In the digitally-driven new normal, businesses across industries are leaving no stone unturned to be more customer-focused, enhance customer engagement, deliver personalized services, and substantially elevate the overall customer journey and experience. In the BFSI industry, the coronavirus pandemic was a black swan event that dramatically and irrevocably altered how banks interact and serve customers. Traditionally considered to have a reactive approach to technology adoption and other market forces, banks in the United States and the world over had no choice but to bring in tectonic shifts to become more proactive, innovation-driven, and customer-centric.
Given that the impact of the pandemic is now squarely behind us, the focus is clear— use technology and the power of digital to deliver growth. Today’s customers, comprising millennials and Gen Zers, are forcing banks to transform how they operate. Whether it is retail banking, mobile apps, fintech, or neobank startups, technology significantly influences every aspect of the industry. This is also evident from the increased investment in future fit tech strategies and accelerated digital transformation by banking leaders. According to Insider Intelligence forecasts, overall technology and IT spending by banks in the US will increase from $79.49 billion in 2021 to touch $113.71 billion in 2025.
Change Drivers: What’s Influencing the Increased IT Spend
There are key industry and customer trends that are ushering an increased focus on technology across the financial sector in the US, forcing many prominent, traditional players to adopt a more agile, startup approach conducive to growth and innovation. Let’s take a look at the factors that are leading to an increased tech spend:
Product innovation and customer experience: Cutting-edge, fintech-led apps that leverage mobile technology, AI and machine learning are setting new benchmarks for traditional banks in product innovation and customer engagement. And with revenue growth once again in focus, banks are thinking out of the box to improve their products and services and the customer journey by tapping into advanced digital technologies.
Legacy modernization and process efficiency: Legacy core banking systems and applications at the center of a bank’s IT architecture fail to support today’s hyper-digital growth and rising expectations. While banks may have been reluctant to upgrade in the past, recent market dynamics, tech advancements, and an enhanced approach to app management have made modernization less daunting.
Emergence of new-age challenger banks: According to research and advisory firm Celent, 75% of banks believe that the threat from fintech and challenger banks is higher than it was a year ago. With no physical branches, lower overhead costs, cutting-edge products and services, and a keen focus on customer experience, challenger banks offer the agility that millennials seek. This is a big reason for traditional banks to increase tech spending, especially since millennials are 3X more likely to switch banks than older generations.
Heightened need for cybersecurity: An industry report found that ransomware attacks in banking in the H1 of 2021 alone increased by a mindboggling 1318%. Another report by the Federal Reserve Bank of New York found that cyberattacks target banks 300X more than any other industry. Against this backdrop and accelerated digitalization, banks are also increasing spending on tech that safeguards them against such attacks.
Environmental, social, and governance metrics: As ESG issues and associated risks and opportunities become increasingly relevant for financial institutions, more and more banks are committed to ensuring net zero carbon emissions in their operations. ESG parameters are emerging as a critical metric for the new generation in selecting a bank to do business with.
Five Priorities for Tech Leaders that Will Shape the Future of Banking
1. Ensuring complete and end-to-end digitalization: Ensuring a digital-first approach and driving extreme, enterprise-wide digitalization is key to reimagined operations that drives more customer-centric products, services, and business models, and enable new ways of working, and fostering a reliable partner ecosystem. Banks and financial institutions need to harness the power of advanced technology such as AI, cloud, and automation and apply them at scale to stay ahead of the curve. This will drive greater harmony and alliance within the bank and build an external ecosystem on secure platforms.
2. Delivering streamlined processes and products: Optimizing day-to-day operations and workflows has always been a priority for the banking sector. But in the post-pandemic normal, it has become a business imperative. Tasks that were considered nice-to-haves have become a necessity (think digital onboarding), and tech that enables a streamlined back-to-front office experience for both customers and employees are the ones that will succeed. This involves modernizing legacy systems and migrating them to the cloud, leveraging AI and MLOps to maximize data analytics, robotic process automation, and more.
3. Deploying tech for improved regulatory compliance: Regulatory technology solutions or “regtech” are vital to speedup regulatory monitoring, reporting, and prevent compliance failures that could translate into significant losses and penalties for an enterprise. By prioritizing regtech, banks and financial institutions can ensure more robust reporting, minimize the scope for human error, and enhance customer experience in key areas of regulatory focus such as KYC. Deploying technology that future-proofs for regulatory compliance is a non-negotiable requirement for banking transformation that de-risk operations by reimagining existing legacy limitations.
4. Integrating APIs and creating open banking ecosystems: Evolving customer needs, regulatory requirements, the emergence of new technologies, increased competition from fintech, and microservicesbased architecture design is driving banks to adopt and nurture an open banking ecosystem. With an open API ecosystem, instead of building end-to-end financial solutions in-house, banks can now assemble best-in-line financial services personalized to address dynamic customer needs, ensuring faster-to-market and elevated customer experience. Harnessing APIs is vital to boosting innovation and offering new service lines that provide superior performance, costs, and convenience.
5. Providing error-proof cybersecurity: With the rise of digital and virtual technologies, preventing cyberattacks and ensuring the highest level of security for customer data has become a significant challenge for banks. By leveraging the latest tech tools for cyber defense and IT delivery, banks can ensure state-of-the-art, consistent and secure banking experiences. Besides having a strong governance framework and clear guiding principles, regulatory risk assessment and control testing and remediation monitoring are critical to a stable and safe IT landscape.
How Can Xebia Help?
Transforming the banking landscape and harnessing digital technologies to make them more future-ready, more agile is not without challenges. But partnering with a world-class, high- performance-focused service provider can make the transition more seamless, effective, and impactful. Xebia has been enabling global banks to enrich finance solutions with data to perfect payment services and create innovative solutions that banking customers can depend on. Our rich expertise, capability-driven approach, and domain-experienced team have helped banks grow their business aligned with market dynamics.
Our competencies in digital strategy, agile transformation, cloud computing, artificial intelligence, big data, and low code platforms have provided the much-needed impetus to banking customers to resolve the “new normal” challenges, address customer expectations, and effectively adapt their business to generate engaging and impressive experiences. From transforming operations and sales & marketing to customer service and beyond, we have enabled banks to deliver personalized, contextual offerings.
To learn more about how we harnessed advanced tech powered by our strategy, design, and data science capabilities to enable future-ready technology implementations for our banking customers, please connect with us here.