Despite consistently citing digital adoption as a top business priority, the financial services industry has lagged behind other sectors in migrating its legacy systems. A recent PricewaterhouseCoopers survey revealed that 81% of banking CEOs were concerned about the speed of technological change, a higher percentage than any other business segment.
Reasons for this anxiety range from the complexity of existing infrastructure, to regulatory challenges and concerns over cybersecurity. It’s hardly surprising risk-conscious financial institutions have been wary of taking the digital plunge.
The outbreak of Covid-19 has only intensified the demand for digital services. Consumer preference for contactless payments, for example, has exploded since the onset of the pandemic. It’s a trend directly tied to concerns around social distancing and disease transmission, but looks certain to remain a facet of the “new normal”. With the global digital payments space forecast to rise by over $23bn in the next four years, cloud adoption will play a vital role in enabling and accommodating such growth.
Contactless is only one of many trends and changes to prompt a growing sense of urgency around burgeoning digital adoption strategies. Implementation over the next five years is no longer sufficient: the time to act is now. Boosting efficiencies in the context of a wildly different operating environment means resilience, agility and innovation are prized like never before.
Companies that had already prioritised enhanced digital capabilities have been able to make a smoother transition to this changing landscape. Conversely, for those struggling to keep up with the pace, Covid-19 has exposed the inadequacies of existing technology and the need for legacy financial institutions to start making serious changes or risk being left behind.
The pandemic made many digital requirements clear, but has also disrupted progress. As financial services companies, like the rest of the global economy, scrambled to transform working practices and get their businesses functioning in the wake of the lockdown, there was an inevitable pause or delay on some longer-term transformation projects, including cloud adoption. Now, however, with some sense of normalcy restored, pace is expected to pick up dramatically over the months ahead.
Priorities are myriad. The sector must update its operating model and put digital at the heart of new systems. Of course, this won’t be easy for financial institutions that have spent generations building software. Current operating models, however, are not agile enough to keep up with the latest technological developments.
The savings and efficiencies are huge
As evidenced by the move towards contactless payments, it is vital for the financial services sector to develop a model that puts customer needs first. Today, it is possible for companies to analyse huge amounts of data, using AI to understand their end-users’ needs on a deeper level than ever before. The growing prevalence of electronic documents in mortgage processing, for example, has enabled the automation of huge swathes of manual work previously necessary for loan processing. The savings and efficiencies are huge, but, again, require a comprehensive cloud migration strategy to fully unlock.
Another priority for financial institutions is to ensure they have access to the talent and technology capable of transforming their capabilities – and a willingness to look externally for answers. Increasingly, it makes sense to work with a new generation of solution providers.
It is also important that a comprehensive cyber-risk management system is put in place which can keep up with new threats in the evolving digital world. For the financial services sector, the sensitivity of client data means that lapses in these measures can lead to incalculable reputational damage.
Another key priority, identified by PwC’s Financial Services Technology 2020 and Beyond report, is simplifying and optimising legacy systems. Existing architecture can be clunky, costly to maintain and tricky to modify. This makes it particularly challenging trying to keep up with and integrate the latest capabilities, as updates tend to be time consuming.
Higher security controls than when data is stored on physical servers
Pre-pandemic, financial services institutions had been somewhat slow to fully embrace cloud migration. Conversations have been ongoing for many years about how and when the sector should adopt cloud technologies and the risks involved in doing so.
However, spurred by the dramatic shift to digital post-Covid-19, cloud migration in the financial services sector is set to pick up pace. It is getting harder to ignore the wide range of advantages such a move has to offer, including increased flexibility and scalability, and a better end-user experience. Switching to the cloud can also result in significant savings as enterprises become less dependent on hosting and maintaining physical infrastructure.
Although security often crops up as a concern for financial service companies moving data to the cloud, there are likely to be higher security controls than when data is stored on physical servers.
One company helping the industry to leverage the possibilities of the cloud and move beyond the confines of existing platforms is Hexaware. The IT service management company is seeing a growing number of financial services companies show interest in its cloud replatforming solution, Amaze for Applications. The offering blends automation with human expertise to transform legacy applications and databases to the cloud, increasing functionality and reducing what would normally be a six to nine-month process to a matter of four to six weeks.
Functionality, speed, and seamless transition are incredibly highly prized metrics for any company needing to accelerate their digital strategy. Investing in such solutions is critical for the digital transformation of the financial services industry. It’s time to rethink one’s strategy around legacy applications and commit to permanent changes that will last long beyond the pandemic.