November 14, 2008

The Future Shape Of Banking

Architecture In 2023
by Jost Hoppermann
for Enterprise Architecture Professionals

Making Leaders Successful Every Day

For Enterprise Architecture Professionals

November 14, 2008

The Future Shape Of Banking Architecture In 2023
Industrialized Banking And The New CRM Will Support High-Touch
This is the fourth document in the “Banking IT In 2023” series.
by Jost Hoppermann
with Gene Leganza, Mimi An, and Matthew Czarnecki

Executi v e S u m ma ry
Forrester’s research on banking IT in 2023 identified a series of requirements and the architectural layers
of the future banking platform. The key layers show: (1) a focus on personalized customer services and
real-time information analysis; (2) a separation of product design and customization; and (3) a clear
distinction between core competencies and nondifferentiation functions supported by selective sourcing.
These layers will belong to one, two, or more financial services firms, and they will be connected via
a federated semantic banking backbone. The outside world will use the services of these layers via the
ubiquitous banking layer — also know as the evolution of the multichannel layer.

tab l e of Contents N OT E S & R E S O URC E S

2 Banking’s Future Needs Loosely Coupled And Forrester surveyed British Telecom (BT), Fidelity
Dynamically Sourced Apps National Information Services, Hewlett-Packard,
3 Apps Will Turn Into Networks Of Information IBM, Infosys, Microsoft, Misys, Oracle, SAP, Sun
And Business Services Microsystems, Tata Consultancy Services, and
Temenos, and interviewed a large number of
13 Key Differences Between Today And The
Future banks in four world regions.

recommendations Related Research Documents

14 Manage The Present And Prepare For The “Financial Services Of the Future: Collaborative
Future Competition Will Be The Norm”
WHAT IT MEANS August 20, 2008
15 Industrialized Banking Needs More Than
“The Multichannel Organization”
Technology
August 30, 2006
alternative view
16 The Disruptive Event May Have Emerged “The Next-Generation Banking Platform”
May 31, 2006
16 Supplemental Material

© 2008, Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, RoleView, Technographics, TechRadar, and Total Economic Impact
are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Forrester clients may make one
attributed copy or slide of each figure contained herein. Additional reproduction is strictly prohibited. For additional reproduction rights and
usage information, go to www.forrester.com. Information is based on best available resources. Opinions reflect judgment at the time and are
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2 The Future Shape Of Banking Architecture In 2023
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Banking’s Future NEEDS loosely coupled and dynamically sourced APPS

To help enterprise architects create an IT vision for their financial services firms, Forrester began
compiling scenarios for the banking IT of the future. These scenarios target the next eight to 15
years, although the timeline will differ for individual banks. We based the scenarios on vendor
surveys and interviews of banking executives around the globe. The earlier parts of this series
developed a summary of business scenarios and offered a look at the different types of bank
branches of the future and showed how channels will support convenient customer interactions.1
This fourth part will summarize the key requirements that are driving the future of banking
architecture as well as a high-level target state architecture, based on the input of the vendors we
surveyed and the banking executives we interviewed.

Business Requirements And Customer Behavior Will Drive Target State Architectures
Our research revealed a number of key trends that will affect the organizational structure of a bank’s IT
department and the way it does its business as well as the as-is and target state architectures in 2023.

“Global firms will move toward more fluid, integrative enterprises.” (Vice president of
strategy, large European bank)

What will these enterprises look like?

· There won’t be enterprise IT as we know it today.2 In 2023, business processes will go

everywhere, and work time will be 24x7 around the globe. Enterprise and consumer IT will
have converged. Wikis, blogs, community networks, and Social Computing will be a normal
element of many IT environments. While the regulatory burden will most likely increase, it
will be easier to deal with based on highly flexible systems and real-time availability of data,
information, and related analysis. At the same time, old core competencies like core banking
will move outside of banks’ interest, and utility-type service banks will offer many of today’s
“traditional” functions.

· Branches will use sophisticated technology to create a great customer experience.3 Multiple
flavors of bank branches will deploy the most recent technology to serve customers with highly
convenient interactions, presenting personalized offers and collecting information.4 Automated
and human-directed avatars will extend the reach of the branch in terms of time, location, and
product expertise. Collaborative technology will be mandatory to make customer information
available at the best point in time and to combine the know-how of multiple experts across
multiple bank locations. Branches will need to be a hub in a networked multichannel
environment. They will connect locally to channel devices and use and present services that are
also used via other channels, just more effective and more convenient for the customers.

· Ubiquitous banking will be the rule.5 Ubiquitous 24x7x365 access will be routine. Service
availability will be based on various channels using devices in all sizes with heterogeneous

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capabilities. Ubiquitous banking will include a strong support of home entertainment and
communication systems. Customers will not differentiate between mobile and nonmobile
channels anymore. For the time being, Forrester calls these powerful, multifunctional devices
wearable digital agents (WDA). At the same time, employees will have the full power of their
organization everywhere in significant economies and at least in large cities everywhere else.

