The term digital transformation rose to prominence a little over 10 years ago. Though one could reasonably argue financial institutions have been digitally transforming various aspects of their business as far back as the 1950s when computers were first introduced to support the book-keeping process. When we talk about transformation now, in the 21st century, we are talking about the adoption of cloud-based technology solutions that provide a secure, resilient, scalable, and agile model capable of delivering a more frictionless customer experience and a faster time to market with new services.
When we look at our customer base and the industry in general, we see financial institutions that are at different stages of the transformation journey. We are seeing a lot of short-termism within some business units, and we are seeing other customers take a more strategic approach with transformation tied to their enterprise strategy. Not surprisingly, the strategic players are gaining a lot more market penetration thanks to the benefits transformation delivers, including an increase in delivering innovation, mitigating risk, and improvements in customer satisfaction.
How banks move forward with the implementation of digitally transformative technologies is also evolving. We are seeing the role of the IT executive transform from being a builder to becoming a conductor or an orchestrator. Traditionally, IT executives lead internal software development teams to create customised applications as needed, but today they need to orchestrate, create development tools, and leverage external partners to enable low-code/no-code product composition.
Structurally and culturally, banks are behind the curve in this area with the pandemic being partly responsible for this lag. While it is true the pandemic accelerated digitisation journeys for many, it did so perhaps a little too rapidly and under very trying circumstances. According to the IDC a worrying 65%–75% of institutions worldwide have not optimised or even implemented processes or tools to manage what will eventually become the bank’s future digital infrastructure.
There is an industry-wide realisation that the old world of large, heavyweight banks or financial organisations, has been encroached on by a world filled with a broad array of nimble, flexible, fintechs and new challengers that are bringing innovation to financial services offerings. This evolution is forcing change in a lot of places.
Organisations are starting to realise they no longer need to build and maintain the hugely complex digital ecosystems upon which they rely. Moving to the cloud or a managed service means they can simplify and standardise their software architecture. They can also deploy new software and applications more quickly and cost-effectively, with a significant reduction in risk.
Change management like this does not happen overnight. As IT teams evolve their digital infrastructure and as they move closer to open platforms and best-of-breed solutions, they will need to evolve how they operate. The teams involved are now much more focused on the changing needs of the end customer.
A common challenge we encounter is when an individual business unit within a bank embarks on a transformation journey in isolation. This can only be taken so far because, ultimately, they need to align with the bank’s broader strategic direction. This is where you see the importance of an IT orchestrator at a senior level rather than a collection of builders in different business units.
Ultimately, the winners in this space will be the organisations that can be agile and be faster to market with new products and services in a relatively simple way. They will need to be able to orchestrate their technology ecosystem and get operations running ahead of their rivals without incurring massive overheads. The good news is banks do not need to do this alone. A managed services model offers clear benefits — enabling financial institutions to evolve and compete without the need for overnight change.
A big piece of the work we do at Finastra with our customers is understanding their current state, challenges, opportunities, and overall experience with their Finastra solution, to identify where they are on their transformation journey and determine the next best step. We break the journey into stages, which each deliver tangible benefits and interlock with the change program of the bank. Transformation is a shared process and through ongoing services that underpin progressive modernisation and solution adoption, we can build a structured route to realise greater value.
To learn more about how financial services organizations around the world are using new service models to accelerate innovation in banking, download this IDC report in partnership with Finastra.