Financial institutions need to adapt to digitization, something they often find difficult. To become more efficient and profitable, they need to rethink strategic investments in technology.
Bank customers are increasingly using financial services digitally. But traditional financial institutions often struggle to make the digital transformation as quickly as necessary, often held back by outdated architectures and operating models.
Traditional business models and monolithic legacy architectures also limit the use of data and artificial intelligence (AI). As a result, fintech startups and «techfin» companies, tech companies entering the financial world, are increasingly challenging banks.
No Added Value
The cloud has been the primary technology attracting strategic investment from financial institutions. But oversimplified economic assumptions about the cost allocation of public clouds have often negated any added value, notes IT group IBM's Institute of Business Value (IBV) in its «2023 Global Outlook for Banking and Financial Markets» study.
The concentration of cloud providers has also increased regulatory scrutiny, heightened awareness of systemic risk, and raised concerns about data sovereignty, according to IBV.
Hybrid Approach
According to the IBM team, the hybrid cloud is the key approach to redefining the business model for technology investments in the banking world. Along with data and AI, the strategy leverages a combination of new ways of thinking and working, along with new tools to simplify and accelerate development, IBV said.
By adopting hybrid cloud technologies and practices such as application programming interfaces (APIs), microservices, containers, DevOps, and site reliability engineering (SRE), financial institutions can take control of integrated processes while leveraging four distinct value levers, according to the study authors:
- Simplifying and accelerating application development.
- Deploy application components on any compatible platform in any connected data center.
- Secure and consistent management and operations across fail-safe sites.
- Standardization with open technologies and ecosystems, simplification of skill requirements.
Faster and More Innovative
The desired result is that business ideas can be implemented and automatically operated in less time. On average, a typical institution deploys software between four and 12 times per year across key platforms, according to the IBV. A hybrid approach shifts the innovation flywheel by enabling multiple controlled software releases per day. Faster innovation leads to a significant competitive advantage.
A strong foundation, in turn, unlocks the competitive advantage of secure access to data. In the hybrid architecture, trusted AI can be deployed at scale for evidence-based decision making and operations can be simplified through automation.
