Sylvia Jensen
Sylvia Jensen 13 September 2018

Five insights into digital transformation in financial services

"Fintech and the digital revolution is continuing to transform the financial services sector. Sylvia Jensen, VP of Marketing for EMEA at Acquia, has gathered five key insights from prominent industry players regarding how financial services companies can maximise their investment in digital transformation."

2018 has been a tipping point for financial services as far as digital transformation is concerned. The Open Banking standard and the growing prevalence of challenger banks like Monzo and Revolut seem to have finally quickened the glacial pace of change — and traditional financial services are realising that their long-term strategy needs to embrace digital if they’re to attract a newer audience.

The UK has become one of the leading fintech capitals of the world. Deal volumes within the financial technology sector have been growing at 74% every year since 2008 — over double the speed at which it is growing globally.

The benefits of new digital technologies to financial services companies are clear. Digital helps connect banks with their customers, employees and suppliers more effectively. It uses the power of big data and analytics to inform board-level decision making. And it saves organisations money by automating the repetitive low-risk, low-value tasks that often take significant amounts of time, money and effort.

But what exactly are financial services companies doing with regards to fintech and digital transformation? To answer that question, leading digital experiences company Acquia recently held a Twitter chat with those working in the industry. The following five points outline the key insights from that conversation.

1.Culture is the biggest barrier to progress

10 years ago, the biggest barrier to digital was the technology itself. Banks rightly questioned the feasibility and security of digital and cloud technologies. But over the past decade, fintech companies have been working hard strengthening the security and usability of their offerings.

But now that security concerns have largely been engineered into irrelevance, another, arguably bigger barrier, has surfaced — culture. Many financial services institutions were founded hundreds of years ago and are often led by those who were brought up in a pre-digital age. They’ve been working in the same way for years and don’t see any need to change.

And change is difficult to achieve. Looking at legacy business models, for example, huge challenges exist. Many retail banks have core banking systems that are up to 40 years old, comprising a maze of spaghetti connecting systems acquired through multiple M&As over decades. Data that was never intended to be shared exists in siloes (your current account is separate from your mortgage and investment portfolio, for example) that now need to come together to work in a unified fashion. Swapping these systems out is like changing the engines on an airliner in mid-flight.

Even for those that do want to embrace digital, the risk of change is huge — and the impact of failure can be catastrophic (just look what happened recently with TSB, Visa and RBS). While consumers tend to be apathetic and won’t switch banks because of a single technological issue (no matter how big), the reputational damage alone may cost banks innumerable new customers in the future.

2.Machine learning and artificial intelligence provide massive opportunities

Many forward-thinking banks are looking at machine learning (ML) and artificial intelligence (AI) to meet their strategic objectives. For example, many organisations are reducing fraud and money laundering by employing ML to identify anomalies in transactions. Some retail banks are using AI to drive product innovation and customer experience enhancements.

Banking aside, AI is changing the trading landscape by replacing sharp-suited traders with lab-coated data scientists to make less risky decisions on buying and selling. And while insurance has been using big data for years, there’s still scope for AI to enhance operational efficiencies.

3.GDPR should not affect digital transformation

GDPR has rightly put customer privacy in the spotlight, but GDPR need not be a barrier to digital transformation — in fact it ought to drive digital transformation.

GDPR dictates that you need to know exactly where you are storing your customers’ data. But when you’ve got siloed IT structures that house customer details in one silo, followed by their banking details in another, their mortgage in another, and their investments in yet another, keeping track of all that information is huge security challenge.

Therefore, financial services companies need to use GDPR as an excuse to upgrade their legacy technology once and for all. And while security can be the primary driver, that transformation will lead to significant benefits in other areas further down the line, through better operational efficiency, better customer service and higher revenue streams.

4.Customer experience and security need not be a balancing act

Many would argue that customer experience and security is usually a trade-off. And in many circumstances, they’re right. But it doesn’t need to be that way in financial services. By considering security and customer experience throughout the entire technology stack — and not simply as add ons — you’ll benefit from the best of both worlds.

For example, using data and AI to identify behavioural patterns, you can use insights to improve both security and CX. On the one hand you use these technologies to detect suspicious logins, anomalous transactions, and other indicators of theft. And on the other hand, you can use these technologies to recommend relevant products based on consumer spending habits.

5.Hybrid cloud is almost certainly the way to go

Financial services organisations are making significant progress with regards to accepting the use of cloud data and applications for sensitive customer functions (subject to appropriate checks, of course).

But where should organisations focus their efforts? Accenture recommends developing a hybrid cloud environment, using the cloud to scale up rapidly without the enormous capital expenditure, while using other provisioning models only if there are strong reasons for not using the cloud.

The key though is to determine where you are storing data while it’s at rest, and then assess the need for access with the need for greater privacy and security. And of course, consider how other financial organisations are approaching the challenge — like Lloyds Bank using IBM to migrate 1,300 apps over three years, saving 40% on costs.

Which brings us on to my conclusion. We talk about the cost of digital transformation, but what is the cost of staying with the existing model? Ultimately it is customer attitudes rather than specific regulation that will affect the take-up speed of digital services.

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