The bottom line? Every component of functionality will be used by employees and customers
around the clock and entirely independent of location. Ubiquitous banking — the future shape of
multichannel banking — will include the branch as one of the most powerful channels and truly
create the notion of banking services everywhere, whether these services are offered by a bank,
nonbank, or social network.

Apps will turn into networks of information and business services

Based on the ideas and thoughts of vendors and banking executives around the world, Forrester
has identified a number of key requirements for a target state architecture that is up to the needs
of banking in 2023. We designed a layered high-level target state architecture to structure these
requirements into a number of buckets (see Figure 1). These layers are creating the notion of a target
state architecture that we call “industrialized banking” and that interacts with a layer supporting
ubiquitous banking.

Figure 1: The Future: Ubiquitous And Industrialized Banking

Ubiquitous banking

The new CRM — intraday BI — customer data

Ownership
of data
Product definition and innovation
Industrialized banking

Dynamic business

External
services
The new core Open source Service banks by IT service
providers

Highly interchangeable

Semantic banking backbone

47356 Source: Forrester Research, Inc.

© 2008, Forrester Research, Inc. Reproduction Prohibited November 14, 2008

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Networked Multichannel Capabilities Will Be Mandatory

“A branch with fully integrated cross-channel capability is an achievement in 2008; it will be
the norm in 2023.” (Vice president, strategic planning, globally operating bank)

Most survey participants agreed that their architectures need a much better support of channels.
Today, many banks and vendors state that they still do not see any real-world need for cross-
channel capabilities. However, many banking executives told Forrester that they expect this true
multichannel capability to become mandatory in the future. Evolutionary improvement of aspects
such as common look and feel across the various channels, highly intelligent help functions, and
fully parameterizable screen designs and interactions will make change a nonevent. They also
identified further requirements for a layer supporting ubiquitous banking:6

· Flexible support of multiple channels and devices. Many vendors and banking execs
identified the need for a high degree of a “dynamic plug-in” capability of new channels and
devices. Today, it is not even possible to target mobile phones as a single channel. As soon as
more comprehensive channel capabilities become necessary, the different phones from Apple,
Nokia, Sony Ericsson, and the like will need separate consideration. In the future, “channel
plug-and-play” will become key across all channels based on a lightweight technology usable
for many, if not all channels. In addition, functionality would include streaming video for
employee training and customer targeting educational purposes. Product messaging will
strongly affect the multichannel architecture of the future: Customers identified by their
WDAs would see customized advertisement on public display screens and “public near-cast
systems” could wirelessly send advertisement to the WDAs in reach.7

· Acceptance of requests from multiple sources. Most banking executives understand that
a multichannel architecture of the future will need to have the ability to accept any kind
of transactional/information request from multiple sources. In a first step, many financial
services firms (and also companies in different industries) still need to solve organizational
challenges to arrive at a single approach toward multichannel support.8 However, technology
and architecture needs to prepare for an environment where new functionality will be available
much faster than today — if not instantaneously, then within days as opposed to the weeks
and months it takes today. Thus, the ubiquitous banking layer must not create limitations for
plugging any additional function, technology, or application into it.

· Channel-specific services. The ubiquitous banking layer will also include a high amount
of broad and rich location-based services. Financial services examples include directions to
the nearest ATM, self-service center, or advisory branch; automatically calculating the time
to leave for a meeting in a branch; or switching micro- and macro-payment currencies and
capabilities to the country in which a customer is currently located. All of these channel-
specific services will need to be highly interactive (to take care of the Millennial generation of
Internet and tech-adapted customers) and highly customizable in terms of screen design and
interface experience — by customers and internal users.

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· Support of high-quality graphics for selected areas. Today’s early avatar-based financial
services based marketing and advisory approaches often use orchestrated video clips to
avoid either excluding customers with low bandwidth or poor graphics. Future avatar-based
customer experience will need high-resolution, high-quality graphics that may go well beyond
today’s animated movies. Devices such as home communication hubs, branch-based displays,
and WDAs — combined with device-specific apps — will be necessary to support the graphic
quality requirements, independent of limiting factors such as available bandwidth, display
size, and resolution. However, a minor number of banking executives and a larger number
of vendors stated that bandwidth would not be an issue in 10 or 15 years: Compared to
today, bandwidth would be virtually unlimited. However, the same would have been true for
today’s bandwidth from the perspective of the early 90s — and we have found ways to use this
“infinite” bandwidth.

