Four Key Digital Transformation Hurdles Facing Financial Institutions

Four Key Digital Transformation Hurdles Facing Financial Institutions

This is part of Solutions Review’s Premium Content Series, a collection of contributed columns written by industry experts in maturing software categories. In this submission, GigaSpaces CEO Adi Paz offers four key digital transformation hurdles currently facing financial institutions.

SR Premium ContentBanks are at the forefront of any significant enterprise discussion surrounding digital integration – becoming either a cautionary tale or a success story. When compared to other industries, IT spending for the financial industry is about 3 to 1 for the average financial services firm, with many companies getting stuck in a vicious cycle of spending money and resources to maintain current systems instead of focusing on building new functionality that will help them stand out.

With almost all aspects of their business prosperity riding on having modern digital capabilities, it’s time to buckle down and find a solution that can help financial institutions overcome the hurdles – and that’s where a digital integration hub (DIH) comes in.

First identified by Gartner, a DIH is a modern integration architecture that decouples digital applications from the systems of record (SoR) or legacy systems, simplifying organizations’ digital transformation process and ultimately allowing developers to build new digital services and apps much faster than before through common API interfaces and a unified data model.

By implementing a DIH architecture, financial institutions can tackle the following integration hurdles:

#1: Meeting explosive demand for digital services

In the wake of the pandemic, customers have learned to expect a frictionless digital experience from virtually all service providers, adopting mobile banking and digital services as part of their routine. As a result, the volume of digital transactions per second has vastly increased. While banks have been offering digital services for two decades, the IT infrastructure that supports these services is based on an extremely complex “spaghetti structure” of front-end applications, APIs, and systems of record (SoR) that hold customer data in silos.

As customer appetite for digital services grew, banks had to meticulously connect each new service to its supporting APIs and SoR, in an ongoing patchwork process. This type of architecture was adequate up until recently, but with the current spike in digital demand, the existing infrastructure is stretched to its limits, with bottlenecks in data processing times and increased latency. This results in system hiccups that require costly support and maintenance while impairing customer experience. If there’s one clear shift in customer sentiment in the Covid era, it’s a lower tolerance threshold for slow digital responsiveness: in the end-user’s eyes, every second that a mobile screen takes to load feels like an eternity.

#2: Expanding existing digital offerings

Keeping up with the current demand peak in digital services isn’t enough. Staying competitive in today’s ecosystem requires Financial Services to continuously expand their digital offerings, launching new mobile and other digital services at a rapid pace. This is, once again, when the current banking infrastructure is becoming a significant bottleneck for innovation, with every new application requiring development work on countless supporting API and SoR components. This lack of agility hurts traditional banks in their competition with lean, mobile-native Neo-banks.

#3: Liberating customer data from siloed legacy systems

The financial service industry is characterized by a high rate of M&A, with banks buying other banks. Each merger and acquisition incorporates decades worth of customer data, which is siloed in the acquired entity’s legacy infrastructure. The implications of this are twofold: firstly, any potential synergies from the merger are overshadowed by the challenge of effectively consolidating customer data of the acquired bank with that of the buying bank. Secondly, the bank that just made the acquisition finds itself stuck with additional legacy systems that can hold back its digital transformation plans. Banks need to find a way to quickly access customer data across all types of SoRs, creating a unified data model.

#4: Leveraging Mainframes

Mainframes are the backbone of the entire banking industry and will continue to be so in the coming years. However, one of the drawbacks of mainframes is that scaling-up mainframe activity is a lengthy, expensive process. With these limitations in mind, the unprecedented surge in digital transactions can compromise mainframe performance, potentially risking mission-critical banking processes and core banking functionality. One way to address this challenge is by offloading high-frequency transactions from mainframes, protecting core systems.

Adi Paz
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