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The time is now: why the journey to digital transformation for financial services is imperative

The financial services sector is at a pivotal point. Disruption across the industry from the rise of fintechs, the effects of the pandemic, increased regulation and acceleration in digital innovation spurred by changing customer behaviour means that banks and traditional players are carefully assessing their business models and concluding that solutions-focused reinvention and agility are key. Inevitably, technology is at the core of this.

In order to compete in a crowded marketplace, digital transformation is vital. Banks face many challenges: they must streamline operations, increase efficiency, manage costs, amplify security and ultimately improve the customer experience. In this radically changing environment, embracing innovation at pace and scale is crucial in order to thrive.

“In essence, what banks want to do is move really fast to meet their client needs,” says Prakash Pattni, Managing Director of Digital Transformation at IBM Cloud for Financial Services. “It's not a question of if anymore, but when and how they can accelerate this whole journey.”

Taking the Controls

However imperative it may be, the journey is not a one-step process, but an ongoing shift in both systems and mindset that impacts every aspect of banking operations. The initial step is moving applications to the cloud and building the necessary controls to do this securely. Refining development processes and redesigning applications so they are sufficiently flexible is part of this, as well as reassessing the culture of the company so that it remains client-centric in a time of transition.

This can appear daunting for firms, especially those operating across different jurisdictions, and it explains why only 16 per cent of financial institution workloads have been transferred to the cloud. According to research by Gartner, 87 per cent of senior business leaders say digitalisation is a company priority, yet only 40 per cent of organisations have brought digital initiatives to scale. “A main hurdle for financial services organisations has been how to securely deploy highly sensitive data to the cloud. A large percentage of their application workloads process this type of data, so unless they can solve this on the cloud, the value they get becomes limited.” Pattni explains.

Security Systems

Increased regulatory demands and crucial risk management in this sector mean the mitigation of risks associated with digital transformation is non-negotiable. While there persists the concern that migrating data to the cloud leaves banks open to cyber threats, legacy systems using older versions of software or protocols can end up being more vulnerable. When handling such sensitive data, it is imperative that financial services firms meet, and even exceed, security control requirements.

IBM offers the industry’s most advanced encryption solutions to secure data on the cloud, and for financial software firm Circeo the value of this protection cannot be overstated. The start-up developed a new kind of software that provided banks with a rapid, configurable way to offer loans without paperwork or in-person visits. This technology stood to move the market forward, but because it was so new, data security needed not only to be watertight, but also scaleable.

Using IBM’s Cloud for Financial Services, Circeo was able to take advantage of an industry-informed, advanced security framework that built the controls required into the fabric of their cloud and, in doing so, allowed it to flourish. “Five years ago, safety and scalability were an excuse banks used to avoid talking to companies like us,” explains CEO Matthieu Job. “Today, they are the reason they want to work with us.”

Adding Value

Using a cloud built for financial services to streamline the transition to the public cloud can reduce pain points for banks, which in turn means they can deploy resources towards improving their services and products without the potential reputational damage a breach could cause — and the consequent waste of capital. For consumers, the result is increased confidence in the safety of the cloud, ultimately leading to acceleration in innovation, heightened security and improved personalised services.

The benefits of adopting advanced technology are compelling, with research by management consultancy McKinsey & Company revealing that revenue growth initiatives generate 41 per cent of the value of a digital transformation in those businesses that go “all-in” on transforming themselves. The sheer speed of digital innovation coupled with industry drivers means that the responsibility is on banks to address business models and respond to a new and changing marketplace.

Modernising legacy systems or building new cloud-native applications through an integrated approach that is tailored for the financial industry accelerates the digital transformation journey for clients and their ability to innovate. The potential to generate value and gain a competitive advantage is crucial for banks operating in today’s changing climate.

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