technology and think of hybrid ways to use it within their organizations.
And while many banks see moving to the cloud as a way to cut costs, Villarreal believes that’s a common mistake. “One key misinterpretation is the way a lot of organizations approach cloud transformation – that cloud migration is around cost reduction,” he said.
But cloud transformation done properly isn’t really about that, he noted. “It’s about flexibility. It’s about the ability to innovate. It’s about the ability to build things in an easier and faster way. And it’s about delivering value to the customer in a faster way.”
Another misconception is that a lot of organizations think data security in the cloud is a lot more cumbersome than it actually is.
While acknowledging that it’s important and needs to be done correctly, Villarreal said that automation tools allow banks to secure infrastructure in the best possible way. He said such tools can address their varying regulatory compliance and security needs, whether banks’ services are global or more localized.
A New Twist On An Old Idea
To be sure, cloud migration has been a hot topic in the banking sector for nearly a decade, with institutions of all sizes toying with how to implement the technology securely and reliably.
Villarreal said that as much as COVID-19 has been a catalyst for most forms of digital automation and innovation, the work banks have done over the past six or seven years put the foundation in place for the use cases they’ve now implemented.
“It’s about the cloud paradigm, it’s not about the cloud,” he said. And ultimately, it’s about what the public wants. “It’s the application of the cloud paradigm that is bringing benefit to that change.”
Villarreal said that finding ways to use innovations like artificial intelligence (AI), microservices and automation is characteristic of cloud technologies.
“It’s about the power of having a platform that doesn’t restrict the evolution of the technology,” he said. “That is the real trick, and that is the important part.”
At a time when we’re seeing all sorts of changes in the way financial institutions (FIs) operate, transact and message each other, Villarreal noted that there are lots of questions surrounding ISO 20022, the new standard for electronic data interchanges between banks.
But he said that ISO 20022 “can be really easy to understand” as long as one sees payments as a transactional process and doesn’t consider the participants. Villarreal noted that the value of this new messaging system comes in the form of the extra data and functionality that it brings to financial services companies.
However, Villarreal said that ISO 20022 also brings new types of challenges, given that it requires banks to operate with a higher processing level, requiring faster transactions that use data more efficiently.
While that is the value banks should be getting from these innovations, Villarreal said how these messages will actually operate in the future is still “up in the air.”
“There are just so many options that it’s difficult to predict the real impact of ISO 20022 on the markets right now,” he said. “I think it’s going to be a big player, but it won’t be the only option for payments in the future.”
The Path Forward
Villarreal said the payments ecosystem is exploding with new and different ideas, as new capabilities arise that could eliminate physical money.
As far as how this will all plays out next year, he’s looking for an acceleration of new capabilities and innovations in the payments market in the second half of 2021. But Villarreal also expects to see “new challenges in terms of regulations” due to the current climate.