· Distributed multichannel support. All kinds of business and consumer electronics devices
will interact with various “front-end” solutions. However, interactions will not be bilateral
and “star-shaped” as they are today. Customer and employee WDAs will directly interact
with branch systems, devices, and displays; phone calls will move from a WDA to a home
communication hub; and phone sessions will turn into videoconference or multimedia
collaboration sessions.9 Ubiquitous banking architectures need to be capable of moving an
interaction session from one set of channels to another and from one set of media to another.
These architectures need to support dynamic usage of distributed channels. For example, a
videoconference between three people who are at home or at the office, while at the same
time they are working with documents provided by applications or participants. Potential
multichannel focal points are various: “central” multichannel systems, branch collaboration
systems, or home communication hubs.

The New CRM Will Focus On The Customer

“CRM will make life more delightful.” (Vice president, architecture and strategy, large US bank)

Many of the bankers and vendors that we interviewed told us that customer relationship
management systems (CRM) will still be here in eight, 10, or 15 years. Today, CRM is often used for
the support of more basic interactions, for offering products within a certain marketing campaign,
and for planning these campaigns. A number of banking execs believe that exactly this approach
makes CRM inconvenient for their customers. If products are pushed out to the customer entirely
independent of the customer’s financial demand and personal situation, than customers can easily
perceive CRM as a nuisance. Therefore, the execs also believe that CRM needs to change in a way
that takes care of the current needs of the customers. The new CRM will replace pushing products
with comprehensive services and mass marketing with mass personalization and customization.
The functional focus of CRM systems will extend beyond financial services and at the same time
will need many additional new CRM ingredients. All of this will target an improved view on the
customer and the ability to service the customer individually:

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· Product customization and bundling will be key. The new CRM will need comprehensive
product customization and bundling capabilities. This will include the ability to adapt “raw
products” to the individual needs and desires of a customer — maybe within a predefined
range of parameters such as rates, fees, and conditions or by deriving a new individual product
from a prototype or raw product. Furthermore, it will include creating custom bundles of
products offered to a customer covering a specific demand such as a complex financing
scenario with a single price that is different from just adding the individual product elements.
In addition, both product customization and bundling will not be restricted to bank internal
raw products, but will also include third-party products.

“You can’t put technology in between business people and pricing decisions.” (Vice president,
strategy, large US bank)

The new CRM’s product customization capabilities will need to work with business services
that are offered by multiple internal and external raw product configurators representing and
offering raw financial services products. This will not be limited to a mere display of product
features, but will also cope with negotiating product conditions with a raw product configurator
inside or outside of a given bank. In addition, the new CRM will need to keep records of
all of these customized products — if not for customer intelligence purpose, then at least
for regulatory reasons. Eventually, this may even end up in the availability of basic product
customization features for the customer. The bottom line: The new CRM will depend heavily
on business process management capabilities. It will consume external and internal product
presentation services as well as customer and business intelligence services. It will also need the
ability to provide its capabilities via the ubiquitous banking layer. The new CRM will use, but
not include, multichannel capabilities.

· Information is the crucial weapon in the battle for the customer. Some banking executives we
spoke with that already have decently sophisticated solutions in the information gathering and
business intelligence space offered ideas about extending what many banks have available today.
Information gathering will move beyond internally available sources. It will integrate external
sources with structured data (including those of partner banks and information providers) as
well as with unstructured data from social networks and other Internet-based sources of
customer-related information. Thus, future business intelligence systems will reach out into the
Internet, prepare Internet information for analysis, and finally analyze it all. The semantic Web
and its approaches to modeling semantic information will be important to make unstructured
information more easily accessible. This will include specifications and standards such as the
Resource Description Framework (RDF) and related Web Ontology Language (OWL).

Internally, this would include establishing a 360-degree view of the customer and business
information. However, not all information may be available internally to the bank anymore or
in the country in which a certain report or analysis was initiated.10 Thus, it won’t be sufficient

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just to integrate today’s “local” data silos. A truly businesswide 360-degree view will go beyond
the boundaries of the enterprise and reach out to all kinds of business partners and/or countries
of operation to compile the 360-degree view. Required mechanisms, tools, and architectures
will include different flavors of data management tools and information services, as well as
Forrester’s information fabric.11 In the future, at least intraday analysis of internal and external
information and a truly businesswide 360-degree view will first be highly differentiating and
then become commodities at a later point in time. When these approaches will come into
existence will depend on the individual bank and its existing architectures and strategies.

· Banks will analyze customer actions instantaneously — and react to the analysis. Some
of the banking executives assume that they will make at least intraday or even close to real-
time analysis available to their banks’ employees.12 Today it’s already an accomplishment if a
branch advisor learns in near-time that one of his or her more interesting customers is just
visiting the branch. Real-time analysis — combined with real-time alert capabilities targeting
customers as well as bank employees — will allow for more personal interaction, more on-the-
spot identification of business opportunities, and more relationship development. Examples
include near-time outreach to customers, consideration of the comprehensive individual
financial needs of a customer, and communication with the customer using his or her personal
preferences. Similar to more customized banking products, marketing campaigns will become
more personal and lose their mass-market character.

