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Updated: 2/27/2023
For all the talk about digital transformation over the last few years, a lot of companies aren’t there yet. That includes many in the financial industry, which encompasses both financial services and financial technology (fintech).
That may seem surprising given that banks and credit unions ─ along the “face” of the financial industry ─ were at one time pioneers in the use of technology. From ATM technology to online banking and bill pay, these financial institutions changed the nature of banking from face-to-face to face-to-interface.
However, the financial crisis in 2008 put the previous focus on technology advancement on hold – at least until recent years when customers started driving the demand for digitally delivered financial services capabilities and better customer experiences. The result? An increasing number of financial organizations are leading the charge with digital services including:
Note that we said, “an increasing number.” There are still numerous companies in the financial industry that haven’t embraced those kinds of advancements and are struggling to catch up. Hybrid IT ─ drawing on a mix of legacy, current, and emerging technologies, and infrastructure ─ may be a viable first step to accelerating digital transformation. But first, financial organizations must understand and address what’s been holding them back.
Many of the issues preventing some financial organizations from fully embracing innovation and new technologies haven’t changed since digital transformation became a business imperative just a few years ago. That includes the shortage of qualified IT professionals, particularly in IT security, which is only getting worse.
IT staffs at financial services companies, like their counterparts in other industries, struggle to stay on top of new software rollouts and upgrades, patch deployment, battling the latest cyber threats, and just keeping “the lights on.” In these situations, outsourcing some IT monitoring and patching responsibilities may free up internal staff from tedious day-to-day IT tasks so they can focus more on strategic initiatives and innovation.
There are also the increasing, often-changing regulatory and industry-specific compliance requirements that financial services organizations must meet. Among them: the Payment Card Industry Data Security Standard (PCI-DSS), General Data Protection and Regulation (GDPR), The Sarbanes-Oxley Act, Gramm-Leach-Bliley Act (GLBA), The NYDFS Cybersecurity Regulation (23 NYCRR Part 500), and the California Consumer Privacy Act (CCPA).
Again, leveraging the assistance of a third-party company, particularly one that specializes in compliance issues specific to the financial industry, may alleviate some of the burden.
Financial organizations also continue to struggle with aging legacy systems. They cost too much to toss out but also too much to maintain. Accompanying that issue is the matter of all the applications that only work on those systems, making it difficult to just migrate everything to the cloud. In addition, many financial organizations still rely too heavily on disparate systems and manual processes. Efficiencies are hindered, and these companies are increasingly losing out to payment service providers (PSPs) and others who are more agile and adept at streamlining their processes and their delivery of new services.
In these types of situations, outsourcing alone won’t make much of a difference. A change in company culture is necessary. Organizations must be open to doing things differently. That receptiveness has to start at the top of the company and filter throughout the entire organization.
Where a third party can help is in terms of presenting options for employing new technologies and infrastructure that can increase efficiencies, productivity, cost savings, and opportunities for innovation. Those kinds of benefits tend to make management more amenable to change.
In recent years, operational resilience has been a growing priority, as financial organizations saw their legacy infrastructures struggle to keep up with monumental disruptions. The bigger issue now may be operational viability. Customers – their expectations and experiences – are at the heart of this.
There are new forms of competition from digital-only banks and other companies. Starting in early 2020, the global pandemic drove significant changes in how financial services are delivered and consumed. It not only disrupted in-person activities. It also shifted customer expectations. Customers like the convenience of anywhere, any device financial service delivery. They’re demanding more of these types of services – and they want them faster.
It’s not enough for financial companies to implement the technologies that enable them. They also must factor in better engagement, communication, and experiences. If financial organizations can’t innovate their offerings and enhance their customers’ experiences, they won’t keep them happy – or retain them as customers.
There are financial organizations that have succeeded in doing this, but most of them have been large enough to have the budgets and resources to make it happen. Smaller, more local, or regional organizations often must still contend with their legacy infrastructure and operational framework. They can’t afford to drop everything and adopt the latest and greatest.
Some have tried to apply a ‘digital veneer’ to their business rather than going through an actual digital transformation. They’ve added a few innovative services. The problem is that the new parts don’t necessarily align well with the other existing parts of the organization. That causes more problems —for the IT staffs charged with maintaining everything and for the current and prospective customers that find things more confusing than convenient.
As is usually the case, there’s no one solution that can help financial organizations embrace and accelerate digital transformation. Each one has its own unique challenges and issues. One place to start, however, is by employing a hybrid IT strategy.
Rather than an all cloud or all legacy system framework, hybrid IT draws on both sets of technologies and infrastructures to meet a financial organization’s changing needs. The idea is to gradually integrate new technologies and infrastructure into the existing IT mix while still using existing systems. This allows time to rewrite or replace applications that are dependent on those systems while getting the most value out of the current investments.
At the same time, the cloud can be used to facilitate, as well as ease into, the development and delivery of new services that leverage cloud-friendly technologies. Cloud-powered services can be tested out and implemented using the cloud’s pay-as-you-go model with no infrastructure investment required.
By employing an OpEx model instead of CapEx model, cost savings and other benefits can be immediately realized. As more workloads migrate to cloud environments, legacy systems can eventually be retired once they reach the end of their lifespan. The associated maintenance costs also then disappear.
In addition, older systems can be used in ways that weren’t previously possible. For example, historical data can be kept on on-site mainframes while seamlessly combining those systems with new digital services that run securely in the cloud. This enables organizations to benefit from the cloud’s agility without the need for a large-scale migration from legacy systems.
As organizations employ more cloud technologies, they also have the scalable compute and other resources to power advanced automation, artificial intelligence, the Internet of Things, and other technologies. These in turn enable new applications and services such as bots for “no humans required” personalized customer assistance. Cloud-inclusive hybrid IT also makes it possible, via data analytics, to put all the data generated along the way to use in further innovation and optimization.
With the right mix of infrastructure and technologies, expertise, and company vision and culture, financial organizations can accelerate the progress of their digital transformation journey. It’s a more flexible way of doing business, and one that can help these organizations gain and maintain a competitive advantage.
To learn how your company can benefit from a hybrid IT approach, call 866.2. SIGNAL or email [email protected] , A good first step toward digital transformation may be a technology assessment to help determine what you need and what it will take to get you to where you want to go.
To learn more about hybrid IT, check out these articles below from our blog or visit our resource center for whitepapers, e-books and more!
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