• November 18, 2016

Accelerating to Real-Time: The Challenges Ahead for Banking Transformation

If you’re a technologist working in the financial services industry, 2016 is definitely a year of exciting changes. But it’s also likely the most challenging. This is because the pace of technological change in financial services technology has reached breakneck speed: Real-time speed! 

This phenomenon does offer overwhelming opportunities for the enterprising bank, insurer or wealth manager. New business models and new customer channels mean that suddenly, everything is up for grabs all over again.

However, change also brings issues. Major financial services organizations are simultaneously facing the need to modernize their traditional IT infrastructure, while also squaring up against new competitors and rapidly changing customer expectations.

In today’s world it is not enough for financial services organizations to provide the same services they were providing 10 years ago. There is a new competitive landscape. The internet has opened up an entire new market: The digital economy. There are now a number of new competitors to the banks; largely with a ‘fintech’ label.

These players are leveraging a new mode of technology to enable financial services in the digital world, facilitating the evolution of digital banking services. Making services we expect from banks like payments, loans, transfers, etc much more convenient to the consumers. Industry heavyweights like Paypal, Apple Pay and others are also gaining popularity.

The services these players provide are not only the base services that banks offer; these organizations extend the services, providing more convenience and relevance to the consumer. They also go a long way in reducing the complexity of performing the transaction — in essence, providing more convenience and a much higher degree of customer satisfaction.

In 2016, any major financial organization must also make a customer’s assets available wherever they are, on whatever device they wish, as well as the data around those assets. They are also expected to provide a range of value-added services on top.

Customers’ expectations and experiences in this digitised market warrant instant gratification. Financial institutions need to rise to meet this expectation.

That’s the harsh reality facing every financial services technologist in 2016.

So how to deal with this situation?

The first thing to realize is that every market is different. While the same trends are sweeping every market, not all markets progress at the same speed — because they’re starting from different points of technological development. One country may learn certain lessons earlier than others.

However, at the same time, we live in a global world, and as more mature markets make the transition to different technologies and paradigms, those lessons will quickly percolate to neighbouring countries.

It is particularly important to realise that change will be driven by the available technology. For example, markets which have a high degree of penetration in terms of the mobile and social media sectors will have a higher expectation that their financial institutions to engage with them on those platforms.

One key lesson coming out of more mature markets that will readily benefit others is the concept of “two speed IT”.

It is very costly, difficult and risky to transform the core processing infrastructure of any major financial services organization. And yet, no organization can afford to ask its customers to wait while it develops a whole new IT infrastructure.

So progressive banks have created separate divisions to deal with this issue. An operational division continues to work to support the bank’s existing IT infrastructure, while a separate division, often focused around the concept of ‘digital’, actively develops new products and services to sit on top of that existing infrastructure.

This approach takes the best of both worlds: Banks are able to embrace risk and uncertainty in the pursuit of competitive new products; but they are also able to ensure the stability of their existing IT infrastructure.

Related to this approach is what is being called the divergence between ‘outside-in’ banking and ‘inside-out’ banking.

Inside-out banking is what banks have been traditionally good at. They transform their internal operations and processes. These fundamental improvements flow through to customers on the outside, as well as substantially improving a bank’s internal efficiency and effectiveness.

Outside-in banking is the new kid on the block. In this paradigm, banks are customer-driven in terms of where they put the emphasis on developing new products and services. Then those demands will start to shape the bank’s own internal operations.

The two-speed IT approach recognizes and integrates these two streams, because the reality is that today’s banks need both. They can’t afford to leave their traditional IT infrastructure in place — like any major organization, they need to continually modernize and develop it. However, they also can’t afford to ignore ongoing customer expectations and demands.

What organizations who are further down this path have also realized is that it leads to even more opportunities along the way.

Financial services organizations who have developed a degree of agility through modernizing their IT infrastructure and speeding up their responses to evolving customer expectations are finding that they are able to engage with customers in logical points in their buying cycles.

For example, a major bank may realize that it makes sense to partner with a major online retailer, because they have mutual customers who can benefit from the bank’s physical footprint of branches in their country, as well as the global scale of the retailer.

The same situation may occur with respect to transportation, where mutual customers of an airline and a bank may find it convenient to purchase travel insurance from their bank at the point where they buy airline tickets. Or with a vehicle manufacturer, where a bank may be able to provide finance at the point of sale where a customer is about to purchase a car.

These are only surface-level examples which are already occurring — the potential for collaboration goes much, much deeper. And it all depends on the ability of a financial services organization to be flexible and meet customer needs, while also progressing the development of its internal operation.

The good news is that Hewlett Packard Enterprise(HPE) has a long history of expertise in digital transformation initiatives in the financial services industry.

When Société Générale needed to reduce the time it took to deploy new applications internally, for example, it turned to HPE for assistance.

The bank’s retail operation has more than 500 applications in production, as well as 6,000 servers running on operating systems as diverse as Windows, Unix (AIX) and Linux — a complex environment, typical of modern banking infrastructure.

As Société Générale IT specialist Jérome Délabarre writes, new Agile development methods being introduced to the bank were resulting in short sprint cycles, and new behavior tests were being added to existing unit and functional tests to perform automated end-to-end testing on fresh environments.

As a result, the bank was getting an “increase in requests to deploy more frequent, small updates to production environments”, which lead to hosting infrastructure changes.

To support Société Générale’s operations, HPE helped the bank deploy an end-to-end automation solution to handle both its infrastructure, as well as its application code lifecycle.

The result for the bank has been a massively improved ability to deploy and manage its resources in a timely manner, as well as being able to respond to business and customer demands.

HPE has worked with many banks and other financial services organizations around the world on digital transformation. That’s why we’re able to bring a broad perspective to bear on any particular project or journey — because we’ve been walking this path with many partners globally for many years.

Click here for examples of how HPE has helped financial services organizations globally undertake digital transformation journeys — and to get in touch to talk about the next steps in accelerating change. 

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About the Author
Sudesh Shah, Chief Technology Officer, Asia at Hewlett Packard Enterprise. Click here to learn how HPE can help you go further, faster, through accelerating transformation and driving innovation in your organization.