Many banking executives and vendors expect a massive move to operational data stores and/or
data warehouses with aggregated internal and external information — plus real-time analysis
before data reaches its warehouse. At least intraday intelligence on customer and business
events and an almost instantaneous analysis of customer actions will be possible. Real-time
alert solutions need to be capable of sending alerts to customer and/or bank employees. Alerts
will use the best channels for the customer and the bank advisor including voice and video
messages; phone and video calls; online chats, as well as by classic means such as a letter.
Common purpose or customer-specific triggers and alerts that can be easily defined and
customized will be a key ingredient. In a first step, these multichannel real-time alerts will target
the “more interesting” customers, and later on it will become a commodity feature. The bottom
line: Close to real-time customer and business intelligence functions and multichannel real-time
alert functions will become part of the new CRM.

Product Configurators Will Strengthen The Notion Of Industrialized Banking

Many banking executives and some vendors see banking in 10 or 15 years as much more
industrialized than it is today. This will not only touch areas that are already visible such as payment
processing that is outsourced to another bank, for example. It will also affect the way that banks
do business including the fragmentation of the value chain.13 In turn, this fragmentation will also
need a new approach to product definition and innovation, the related architectural layer, and in
particular the product configurator:

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· Product configurators will focus on raw products. Today, many people will not buy a car
exactly as it has been designed by its manufacturer. At a car dealer, they will customize color,
engine, and many other details according to their needs and preferences. The new CRM
will play the role of a car dealer, and the product configurator belongs to the car factory’s
design office. However, while a car buyer will have the choice between several engines of a
given car make, the banking customer may require combinations of bank and third-party
products. While the factory — and not the dealer — is manufacturing a car, involving the IT
organization to “manufacture” each customized product bundle would be impossible. The IT
organization would consume too many resources, and the business would complain about
untenable delivery times. Raw products need to become available to the new CRM layer with
little IT involvement, and moving customized raw products into production must require no
IT resources.

· Product design and innovation need various sets of product metadata. A sound product
configurator will use at least two sets of product metadata or parameters, one a subset of the
other. One metadata set will define a banking product and all of its allowed flavors. The new
CRM will use various permutations of the other metadata set — a subset of the first — to
turn a raw product into customer-specific ones. Raw product definitions need to be able to
inherit the properties of existing raw products thus enabling reuse — without establishing
product silos as they exist today. Furthermore, the product configurator needs to provide the
product definitions represented by product services to the bank internal or bank external new
CRM layers, and it needs to be capable of consuming external raw products to refine and/
or integrate them within internal products. The bottom line: The product configurator of the
product design and innovation layer is a core element of industrialized banking and one of
evolutionary improvements of Forrester’s next-generation banking platform.14

The Dynamic Business Layer Will Be In-House And Dynamically Sourced

Most bank executives and vendors we spoke with agreed that enterprise systems will be used
from everywhere at any given time, will consume functionality from multiple sources, and will
need to be designed for both flexibility and availability. Many also agreed that the “back-end” of
tomorrow will be virtual in nature, designed for throughput in a lean and green way, real-time
where necessary, free of any batch processing, and capable of working with internally and externally
provided business and information services. Most banking executives expect to have less and less
commodity functionally in-house. Many bankers and vendors also agreed that service-oriented
architecture (SOA) as well as business and information services will be the approach of choice to
implement tomorrow’s “back-end.”15 This is in line with Forrester’s observations that SOA is the
strategic direction for many banks, but SOA still needs to reach a major portion of their application
landscape. Many aspects of the new “back-end” will gradually evolve out of Forrester’s next-
generation banking platform. However, there are a number of changes and extensions, such as:16

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· The new core. This is the architectural area that is focused on the new core competencies such
as compliance and risk management. The new core is focused on functionality that is meant
to accelerate the business or to create ways of differentiation and will support the upper three
layers. There will be little or no bank-internal coding anymore. The new core is based on
assembling business “applications” along the lines of processes and on custom-built and off-
the-shelf business and information services. Custom development will be the exception rather
than the rule — even for the larger banks.

· Commodity functionality: open source and service banks. Banks will consume
nondifferentiating functionality in multiple ways. In particular, the banking executives assume
that in 10 to 15 years nondifferentiating functionality will be available as open source. This
could mean the return of a model similar to the early days of electronic data processing —
sharing applications for routine activities between enterprises. Banks may run these open
source “applications” or business services bundles internally or externally. Utility-type
service providers — service banks — will also offer functionality such as core banking, credit
factories, and payment as functional or BPO-type services: Banks will consider these services
as “plumbing” or nondifferentiating “banking infrastructure.”17 To leverage the service banks’
offerings in a dynamic market, banks will need to work with the semantic specifications of
service interfaces.18 Without some “plug-and-play” capability, service banks would be just
another name for a rigid sourcing approach.

