Future of financial services

The financial services industry has seen its share of twists and turns over the last couple of years. In banking, e-commerce sales hit a record high in the UK in April 2020 as customers shopped from home, accounting for 30.7% of all sales, compared with 19.3% before the pandemic. But this rise was tempered with a loss of direct customer interaction and the realisation that functions such as compliance are not ready for remote working.

Other financial services sectors were equally impacted. For example, insurance has seen fewer motoring and medical claims. But reinsurers are likely to take the brunt of claims for COVID-19 related losses, with one global reinsurer quoted as having exposure of over 500 million euros should all events covered for pandemics be cancelled.

In the fintech industry, especially in exchanges and payments, there was some initial paralysis but overall, plenty of growth opportunities. Cryptocurrency start-ups saw a spike in interest with electronic currencies becoming the exciting investment of the year. Bitcoin also rose to a three year high at the end of last year.

But despite the opportunities, it has been a challenging time across financial services, with an uncertain future still ahead. Changes caused by the pandemic mean that engagements and services offered to customers need to transform. Brick and mortar branches will certainly decline, especially if distancing measures and remote working remain high.

Customers are also rapidly adopting mobile technologies for their key financial services and taking advantage of a range of exciting new apps for investing, saving and transacting. The use of cash has taken a dramatic decline. In the UK, the Open Banking initiative is opening the doors to a plethora of new start-up opportunities based on a standardised cross-institution banking API. In order to capitalise on these opportunities, digital transformation is an essential strategy. But what does this actually mean?

What is digital transformation?

Broadly, digital transformation is the use of technology and data, combined with a social mind shift to achieve an accelerated and enriched outcome for both a business and its customers. Customer engagement and experience is obviously even more key than ever to retaining, protecting and driving new business, especially because this is more often than not a remote engagement. It will be financial services companies that fail to transform rapidly will lose business to those that do.

For mature financial services companies, the challenge to transforming rapidly is partly their legacy technical debt, which slows their ability to be as agile as new fintech companies are. And the challenge is also partly due to their lack of new technology skills and a corresponding reluctance to embrace innovations. Some financial institutions are splitting their IT functions into legacy and agile to try to deal with these challenges; or they are purchasing start-ups to gain a competitive leap forward. In the data centre, though, the legacy still remains of siloed data and cost-impacting infrastructure.

Addressing the challenge of digital transformation in financial services

Although the answer isn’t simple, financial services institutions can take some steps to set the right course. The end game is to be agile, to be able to quickly build new revenue-driving, customer-

engaging solutions, and ultimately to be more “fintechlike.” All while bringing to bear the maturity and reputation of an already established brand.

Leveraging the cloud is an essential step to building new agile technology and data-enabled solutions. Unlike the past, though, these new platforms need to start off cost optimised, compliance maintaining and flexible. All while avoiding the siloed lock-in and technical debt of the past. Leveraging new agile deployment and development technologies such as microservices and artificial intelligence is imperative, but with an underpinning of mission-critical and scalable data services platforms. The cloud and ecosystem partners can deliver this agility today, if they are architected correctly from the beginning.

However, the cloud isn’t the only answer; legacy technical debt also needs to be addressed. Adopting an application and infrastructure modernisation strategy is key. Apart from evaluating which applications to move or transform to the cloud, or which should stay on premises, the building of a cloudlike agile data services platform on premises is essential. This platform should be flexible, so that it can scale up or down as needed, and it should also be cloud connected. Cloud connectivity enables a true hybrid cloud application portability strategy, providing application flexibility that is based on business need and not technical debt.

Preparing for an uncertain future

The future of financial services is to be able to drive new revenues, protect existing business and be the new innovators through digital transformation. This transformation relies on modernising and cloud connecting existing data centre infrastructures, leveraging multi-cloud and ecosystem capabilities to build a siloless, secure, flexible and compliant hybrid cloud data fabric.

This future means technical debt can be a thing of the past and innovation can be built design, which is vital for financial services to be successful in the future.