Few markets are currently as disrupted as the financial services sector. A 2017 study by PwC reported that “89% of incumbent financial services organizations believed part of their business was at risk to new industry innovators.” It’s in this climate that digital innovation has emerged as a key aspect to future growth strategies.
In response to the dynamically changing financial services landscape, institutions within the sector are increasingly embracing the new environment as an opportunity for innovation, restructuring their IT organizations to focus on the digital experience and shaping hiring policies to fill digital skills gaps. In the race to innovate, what will separate the winners from the losers will be the ability to effectively implement digital transformation and deliver exceptional digital experiences as part of a finance ecosystem, while navigating the complex regulatory and security landscape they encounter.
However, when analyzing this rapidly changing market, there are a handful of key trends that are shaping the landscape of digital innovation for financial services.
The Fintech Revolution
It is estimated that the fintech industry attracted $57.9 billion of annual investment in 2018, but it’s not just the start-up or newly created fintech companies that incumbents need to worry most about. A recent report by Bain & Company of 6,000 US consumers revealed that “among Amazon Prime respondents, 65% would be willing to try a free online bank account offered by Amazon. Even among people who don’t buy through Amazon, 37% would be willing to try.”
As digital innovation sweeps across sectors globally financial services are by no means exempt, as millennials and digital natives continue to fuel the fintech revolution.
Rising Digital Regulation
Finance has always been a heavily regulated industry, but a new wave of technology-related regulation is redefining the marketplace. Perhaps the most impactful in changing the dynamic between an organization and their customer is Open Banking in the UK, or its European equivalent, the payments services directive (PSD2). Under this legislation, customer account details are now to be made available to authorized third parties via Application Programming Interface (APIs). This regulatory framework heavily favors fintech players and is being adopted in other regions like Canada, Australia and Hong Kong. If Open Banking and PSD2 weren’t enough, 2018 saw the General Data Protection Regulation (GDPR) come into force on May 25th. GDPR has necessitated not only obtaining consent to process and market to customer data, but also maintaining awareness of where that data is stored and routed.
Furthermore, financial institutions are increasingly measured and ranked by organizations such as the UK Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA), who publish metrics that enable customers to choose and differentiate between banks based on customer experience tables. Banking regulators are also paying increased attention to outages and downtime, requiring financial institutions to report on outages, even if they’re as short as 5 minutes, and demonstrate an understanding of why and where the outage occurred.
Cloud adoption has largely shifted from being a debate to being a default delivery mechanism. Although certain finance systems of innovation and differentiation are unlikely to migrate imminently, the cloud is inevitable for financial services like everyone else. IDC predicts that this year 75% of IT spending will have shifted to cloud and related technologies.
At the very point at which owning and delivering exceptional digital experiences for customers has never been more important, financial services organizations are giving away much of their control over IT infrastructure. Modern digital experience is now delivered via a complex map of microservices running on multiple clouds, through a myriad networks. Going forward, financial services organizations will own very few of these components, but they still own the experience and their delivery is under scrutiny.
A strong focus on cyber-security isn’t new. It is a constant consideration for financial services when approaching their IT strategy, as criminals have always targeted financial companies as that’s where the money is. However, as PwC has noted, what’s changed is that “the number and range of vulnerabilities is growing as companies outsource internal processes, shift computing to the cloud, and connect to customers through more channels. While financial firms certainly benefit from digital networking, this also enlarges their ‘attack surface’ exposed to hacking.”
In that context it’s hardly surprising the CIOs across all industries continue to invest in cyber-security, last year a Gartner report highlighted that 71% of CIOs have already invested or are in short-term planning on digital security projects, placing it as their number one area for investment.
So how can financial services keep up in this digital landscape?
One of the chief challenges of digital experience is that so much depends on external factors that are out of the direct control of a financial organization. For example, compliance with maintaining open APIs, tracking which networks customer data is sent across and reporting on root causes of outages is extremely challenging due to the fact that there is such a complex mix of both internal and external networks, infrastructure, software and providers involved in any given digital interaction.
Many new cyber-security vulnerabilities stem from the uncontrolled nature of the Internet. Service-impacting issues for financial organizations can occur anywhere within a complex set of connected clouds, networks and services, and be practically impossible to identify and resolve with traditional IT techniques and approaches.
This is where network intelligence comes in. By visualizing corporate, cloud provider and third-party networks, including the public Internet, and correlating application delivery to underlying network infrastructure, network intelligence can quickly locate service-impacting issues wherever they occur.
In giving financial organizations such unfiltered oversight, not just of their own infrastructure but across third party networks and providers, this, therefore, ensures their customers’ digital experience remains little impacted by issues.
In today’s world, this means financial services organizations can not only survive, but also thrive in an ever-changing landscape.