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The Mismatch in Banking Technology
April 25, 2023 | ModernFi Insights
We have spoken at length on how introducing modern technology and infrastructure can significantly improve the way banks can operate and offer services to their clients. This new technology and heightened level of efficiency offered to bank clients could, however, potentially pose a risk to banks if the institution’s internal tools rely on legacy systems and processes. When examining a bank’s tech stack holistically, there tends to be a stark mismatch in usability between the “frontend” and the “backend” of a bank.
In recent years, we have observed a vast improvement in the “frontend” technology of banks. This includes digital and mobile banking, digital account opening, money movement rails, and the various services offered by neobanks and banking-as-a-service providers. With these products and services, bank clients are able to execute with speed – withdrawing and depositing funds instantly through their phone or quickly opening new accounts. SVB provided a prime example of how digital banking can enable speed; nearly $42 billion was withdrawn in a single day resulting in the quickest bank run in US history.
While the “frontend” of many banks is in the modern era, the “backend” of banks is often built on legacy systems and processes, especially for deposit and balance sheet management. As bank clients quickly move deposits in and out their accounts, asset-liability management teams and bank operators are often forced to rely on spreadsheets, phone calls, emails, and interfacing with UIs built in the 90’s (recall Citi accidentally sending Revlon $900M because of poor UI) to manage their balance sheet. This mismatch in technology ultimately poses a risk to banks.
Recent events have reinforced the need for better “backend” tools for banks so ALCOs can manage their balance sheet in real time at the new speed of deposits. Among many things, this includes analytics on intraday deposit flows, deposit composition, accounts at risk, volatile deposits, and potential liquidity gaps. In the coming weeks, we will speak more deeply on how ModernFi is working to bring better technology to the “backend” of a bank.
Adam and the ModernFi Team
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Sources: FHLB Advances are an average of FHLB Boston, FHLB Chicago, and FHLB Des Moines. Brokered CDs are an average of Fidelity and Vanguard. Listed CDs provided by National CD Rateline. US Treasurys and LIBOR provided by WSJ. SOFR provided by CME.