For financial services firms and insurers, the customer relationship is built on trust earned over many years. In turn, these businesses have to be able to trust their foundational IT systems to deliver the requisite uptime, performance, and security.
By Monica Sasso, EMEA FSI chief technologist at Red Hat
The key to successfully balancing reputational risk with the desire for speed and innovation lies in looking at digital transformation more holistically: it must include people, processes, and partnerships as core pillars, not just technology. Here we look at how these areas offer an opportunity for change over the next year and beyond.
The customer: Demand for personalisation
The platform economy is giving rise to a great diversity of new services. Banks that embrace new types of collaborations and ecosystem relationships will reap the fruits. Open APIs are the currency that will enable this, and many banks are already moving in this direction. Technology matters, as illustrated by South African banks and the fact that information technology (IT) accounts for their second-highest operating expense behind staff costs.
This evolution towards open finance will generate vast amounts of data, which can be used to deliver the kinds of hyper-personalised products that customers increasingly demand. For example, behavioural finance or insurance can inform virtual personal financial personas or “butlers” that analyse customer data to suggest products and predict future spending profiles. This is already possible and underpinned by structured big data, analytics, internet of things (IoT), and artificial intelligence (AI) and machine learning (ML) – technologies that thrive in flexible, cloud-native environments.
People and process: Reinventing work
New products and technologies bring about the need for new processes. People are at the core of providing these business processes, and embracing them requires new ways of working. Simply put, if organisations want to capitalise on the speed and flexibility that cloud-native software can deliver (and that their consumers demand), they will need to rethink their operating models.
This goes beyond agile development – it should incorporate governance, decision-making, and the relationship between management, the business, and IT. Embracing open source principles and DevOps practices to maximise flexibility, transparency, and speed can help break down silos whilst still providing transparency to senior management, regulators, shareholders, and consumers. This demonstrates that the organisation is operating in a compliant manner across all three lines of defence.
Technology: Reinvigorating IT
Modernising hardware, software, and ways of working is no mean feat – financial services organisations have already been on the journey for years. Mainframes might not be the best home for all applications, but they could be used for specific use cases that take advantage of their uptime and their ability to crunch vast amounts of data quickly, such as real-time analytics, AI/ML workloads, or data management.
Agile integration comes into play when connecting technologies like APIs in containers and when integration roles are extended to cross-functional teams or ‘citizen integrators’.
Similarly, moving to the cloud does not mean organisations must close their data centres and start again; instead, data centres can be modernised alongside software and business processes. The data centres of the future are flexible and highly utilised, with software-defined storage on a choice of industry-standard hardware. Event-driven architecture, real-time risk reporting, and end-to-end automation can provide operational resilience and increase up-time.
Technology: IT of the future
The financial services industry is working towards a future IT state that is flexible and portable, underpinned by an open source cloud-native architecture and freedom to choose technology partners without vendor-lock in. Containers are instrumental here, providing a standardised foundation for moving workloads between private and multiple public clouds, or even to the edge.
Containers give options: the business can decide where and how to run workloads. They also consume fewer resources – from the server all the way to the electricity bill – and provide a home for microservices that communicate through APIs. They provide a solid, fungible bedrock for financial services and insurance firms as they modernise. One thing we have learned during the pandemic is that flexible resilience is required in all aspects of our personal and professional lives.
The outlook is bright
Now that technologies from containers to AI to 5G are maturing, more traditional organisations have a golden opportunity to turn what they already have into a productivity powerhouse. Accessibility from a consumer perspective also comes into view, for example, by 2025, 5G will have an estimated 43% population coverage in South Africa.
A modernisation strategy that embraces a more open culture and gets cloud-native tech working in concert with existing IT will enable financial services firms and insurers to deepen the trust they are known for and combine it with new leadership in innovation.