How many banks, do you think, consider digital transformation as their key business priority? 85%, according to EY researchers! Moreover, 62% of the survey’s respondents expect to reach a full digital mature by 2020. These numbers are only the tip of the iceberg but they clearly illustrate the importance of updating you banking IT infrastructure.
It’s clear that the process of transformation requires significant resources, including time, money, and employees’ attention. We understand this like no other. Our company has successfully developed several infrastructure solutions for different finance organizations from Europe, the Middle East, and Asia. We know how to create software for branchless banks to boost customer satisfaction. Today, we’re going to share some industry insights with you.
The guide is focused on the importance of IT infrastructure for banking enterprises. Particularly, it covers questions of tech development and transformation. Read on to find how you can turn your company into a digital leader.
IT Infrastructure Basic Points
First things first, here’s the definition of banking IT infrastructure from Gartner. In a nutshell, it’s a system that includes:
- Service parts.
- Network parts.
Actually, there are different understandings. Business owners often consider infrastructure as hardware plus software excluding people and actual processes. In this case, we can equate IT infrastructure to a more common term: IT system.
When it comes to banks, infrastructure acts as a central nervous system of the company. It establishes basements and delivers core services to customers. It also provides for daily operations, as well as further improvements. Similarly, the banks’ elements look like:
- Hardware: computers, mobile phones, tablets with installed banking software.
- Software: banking applications with all the key parts such as code.
- Facilities: rooms, offices, and everything focused on the physical environment.
- Service parts: connections, accounts, accesses, cybersecurity, etc.
- Network parts: APIs, external links, data exchange standards.
While optimized modern banking IT infrastructure is a must-have for banks, it’s difficult to reach it. The catch is in the legacy systems. They are everywhere. And they slow down digital transformation greatly. But what’s up with other challenges?
Emerging Challenges for Traditional Banks
Today, large and wealthy enterprises can’t feel as safe as usual. Being T-Rexes of the banking industry, they face a gradual decrease in food – their customers. Smaller and faster dinosaurs are more successful hunters now.
The current banking challenges can be divided into two large groups. The first one is fully focused on the problems inside the company like outdated infrastructure and culture. The second one is more about external issues.
A lot of challenges fall in the fields of marketing and software development. For more info and useful tips for your business, check out the article dedicated to these two aspects.
It all starts inside the banks. These institutions are the oldest and the most experienced finance market players but they face numerous problems now.
Key internal obstacles can be divided into three categories depending on the disruption type:
- Cultural. In 2018, Efma conducted the survey dedicated to innovations in banking. Respondents named cultural/behavioral issues the most significant ones. Particularly, they said that narrow thinking, lack of transparency, and poor collaboration damaged the next-gen digital culture the most.
- Financial. Again, in 2018, Ernst & Young published a report about the global banking industry. There, auditors asked top companies about costs. 64% thought that expenses would increase over the next three years. And this trend can damage all traditional banks regardless of their size.
- Technological. Legacy infrastructure seems the most disruptive yet the least dangerous threat. There are a lot of stories about huge crashes of banking apps, rejected transfers, delays, and so on. Most of them relate to the outdated basic platforms built on COBOL. However, it’s easy to update or replace them today.
Moreover, the external issues mentioned in the next section, are consequences of the internal ones. Just think about it. How a random finance startup can outperform giants like BNP Paribas or Santander? It’s possible because traditional institutions fail to overcome their own problems. Thus, startups can provide a solution and attract users thanks to it.
You got it right. The first and most dangerous threat comes from new companies. According to Ernst & Young, the global adoption of FinTech startups’ ideas was 18% in 2005. It increased to 50% in 2017. Another member of the Big Four, Deloitte, reports the insane number of FinTech startups founded yearly. In 2019, there were more than 12,000 fresh companies with 5,000+ in the Americas only.
Pushing new ideas, integrating innovations, and disrupting traditional businesses, startups attract more and more clients. They deliver way more convenient solutions than banks now. And that’s the case. To survive, banking groups have to evolve. Hence, we return to the previous part with internal obstacles. Each bank that fails to meet new client demands available via innovations and reshaped culture, will degrade, most likely.
Among other external challenges that modern banks face, there are the next ones:
- Cyber risks. With new tech emergence, criminals find new ways to interrupt banking processes and steal money or data. Enhancing cybersecurity should become one of the top priorities for banks. It must come as a comprehensive strategy with updates of hardware and software, recruitment of new talents, training them, etc.
- Regulatory risks. Regulators across the world introduce new and updated versions of Basel III reforms. Each country may feature different rules. In this case, banks should clearly understand the requirements to provide all the necessary changes. It’s even more important for multinational groups that operate in different regions.
- Reputational risks. The last external issue is directly connected to internal cultural shifts. Customers tend to trust reliable companies that keep up appearances at any cost. Simultaneously, people love honest brands with a personalized approach. Apart from this, banks should maintain its reputation by improving KYC/AML policies.
Only complex plans can save banking firms from falling too much. And these plans must come with proper banking IT infrastructure optimization decisions.
