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DIGITAL OPERATIONAL RESILIENCE: THE KEY CHALLENGES FOR BANKS

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AI: BREAKING DOWN DATA SILOES TO PREVENT FRAUD AND REDUCE RISK

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.

 

Banking

Cloud technology in banking: Why adoption is on the rise

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Alpesh Tailor, Executive Director at digital transformation specialist GFT

 

The banking sector has never shied away from innovation, whether it is new products to improve customer savings habits or new ways of interacting with people and business, but embracing new technologies such as cloud has, until recently, been relatively slow. However, leading global financial institutions such as Goldman Sachs and Deutsche Bank have accelerated their adoption of cloud, which can provide insights for efficient technology transformation across the sector.

We conducted research to measure 21 medium-size and large banks’ sentiment and operations regarding cloud technology. Examining the relationship between cloud technology and banking professionals, our research provides an insight into the overall finance sector’s perception of cloud technology and how its application can improve banking procedures and efficiency.

 

Scale-up abilities

A significant trend showed that the way people use their finances and banking systems has changed, particularly when it comes to payments and transfers. Our research revealed that 86% of bankers have adopted cloud services to harness its virtually unlimited scalability, citing a definitive change in transaction behaviour as the main reason for moving to the cloud.

In the world of retail banking, buy-now-pay-later, open banking, and contactless payment systems have revolutionised the way people use their bank, making financial management easier and more efficient. However, despite these evolutions, high street banks are playing catch-up to the challenger banks who possess fewer legacy processes and, therefore, an easier migration to new technologies, such as the full utilisation of cloud and artificial intelligence.

The cloud provides a dependable, scalable, and flexible data system that allows traditional banks to modernise quickly and stay abreast of the innovations that ‘born-in-the-cloud’ challenger banks are bringing to the market. An increasingly popular way of doing this is by adopting a hybrid and multicloud approach.

Most organisations are considering diversifying their cloud technology, with 76% of bankers now agreeing with the importance of implementing multicloud systems in order to benefit from resilience and security improvements made by the main cloud providers. These cloud ‘hyperscalers’ also provide regular updates and continue to release exclusive new services and platforms as they continue to innovate.

 

Optimising costs

Our research indicates that cost optimisation is a primary reason that banks are looking toward the cloud for their future storage needs, with 81% of bankers confirming they have adopted cloud technology to save costs.

Installing and maintaining on-premise IT systems is lengthy and costly for financial institutions. When using the cloud, however, purchasing and installing hardware is no longer required as the cloud service provider hosts all the required infrastructure. The management of the hardware is included within this, reducing the overall cost of IT support further.

 

 Organisational inertia

Technological innovations are usually heralded for their ability to streamline operations, making them quicker and more secure. Our research illustrates that 62% of bankers believe organisational culture and inertia to be a key challenge within the sector. Besides being flexible for scalability and cost, adopting cloud technology can bolster organisational efficiency, since banks can spend fewer resources managing the relationship between trading volumes and payment infrastructure. Bankers acknowledge this opportunity, with 95% of organisations understanding that cloud technology can reduce time-to-market.

 

Overcoming misconceptions with cloud technology

Misconceptions usually exist around any emerging technology and our research found that this theme continues with cloud technology.

43% of the bankers we spoke to admitted that security concerns have impeded full cloud migration – a concern that has frequently been confirmed when speaking to financial services institutions. However, cloud providers invest heavily in the security of their cloud infrastructure which, as a result, makes it almost always safer than its on-premise, client-owned counterpart.

One aspect of adopting the cloud that continues to cause concern, is that which is commonly termed the ‘digital skills gap’. More than half of banks claim a lack of cloud-savvy employees internally has slowed down adoption. At GFT, we understand that this is a major issue for the adoption of cloud technology in all sectors, including banking, and have committed to training and encouraging young people to learn the required skills and enter the sector. We recently launched our Manchester Innovation Hub – a dedicated location to support the upskilling and growth of tech roles in the north.

Going forwards, cloud technology is the primary option for banks seeking to evolve and scale their business, whilst minimising risk, time and cost. Bankers recognise these benefits and the overall findings of our research suggest they will continue to grow their investment in cloud technology. Whilst evolving traditional legacy systems is very challenging, cloud technology continues to advance and we believe that over time it will become a powerful mainstay within the financial services industry.

 

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Banking

Bringing Automation to Banking

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Ron Benegbi, Founder & CEO, Uplinq Financial Technologies

 

Automation is everywhere you look these days; from supermarkets to warehouses to automobiles. This prominent trend shows no sign of abating anytime soon. However, some sectors remain behind others when it comes to adopting automated technologies. Banking is one such segment, but there’s now evidence to suggest that this could be about to change.

 

What do we mean by automation?

There are a lot of ways to define automation, but broadly the term applies to any technological application where human input is minimized through design. Over the years, automation has evolved from a basic level, which took simple tasks and automated them, all the way to advanced automation powered by Artificial Intelligence (AI). In general, automated solutions work to increase productivity and efficiency within businesses and often result in a reduction in costs associated with human capital.

 

Ron Benegbi

Why has the banking sector been slow to adopt automation?

The banking sector has been built on a number of long-standing, tried and tested processes and protocols, which have been continually fortified and refined over time. This is one explanation as to why the sector has been so slow in adopting new, automated methods within its operations. Additionally, many major financial institutions have spent decades building their own internal legacy computer systems, which are often incompatible with modern automated solutions.

When combined, these two issues have caused a significant lag in the banking sector with regards to the adoption of automated technologies. This lag has created a market opportunity that a number of fintech providers have been able to exploit in recent years. Offering a more responsive and tech-first user experience, many fintech providers are leveraging the power of automation to better meet the banking needs of their customers. However, there is still time for the banking sector to start bridging this gap.

 

Does automation have a place in the banking sector?

The opportunity for automation to play a role within banking can be transformational.

To achieve this, it’s important that legacy organizations begin to learn from their more tech-savvy, smaller counterparts. If used effectively, automated financial solutions can greatly improve the experience of banking customers, both on a personal and business level. So, what exactly does this change look like, and how far away are we from seeing it become a reality?

A good place to start is the small business credit lending process, where not much has changed since the 1980’s. Over that period, the world has greatly transformed, but the methods used to assess credit worthiness have remained somewhat static. For the most part, banks assess data related to businesses’ accounting and banking records and from credit scores. For many businesses, especially the newer and less established ones, this antiquated approach is having a detrimental effect. In fact, it’s often cited as a contributor to the huge funding gap between SMBs and their larger counterparts.

 

How can automation benefit the banking sector?

By adopting more automated technologies, lenders in the banking sector can begin to assess more comprehensive information when making credit decisions. Notably, new methods exist, which enable additional data sets to be evaluated, in order to build a more accurate financial depiction of a business’ overall position. This data can come from sources like external market attributes, economic indicators, demographic data and exogenous shocks.

By leveraging additional data sets through new methods of financial automation, banks are now in a position to respond more effectively to small businesses, including those in emerging and evolving markets where there is a lack of conventional sources of information.

With more ways to access funding, facilitated by alternative data and automated processes, small business owners can improve their operational efficiencies and accelerate their growth efforts. In doing so, legacy oriented financial institutions can now better equip themselves in protecting against new, nimbler tech-based disruptors.

 

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