· Off-the-shelf services. Many banking executives and some vendors assume that vendors will
move away from selling applications as software licenses toward selling services — maybe
based on different licensing models, for example, based on consumption. Nondifferentiating
off-the-shelf services would have to compete with open source and service banks. Similar
to the service bank model, this would allow a bank to use the services of vendor X and, at
a different time or in a different location, the services of vendor Y — for example, due to
different fee structures. This approach would be easier if nondifferentiating business services
would also be offered “on demand,” thus establishing a broader SaaS environment in banking.
One banking executive even predicted that SAP and Oracle would establish global “services”
hubs. However, niche providers may cause a shift in the balance of power by offering highly
differentiating and highly specialized business services that can collaborate with other niche
offerings within a given business services ecosystem.19

· Granularity of business services. Lively discussions are currently arguing the “right”
granularity of business services. Even today, the answer is neither more coarse nor more
fine-grained — most firms will need both for an optimum level of agility. For example, the
recomposition of a coarse business service can be based on fine-grained services to ensure a
better fit to a redesigned business process step. This will become even more important than it
is today when it comes to fitting the capability of a utility-provided service to a bank’s demand.

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In the future, banks’ as-is architectures need to represent inter- and intra-enterprise SOA.
They need to offer business functionality internally and externally, to support consumption of
internal and external functionality provided via business services as well as by vintage means,
and to compose business services out of internal and external services.

· Semantic banking backbone. Many vendors and bankers believe that the entire architecture
will be based on SOA to manage the dynamic business and technology relationships. Forrester
recommends going beyond pure SOA and using Forrester’s Digital Business Architecture in
the shape of the next-generation banking platform as the basis for a target state architecture.
However, the next-gen banking platform and its banking backbone need extensions for
2023. An even stronger focus on supporting and leveraging the power of semantic business
services specifications will allow a faster and more reliable composition of rich business and
information services — thus increasing the speed of change. However, this alone won’t be
enough. Business processes will go everywhere around the globe on a 24x7 basis. Thus a key
focus will be supporting business processes across the boundaries of a single instance of an
“application,” across enterprise boundaries, and across multiple infrastructures. One approach
for this could be a federation of more local sub-backbones — similar, but not identical to
Forrester’s federated SOA model.20

· Predictive monitoring. Currently, predicting the effect of a large change on an entire set of
enterprise applications is a complex task. The future environment will be characterized by
the “dynamic” consumption and composition of business and information services. Thus,
one of the key success factors of such an environment will go beyond the current system and
application management approaches: It will include a predictive modeling capability that —
based on data about system and application configuration and behavior — will offer insight of
what affect certain systemic trends and changes will have on a banking platform that is based
on the “industrialized banking” target state architecture.

· Vintage sourcing. Today, some banks are still using back-end systems — core banking systems
in particular — that are 10, 20, or even 30 years old. Fifteen years hence, we can expect to
see remnants of the vintage applications that are mainstream today. Reasons for that include
budgets, risk, and long-term contract inertia as well as using old contractual models to run the
“new core” of tomorrow.

Enterprise Systems Won’t Be Apps Anymore, But Networks Of Services

Banks will combine the new core with open source and service banks and off-the-shelf services in
various flavors. The evolution of the next-generation banking platform and the federated semantic
banking backbone will support this approach that will be controlled by predictive monitoring. This
will create a highly flexible environment that will eventually drive firms away from monolithic apps
toward a network of business and information services — with a single “industrialized banking”
platform acting as a “router” of business services (see Figure 2).

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Figure 2: Collaboration And A Network Of Services Characterize Industrialized Banking

Retail branch Retail bank Custody

Clearing and
Trader/broker Mortgage bank settlement

Nonfinancial Insurance Credit/mortgage

services firm company back office

Insurance broker Nonbank?

Sales Product (bank) Service (bank)

Business relationships/“distributed”
Legend entities business processes

47356 Source: Forrester Research, Inc.

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The built-in flexibility of these service networks could lead to a single platform even for the most
global bank. However, structural organization and geopolitics as well as security will continue to
create obstacles. In addition, there is always the reliability and resilience perspective: Some years
ago, the entire multicountry ATM and online banking business of a large bank was unavailable for
a couple of days because of a serious storage issue. Who would like to repeat this experience on a
global level? For some time industrialized banking will offer a more global architecture, but it will
still use more regional deployment.

Industrialized Banking Will Change IT Organizations

Most of the banking executives we interviewed identified a few key impact areas for the IT
organization of the future. Following their line of thought, IT organizations will move in very close
proximity of what Forrester calls Business Technology (BT). In addition, they identified the need to
increase the business knowledge of today’s IT organization and to focus on various partnerships.

