Trend 3: Innovation Glut Endangers Banking And Insurance Platforms
In a recent Angry Rabbit Group article, Ellen Carney talked about platforms in general. This article will focus on banking and insurance platforms. At a high level, these platforms typically provide pre-integrated software modules incl. core banking or insurance and everything else an FSI needs to run its business.
In a recent article, we talked about smaller and mid-tier FSIs and their specific challenges when it comes to transformation and innovation. Tier-one banks are not in an incredibly better situation: Many large banks and insurance firms needed decades to move from “build, not buy” to “buy before build” – at least to some extent. And innovating meant to either wait for a vendor delivering a certain function or to more slowly build it on their own.
In the meantime, off-the-shelf banking and insurance platforms became functionally very rich. Many financial services firms (FSIs) started to accept the notion of a banking or insurance platform: Their businesses needed new functionality quickly, and banking or insurance platforms could deliver at competitive cost, and at least reasonable quality and innovation. It has been a comfortable position for many banking and insurance platform vendors.
Now, AI-powered software development will change the way how FSIs make application software decisions. FSIs can quickly use AI-developed capabilities that compete with selected platform capabilities; and FSIs will expect “their” vendors to allow seamless collaboration. Only a few weeks ago, software and services companies lost hundreds of billions USD market value: An Anthropic announcement made the markets expect AI-powered development tools to replace certain business software offerings. Does this mean that banking and insurance platforms will vanish? Most likely not. However, their vendors need to focus on collaboration with AI-developed apps and further third-party solutions.
“Composability” could be a way out: It promises flexibility when a variety of functional components should collaborate. But today, composability continues to work best within the confines of a given FSI software vendor’s platform – despite frameworks of decades old organizations like BIAN. However, in the hyper-flexible world of AI-powered app development, composability across entire portfolios of FSI and vendor build, “conventional” and “AI-build” application software will be mandatory. While composability has not yet fully arrived, hyper composability needs to become new goal. Vendors need to offer platform architectures supporting hyper composability to help FSIs being successful in the world of innovation glut.
In parallel, core banking and insurance (and similar systems of record like HR and GL) will remain alive and well, but their shape and position in a FSI’s application landscape will be morphing- The currently visible strong focus on the cloud and AI will help vendors to cope with this situation. However, to survive in a good shape, banking and insurance platform vendors need to change how they understand, design, deliver, and maintain their own product portfolio in a world of innovation glut--and all that in a situation of likely shrinking revenues and reduced market capitalization.
But let’s switch tracks: In this and the previous two articles, the Angry Rabbit Group discussed the potential of new AI-powered fintechs and the need to protect business maneuverability in a world of innovation glut and related changes on platforms in general, and on banking and insurance platforms. Now it is time, to have a look at, I dare to say, an unbeloved stepchild of many business and technology decisions makers in FSIs: AI-powered development does not only create opportunities and risks for FSIs plus challenges for vendors. It also causes a lot of questions regarding regulatory rules and guidelines for AI-powered development and AI-empowered employees. This is a topic that our next article will now help us navigating through.