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Infrastructure Evolution for Digital Transformation
To deal with the mentioned challenges, bank executives should care about progress. It’s barely possible to sustain without adopting the principles of digital transformation. Startups play a dangerous game. They tend to reshape and destroy traditional standards because they’re good at new things. Thus, banks should either accept these rules or lose.
Optimization of banking IT infrastructure should become the first tech-focused development direction. Together with cultural changes, tech evolution is required. We expect banks to adopt new solutions like voice chats and devices, AI assistants, mobile and social media channels, blockchain, and so on. There may be different reasons but the transformation is crucial.
Further, we list five of the most important trends in digital transformation. They include valuable ideas that should help you to optimize the bank’s IT infrastructure.
1. New Levels of Personalization
There’s no secret that data rules the world. Many banks tend to target their customers using various filters like age, location, lifestyle, needs, etc. It’s enough to survive. Still, to outplay startups, banking teams must focus on the highest layer of personalization and target each customer, either individual or entity. Don’t forget to convince clients that they need this extra value. Thus, they will be happy to pay for it.
Solutions for infrastructure: data mining tools, analytical platforms, real-time trackers, powerful CRM apps.
2. Open Banking APIs
New regulative acts require banks to hand over the right to share user-related data to users themselves. This fact opens new interaction and engagement ways. Thanks to open APIs, clients will have a wider choice of how they want to communicate with the bank, as well as other financial firms. Moreover, this approach helps companies to establish a global ecosystem. The only thing executives should remember about is the primacy of consent.
Solutions for infrastructure: modern APIs, API standards, separate applications for customers.
3. Physical + Digital = Phygital
More and more businesses switch to mobile-only delivery. This concept is highly profitable now as it makes the difference by providing quick and seamless interaction way. The catch is that not all customers want to go mobile. Sometimes, they want to visit a branch. Sometimes, they just want to talk to the operator, not to the robot. For this, pay high attention to the idea of phygital presence. It stands for omnichannel tools that suit the need of all clients.
Solutions for infrastructure: cross-platform and cross-channel apps, tech-savvy physical branches, combined mobile and physical communication ways.
4. Predictive Services with AI
The era of Big Data and Artificial Intelligence provides for wonderful opportunities. Today, banks can not only understand the clients’ behavior at the moment but predict it. Add open banking here, connect millions of devices, and you will get the complete view. FinTech companies already introduce such tools. Traditional banks also can do this. With proper budget planning, it’s possible to skyrocket ROI.
Solutions for infrastructure: robotic assistants and chatbots, AI-based apps, analytical systems with predictions.
5. Wholesome Payments
Finally, the banks remember about the core goals. Considering all of the above trends, the industry of payments will reshape pretty quickly. For instance, we’re moving away from separated products to one universal banking IT infrastructure. Data- and tech-driven platforms now unveil the potential of IoT, mobile transfers, blockchain, and cryptocurrencies. Further, we expect fees to decrease and overall convenience of payments to rise.
Solutions for infrastructure: omnichannel interconnected payment systems, all-in-one tools, decentralized platforms.
Strategies for the Banks to Improve their Services
As for now, it should be clear which ways a banking CIO/CTO should take to evolve. But the mentioned options are about tech development. What are the best strategies for banks that want to run their digital transformations smoothly? Further, we list three traditional approaches based on market behavior.
The most obvious way is to confront others. In this case, the market will look like a pond with different species of predatory fish which eat each other. Banks are like large but slow sharks. And startups are flocks of piranhas that can quickly attack.
This way is the least promising for traditional banks now. They have a lot of money, established banking IT infrastructure, and customers but they still lose to startups. Acquisitions become rarer and less profitable than teamwork.
Here, enterprises opt for working together instead of competing. They form a global financial ecosystem using open banking ideas to provide the best services to clients. Surely, some rivalry remains. It’s like a stable lake with the classic food chain.
The magic of combined services is that they take the best from both worlds. Banks provide for customers and power while startups deliver new vision and technology. Probably, we will see new forms of acquisition based on the companies working together.
Finally, here’s the most famous and most useful type of cooperation. It’s based on working with tech development/support firms, not other FinTech groups. It’s like… when a shark gets an armor created by blacksmiths in the village near our lake.
Recent studies show that banks tend to partner with external dev companies or purchase technologies directly. Especially, it’s legit for robotic assistants. Such a partnership can greatly benefit a traditional bank and help it to transform.
For all our partners, we propose different cooperation models. Banks tend to choose dedicated teams as one of the most cost-efficient approaches.
Infrastructure in Banks as a Starting Point for Changes
The entire process of digital evolution is long and complicated. It provides for adopting existing infrastructure and implementing new technologies to meet the changing demands of customers. It also includes cultural shifts, strategical vision, and more. But the first thing you should do is to think about your hardware/software capabilities.
We bet you will need some professional help. It’s always possible to change or develop anything with in-house IT teams only. But this way isn’t efficient. If you need to improve the systems, migrate data, re-engineer software, update infrastructure, deliver new apps, you can always contact our company focused on technological partnership.