“Financial service firms will retrain partner resources and focus on core competition
around risk, compliance, product design, and client relationship.” (Vice president, business
architecture, large European bank)

The IT organization that supports the bank of the future will be characterized by:

· Business knowledge. Most banking executives agreed that the relationship between business
and IT will change significantly, in particular between business and forward-looking functions
and roles within IT such as IT strategy and enterprise architecture. It will include collaboration
between all IT planning functions and the business and IT using business language. To
understand the business and to help the business to differentiate itself will be even more
important. Some of the executives in the banks’ IT organizations that we interviewed even
offered more thoughts about their bank’s long-term business than about their target state
architecture or IT strategy. The bottom line: Business technology is here, and business
architecture will become more and more crucial for banks.21

· Selective sourcing. The summary of opinions and predictions indicates a clear increase
in outsourcing compared to today, but also different approaches to sourcing. Many of the
banking executives we interviewed expect close to full outsourcing of infrastructure for their
bank and an increasing share of application outsourcing — in existing and emerging flavors.
At the same time, they also state that they do not expect that custom application development
will completely vanish — neither in-house nor contracted. However, they expect it to focus
on assembling functionality along the lines of business processes and only in rare cases on
constructing the individual functional building blocks such as business services. In addition,
most banking executives clearly stated that the application architecture and software knowledge
must be kept in-house — and maybe even extended — to be able to navigate through the
myriad future architectural options.22

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· Vendor partnerships. To develop and run an efficient application and services landscape in
such an environment will be difficult at best for banks with small IT organizations. They will
need the help of partners that are competent in the world of industrialized banking. Smaller
vendors or vendors with architectures that are not aligned with business models will be less
suited to this environment unless they focus on differentiating niches.

“To be successful in 2023, banks will need a large IT shop, a banking consortium, or a vendor
that follows this line of thought.” (Director of enterprise architecture, bank in Asia Pacific)

Key Differences between today and the future

Forrester’s survey and interviews have led us to identify the directions of the overall financial
services business, and the ways that customers will interact with their banks by using branches and
a variety of channels. These directions lead to requirements that define a number of key differences
from banking today that affect channels and ubiquitous banking, customer interaction and the new
CRM, old and new core competencies such as product innovation, and a number of additional areas
(see Figure 3).

Figure 3: Key Changes: Today to 2023

Key changes: today to 2023

IT/BT building block Today 2023

Multichannel interaction Incomplete Ubiquitous

CRM Inconvenient Customer-oriented

Product design Siloed Personalized

Core banking Important Commoditized

Business applications Monolithic Assembled

External business functions Rigidly sourced Utilized

Geographical scope Limited Regional/global

Vintage applications (a.k.a. legacy) Under renewal ?

47356 Source: Forrester Research, Inc.

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14 The Future Shape Of Banking Architecture In 2023
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Legacy Systems Strangle Will Hold, Just Differently

As banks move forward, however, some banking executives also told Forrester that they consider it
likely that they will have a huge amount of new legacy systems in 2023. Their reasons? Most if not all
front- and back-end systems will have been completely redeployed by 2023. However, an increasing
stream of new business requirements plus the acceleration of mergers and acquisitions will make
a “clean” architecture impossible. This will create the same type of functional patches and the need
for large-scale integration scenarios that we have already known for years.23 These banking execs see
two options to avoid creating outdated systems and redundancy all over again: A reduction of the
overall pace — which is less likely to happen — or a focus on methodology and architecture that
targets long-term benefits.24

”New systems do not offer long-term advantage without radical change in methodology and
technology.” (Vice president, enterprise architecture, bank in Asia Pacific)

Re c o m m en d ations

Manage the PRESENT and PREPARE FOR THE FUTURE

It has been said that you can make the most money when the streets are burning. For enterprise
architects this means that even in dire economic times they cannot afford to focus just on the
present, extinguishing fires and helping to manage cost. One of the key aspects of EA work is to
establish the big picture and to be prepared for more than the next few months. The key question
is how architects can reach these goals in times like these?

