It’s time for the next wave of digital transformation in banking and financial services

It’s no secret that banking and financial services organizations are heavily focused on meeting and exceeding changing customer expectations by accelerating innovation and app modernization. In fact, according to F5’s State of Application Strategy Report – Financial Services Edition 2021, a full 70% of financial services organizations are at advanced levels of digital transformation—the highest rate of any industry in the study. 

Unfortunately, initiatives associated with digital transformation are complex and often time leave leaders speculating about ROI and whether these costly initiatives are making a difference in the sea of relentless competition from both traditional and emerging areas. It’s time for financial institutions to take a closer look at digital transformation 2.0 approaches to help minimize any doubts they may have about their organization’s digital evolution effectiveness.

Tech Competition Expands

The battle ground between Big Tech companies and traditional banks revolves around real-time payment. A payment service provider (PSP) facilitates electronic payments between merchants and their customers by bringing all financial parties together to deliver a simple, fast, and reliable user experience. Because payment services don’t involve working capital and focus on a simple, fast, reliable, scalable, and ubiquitous user experience, it plays to the strengths of large internet tech companies.

It’s not a stretch to see real-time payments as a foothold approach Big Tech is using to establish financial services related relationships with consumers that they can later expand into more profitable exchanges.

Innovation Fueled by Fintech

Fintechs using innovative technologies to compete with traditional financial services methods are raising the bar around customer expectations. These financial services span all the major categories in banking: trading, insurance, and risk management.

While fintechs typically don’t have the large user base and brand name trustworthiness that banks and credit unions do, financial institutions have certainly taken note of the innovative digital experiences being offered, like ordering insurance in as much time as it takes to order a pizza via the Lemonade insurance provider app. 

Meeting innovative customer expectations quickly by partnering with fintechs (open banking) is a viable option that many have had success with, and more long-term in-house app development options are critical to the success of many organizations as well. Effective agile development approaches, including a shift-left security process in the CI/CD pipeline, are key digital transformation 2.0 approaches to consider.

Moving to the Cloud

Many banks and credit unions are moving some workloads to public clouds, but it’s a small percentage of their overall application volume. A multinational bank that recently closed the majority of its data centers and moved the lion’s share of its applications to AWS is now seeing large bills from Amazon, as well as fielding concern from federal regulators about the risk of using a single cloud provider.

Building infrastructure and offering self-service deployment to their internal DevOps teams are important steps in the next wave of digital transformation. New data centers are being built to optimize network traffic and minimize risk.

Avoid a One-Size-Fits-All Approach

There’s an ongoing shift from one-size-fits all IT infrastructure to an approach focused on applications and the best way to make them more agile and extensible. Banking and financial services organizations are moving toward microservices-based architectures and away from legacy monolithic models. Today, this is often implemented in production with container-based platforms like Red Hat OpenShift.

A clear advantage of modern container-based architectures is that the application code operates well in many different environments including the private cloud, hybrid solutions, and the public cloud.  Of course, financial services institutions are risk averse and operate under the crushing weight of regulation and audit. As a result, private cloud is today’s most common platform for mission-critical applications. In that same vein, application services follow a similar path from monolithic to application-specific deployment architectures.

Security Challenges in Digital Transformation

Many cybersecurity solutions currently in place for banks and credit unions often lack digital transformation 2.0 security capabilities, like protecting your apps from attacks by building security directly into the CI/CD pipeline. Vulnerabilities associated with evolving app development and modernization processes can lead to successful attacks and abuses against banking and financial services organizations. 

The Right Blend of Focus on Innovation and Digital Optimization

To keep up with Big Tech and fintech innovation, institutions need to increase development velocity by integrating app performance, security, and compliance directly into the automation pipeline, helping to minimize developer downtime and optimize performance.  And they need adaptive app digital transformation 2.0 solutions that reduce overhead through automation and flexible managed services, which does not lock them into a specific environment. Additionally, the right next wave solutions and processes should provide critical visibility through integrations, like Splunk’s single-pane-of-glass view.