Supporting Modernization In Banking Through IT

Over the past two decades, digitization has brought about a sea change in the living standards of ordinary people globally. They can browse and buy what they need without leaving the comfort of their homes. They can also map their travel accurately with digital apps and even monitor their health as frequently as they desire. And all of these with a simple touch on the screen! Thus, digital services have created an ecosystem that caters to customers as efficiently as possible. However, this involves moving large sums of money, which makes banks play a central role in all of it.

Traditionally, banking has played catch-up to developments in technology, and thus the latter has outpaced the former’s capabilities. This situation has, unsurprisingly, created gaps that new entrants have rushed to fill. These new entrants are FinTech companies that offer innovative solutions to eliminate some of the customers’ pain points. The success of their enterprise can be seen in significant inroads they have made into transaction-based services. Venmo, Robinhood, and SoFi are a few examples of such companies that have risen to the top.

As a consequence, FinTech companies have diluted the margins of big banks. McKinsey & Company suggests that fee based services are likely to experience the largest margin reductions. In response, banks are compelled to reconsider their business models and thus have to make substantial investments in IT infrastructure. It is a costly but necessary battle for survival.

To keep themselves competitive in such a scenario, we have identified significant technological investments that legacy institutions could consider.

Avenues for IT Modernisation

Application Modernization

  • With the increasing customization, LoBs are demanding more personalized and customized applications than before. Therefore, there is now an increased need for automation without compromising on quality and security. To this end, AI and Machine Learning are used as substitutes to deal with large customer data.

    The following are the imperatives for application development.
Simplification

The crux of this centers around eliminating application monoliths and refraining from adding unnecessary complexity to the existing structure. One way to achieve this is to increase modularity via Microservices Architecture. Not only does it make integrable applications simpler but also the end product is less complicated than the sum of its parts. Thus, there is an increase in efficiency, agility, and cost reduction.

Rationalization

The priority here is to detect and respond in the most time and cost-efficient manner. The implication here is to modify configurations in a way that its responses are optimal than the set threshold. Thus, it is essential to have both code and mainframe level view of applications.

Rabobank, which is a multinational financial institution based in the Netherlands, uses an integrated Application Performance Monitoring software. The objective here is to ensure an across the board consistency in service delivered and the ability to respond to issues in the most cost and time-efficient manner.

Standardization

Standardizing code frameworks and development processes eases the service delivery to end-user. The key here is to have modules that can come together predictably, even if underlying services change with time. The result is easier integration and faster innovation.

Interfaced Open APIs have shown promise in this regard. They have recently found use as some banks have decided to become digital enablers rather than service providers with their platform approach.

Security

With increasing modularity arises the need for greater oversight. Additionally, even simple interactions could become substantially involved with the addition of more parts. For instance, there is a need for monitoring and enforcing security policies across thousands of applications and hybrid multi-cloud data centers. Moreover, while facing an issue, the system should also have the ability to enable automated micro-segmentation and application whitelisting to blunt the threat.

Thus, there must be visibility and zero-trust security that reduces attacks and provides oversight without compromising on application’s reliability and performance.

Infrastructure Modernization

  • Progressively increasing demand for speed, scalability, reliability, and security of modernized applications and processes put enormous pressure on a bank’s legacy IT infrastructure. The imperative now is to use modern and agile infrastructures based on flexible, hybrid, and automated environments.

    Banks have adapted quite well to this challenge, and executives seek to address this problem by embracing the following specific measures.

Imperatives Faced By Banking Executives

  1. Navigate to Cloud (Using private cloud, public cloud, and edge) – Financial services are moving to cloud due to benefits such as:

    – Speed Deploying IT Services Without Compromising on Control

    – Providing Support to Mission-Critical Applications with Highly Scalable Performance

    – Centralizing Management and Orchestrating With Familiar Virtualization Tools

    Unsurprisingly estimates say that BFSI sector’s cloud spending will grow to 5 to 6 times the traditional IT spending.   

  2. Software-Defined Infrastructure – The goal here is to have software administering the infrastructure to gain an agile and efficient operational model. To this end, Software Defined Networking (SDN), Network Function Virtualization (NFV), SD-WAN and Software-Defined Storages are used.

Process Modernization

  • As banks rush towards digitization, they face considerable difficulties in managing extensive data that live in siloed and disparate systems. IT teams that manually monitor and control this data end up spending a lot of time and resources in completing routine operations.

    AIOps, which uses artificial intelligence and analytics to generate insights from company data, can help identify potential issues and offer insights on existing ones. Thus, AIOps bridges the gap between data and its utilization and can, therefore, enhance the company’s competitive advantage.

In conclusion, we have seen some of the specific measures that banking executives can take to upscale their legacy IT infrastructure to meet the challenges. For a more detailed overview of banking in the 21st century, our report can be downloaded here.

Topic:

The Future of Banking

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