· Accelerate when others are putting on the brakes. Financial services firms that are still in
decently good shape may decide to gain competitive advantage while the others are still
assessing the damage. Enterprise architects and target state architectures and strategies will
be a key enabler in such a scenario. Next to a sound understanding of current business needs,
ideally combined with a move toward business architecture, these enterprise architects
will also need a concrete view of the future of the business and the technology driving
this business in the future. Enterprise architects should use the scenarios of banking and
banking IT in 2023 as a basis to discuss the future direction of their own bank, to establish a
better understanding of what their business executives have in mind, and to describe what
business and business technology environment enterprise architectures should target.
· Prepare for acceleration during the lull. The financial services companies that are
struggling will need to prepare for their future — to (re-)establish key differentiators and
to remain competitive, albeit with little or no investments in the short term. Or just the
opposite: Cost management will once again be high on the list; enterprise architects need
to prepare for this. In such an environment, business executives will not spend a lot of time
on the shape of their business in 10 years. However, enterprise architects can identify which
elements of banking IT in 2023 are most aligned with their current corporate strategy. Thus,

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 The Future Shape Of Banking Architecture In 2023 15
For Enterprise Architecture Professionals

they can, for example, ensure that cost management mechanisms such as sourcing are
aligned with the notion of services banks and utilities and that remaining investments are
aligned with a forward-looking target state architecture.
This is all the more important because the complexity of IT/BT scenarios on the way to 2023
will move enterprise architects into a key role to enable the business strategy if — but only
if — they are sufficiently prepared and if they have a sound understanding of business
requirements, directions, and strategies. All of this will ensure that the bank will be able to
accelerate after the current lull.

W hat it m eans

IndustRialized banking needs more than technology

Forrester’s Digital Business Architecture, the next-generation banking platform, and all other
emerging ingredients of a target state architecture such as the (federated) semantic banking
backbone, business services ecosystems for banking covering semantic service interfaces, and
the semantic Web, offer a sound starting point for banking platforms supporting industrialized
banking. But there are functional and organizational requirements beyond today’s approaches:

· New core competencies. The new core competencies, such as those driving the new CRM, and
product innovation competencies are creating functional requirements far beyond today’s still
often silo-oriented product design approaches and also beyond the boundaries of a single
financial services firm. Banks will have to look for application and business service vendors that
will align their product portfolio with this way of thinking. However, this won’t be enough.
· Bank structure. To get the most out of ubiquitous banking and industrialized banking,
banks will need to adapt their organizational structure. An organizational layering similar
to the more architecture-driven layers of industrialized banking may come into existence,
and ubiquitous banking certainly needs more homogeneous and coherent approaches to
multichannel banking than many banks have today.25
· Ownership of data. The ownership of data and information will be even more crucial than
today. A firm focusing on customizing, bundling, and selling financial services products — a
sales bank — will need its customer information as much as a firm creating raw products —
a product bank. Service banks, on the other hand, will need customer data to deliver their
services. However, both sales and product banks may anxiously guard their customer data
because it will become one of the most differentiating and competitive elements of their
business. The bottom line: Mechanisms to protect the ownership of data will not only be a
task for lawyers but also for enterprise architects.
These scenarios are eight, 10, or 15 years in the future. Most vendors and banking executives think
that — based on the experience of the past — the emergence of disruptive technology is close
to certain. But despite the near certainty of its emergence, the disruptive nature of this type of
technology means that predicting its impact is impossible.

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16 The Future Shape Of Banking Architecture In 2023
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A LT E R N AT I V E V I E W

The diSruptive event May haVe EMERGED

In July 2008, the first part of our “Banking IT In 2023” series stated that events such as global
catastrophes and global man-made disasters could cause an entirely different set of scenarios.
The ongoing banking crisis is significant, dangerous, and could lead to lasting change. However,
interactions with Forrester’s banking clients currently show that banks are still designing target
state architectures, are still planning renewal projects, and are identifying investment areas just
like they did before. Perhaps we came close, but the global man-made disaster has not arrived
to alter the evolution as we see it — at least not yet. If the crisis turns into a true global banking
disaster then many of the business scenarios of “Banking IT In 2023” and some of the IT scenarios
will most likely look substantially different in 2023.

Supplemental MATERIAL
Methodology
Forrester sent a questionnaire to more than 15 vendors in the telecommunications, network
infrastructure, consumer electronics, application infrastructure, IT services, and banking
application software space. The questionnaire touched on topics related to business scenarios 10 to
15 years in the future, the role of bank branches, and changes to customer interactions, as well as
the progress of information technology — and its evolution to business technology. In a second step,
we interviewed bank executives from banks in North America, Europe, the Middle East, Asia, and
Australia to discuss their thoughts on banking and banking IT in 2023. Forrester is in no position
to disclose the names of the participating banks. In most cases, the complete research report would
have to be subject to an extensive bank internal review and approval process. In a minority of cases,
even the legal department would have been involved.

