DIGITAL OPERATIONAL RESILIENCE: THE KEY CHALLENGES FOR BANKS

Angus Panton, Director of Banking and Financial Services, Expleo

Digital operational resilience – the ability to build, ensure and test the technological operational integrity of an organisation – has been a key factor in the success of businesses over the past 18 months.

As the world navigates its way back to a more regular cadence of activity, complacency around digital resilience and digital transformation represents a genuine threat to enterprises across a wide range of industries, especially within the financial services sector.

As we move into 2022, the financial sector needs to think smart when it comes to utilising tech innovations to ensure that they are well equipped to tackle today’s challenges and tomorrow’s opportunities head-on.

Angus Panton

We have identified five historical contributing factors to failed banking digital operations, to demonstrate how banks can learn from these mistakes and keep their digital resilience strategies in line with today’s demanding environment.

 

The struggle to keep up with evolving consumer trends

With consumer trends constantly changing, it can be tough for internal innovation to keep up. Recently, some traditional banks have been unable to adapt fast enough to reflect their consumers evolving tastes, particularly regarding the accessibility, speed, and convenience of mobile banking.

Contrary to popular belief, banking has not traditionally been a consumer-facing business. Activity has always revolved around what banks wanted consumers to do – like take out a loan or open a new account, for example.

However, consumers today are in a more powerful position to question the digital resilience of banks, with the expectation that they should be providing a superior customer experience. For example, a recent report by the OECD found that FinTech lenders process mortgage applications 20% faster than other lenders and refinances of mortgages is 7% to 10% more likely to originate from FinTech firms compared with traditional banks.

Forced to face this new reality, banks need to adopt a more consumer-friendly orientation. Thinking like a consumer services company will help put the consumer at the top of the agenda in a non-traditional way, which has contributed to powering the FinTech surge so far.

 

Antique banking infrastructure leaves businesses vulnerable to attack

Traditional banks’ current technology is structured in a way that makes it difficult to implement newer, more innovative solutions. The prospect of overhauling legacy systems and possibly disrupting service delivery can be daunting for any business, let alone large and complex financial institutions. Changing to an API-based infrastructure presents a number of unsightly, potentially costly challenges.

However, an inflexible software architecture can burden and impair a bank’s digital resilience, leaving it vulnerable to cybersecurity attacks, data breaches, and DDoS (Distributed Denial of Service) attacks.

According to Boston Consulting Group, cyberattacks hit financial services firms 300 times more frequently than other companies. This higher attack susceptibility can be catastrophic from a reputational perspective and can badly undercut an institution’s bottom line – with the average cost of a data breach on the sector standing at US$5.85 million, compared to US$3.86 million across other sectors. When put into perspective, this makes the initial cost of digital transformation worth the investment in the long run.

 

Legacy banking mindset and internal silos

External market conditions outside of banks’ control are usually the go-to excuse when institutions fail. In some instances, this is true. For example, the global pandemic has altered business strategy across the world drastically: forcing companies to endure intermittent periods of closure, scale back operations, or even shut down completely.

However, a lack of synergy between the technology departments and the information security department will always hinder digital resilience, even when putting unavoidable shocks aside. Strong cross-departmental engagement is key – and an agile growth strategy should allow businesses to run smoothly on all cylinders and pivot when required.

There are also signs that bolder, more decisive frames of mind are being heard over the legacy mindset in boardrooms. Our Spotlight on Financial Services report found that 64% of respondents feel their company is now more likely to approve new IT strategies and innovations because of the pandemic. A renewed focus on digital resilience and big-picture thinking for banks will mean heightened investment in digital infrastructure and services geared towards future-proofing service offerings.

Under-prepared for regulatory shifts

Banks are now operating within the confines of a much stricter regulatory environment than they were in the past, required to meet certain standards to retain their banking licences.

In today’s regulatory minefield, not adopting a robust compliance culture can be a death sentence to any financial institution, particularly the SME banks with narrow bandwidth and limited resources. With a deeper pool of resources to draw from, established market leaders will be in a stronger position to confront the myriad of regulatory challenges, but SME banks that kick the compliance can down the road, or choose not to enlist the services of prospective partner consultancies, will be at a marked disadvantage.

However, SMEs now have the opportunity to navigate the regulatory journey with a greater sense of confidence and conviction — by forming relationships with partners who have the depth of scale, demonstrable expertise and the industry-leading intellectual property tailored for compliance and digital resilience.

 

Working with the wrong third-party platform providers

Finally, banking leaders need to be on the lookout for partner organisations with the technical acumen, stellar track record helping players in their market, and repertoire of tools to enable fast-tracked, regulatory-compliant digital transformation.

Large swathes of banks and financial institutions leverage the services of third-party vendors to enhance their overall service offering, but often neglect vetting the partners for vulnerabilities – and properly gauging the security and rigour of these vendors is essential when it comes to executing a firm digital resilience strategy.

Institutions that absorb the key learnings outlined above will be in a strong position to thrive in an increasingly competitive landscape and be more attuned to pivots in consumer demands.

In today’s increasingly competitive landscape, it is essential that institutions chart this new path forward in a manner that mitigates risk on a rolling basis, considers evolving consumer attitudes and ensures rigorous regulatory compliance. Only by adopting a disciplined, data-led decision-making process will organisations be able to execute nimble growth strategies.

 

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