Companies Interviewed For This Document

British Telecom Misys
Fidelity National Information Services Oracle
Hewlett-Packard SAP
IBM Sun Microsystems
Infosys Tata Consultancy Services
Microsoft Temenos

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 The Future Shape Of Banking Architecture In 2023 17
For Enterprise Architecture Professionals

Endnotes
1
These earlier parts of the series summarize business scenarios in 2023 and describe how different types of
branches will make transactions more efficient and customer interactions more pleasant. They also look
at customer interaction scenarios in a world of converged networks and devices. See the August 20, 2008,
“Financial Services Of the Future: Collaborative Competition Will Be The Norm” report; see the September
19, 2008, “Bank Branches Are Here To Stay, But With Key Differences”; and see the September 23, 2008,
“Intelligent Devices Will Drive Ubiquitous Banking” report.
2
For a more detailed summary and discussion of related business scenarios, see the August 20, 2008,
“Financial Services Of the Future: Collaborative Competition Will Be The Norm” report.
3
For a more detailed summary and discussion of the different shades of the branch of the future, see the
September 19, 2008, “Bank Branches Are Here To Stay, But With Key Differences” report.
4
A branch high-tech example: Branches will use sensory technology to identify customers and to recognize
their key areas of interest. After identifying the area of a product advertisement a customer is looking at and
offering additional details and/or related products, information about this interaction can be stored away if
the customer has been properly identified.
5
For a more detailed summary and discussion of how customers will use channels and how channels will
interact with each other and “applications,” see the September 23, 2008, “Intelligent Devices Will Drive
Ubiquitous Banking” report.
6
Some of these requirements are not dissimilar to those identified by Forrester. See the May 17, 2006, “Next-
Generation Banking Platform Requirements Revisited” report.
7
It is obvious that this could include another way of designing mobile communication fees — lower rates, but
acceptance of “near-cast ads.”
8
Effective multichannel solutions need strong cross-unit organizational support. See the August 30, 2006,
“The Multichannel Organization” report.
9
At least customers, and most likely also bank internal users, will see the value and convenience of switching
communication sessions from one channel to another within an ongoing channel. See September 23, 2008,
“Intelligent Devices Will Drive Ubiquitous Banking” report.
10
This scenario would come into play, if – for example – a country would not allow storing data on its citizens
outside of its physical borders. See the August 20, 2008, “Financial Services Of the Future: Collaborative
Competition Will Be The Norm” report.
11
Enterprise architects should evaluate Forrester’s definition of information fabric 2.0 and use it to guide their
IaaS strategy. See the April 9, 2007, “Information Fabric 2.0: Enterprise Information Virtualization Gets
Real” report.
12
While more and more powerful technology will make “real time” easier to achieve in a cost-effective way,
IT and the business need to make sure that these different perspectives don’t seduce an IT department into
designing and implementing application system capabilities without true business background. See the June
24, 2004, “Banking Real Time Equals IT Near Time” report.

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18 The Future Shape Of Banking Architecture In 2023
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13
Collaborative competition and the industrialization of financial services drive the fragmentation of the
value chain. See the August 20, 2008, “Financial Services Of The Future: Collaborative Competition Will Be
The Norm” report.
14
Forrester’s target state architecture for banking supports product definition across silos as well as the
industrialization of financial services. See the May 31, 2006, “The Next-Generation Banking Platform”
report.
15
Some executives added that this will be the outcome if no disruptive technology will unexpectedly push
SOA from its throne.
16
With Forrester’s Digital Business Architecture and the emergence of technologies supporting the concept of
the banking backbone, next-generation banking platform requirements have a solid architectural basis. See
the May 31, 2006, “The Next-Generation Banking Platform” report.
17
The utilities can be consortia of financial services firms charged with the delivery of one or many of
those functional areas; joint ventures of banks and IT service providers; larger banks leveraging their
infrastructure; as well as any kind of nonbank moving into this traditional banking space.
18
Forrester surveyed IT vendors in the banking space about their positions regarding business services
ecosystems driving semantic specifications. See the March 17, 2008, “Business Services Ecosystems For
Banking: The Future Is Bright And Most Likely Heterogeneous” report.
19
Forrester identified a number of emerging and planned business services ecosystems for banking. See the
March 13, 2008, “Semantic Business Services Specifications Support Business Agility” report.
20
Federated SOA will work against SOA silos. See the October 9, 2008, “Building Interoperability And
Federation Into Your SOA Platform Strategy” report.
21
For more on business architecture, please see the October 23, 2008, “Business Architecture’s Time Has
Come” report.
22
Even when the bulk of IT is outsourced, several key functions should be retained. See the July 26, 2004,
“Functions To Retain When Outsourcing” report.
23
Forrester identified a starting point for the planning of banking platform renewal. See the November 29,
2004, “End Of The Line For Vintage Banking Platforms” report.
24
Forward-looking architecture planning struggles with the fact that there is not just one future — neither
on the business nor on the IT side. Scenarios provide ways to capture multiple futures and to assess their
impact on architecture and application landscapes. See the August 8, 2006, “Scenarios Provide Forward-
Looking EA Capabilities” report.
25
Companies have wrestled with multichannel solutions for years. Today, technology is available to build
comprehensive multichannel platforms — but that’s not the main problem. See the August 30, 2006, “The
Multichannel Organization” report.

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