Four main barriers to digital transformation faced by financial institutions

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

Premium SR ContentBanks are at the forefront of any important corporate discussion regarding digital integration – becoming either a cautionary tale or a success story. Compared to other industries, Financial sector IT spending is around 3 to 1 for the average financial services business, with many businesses stuck in a vicious cycle of spending money and resources to maintain current systems instead of focusing on building new features that will help them stand out .

With nearly every aspect of their business prosperity relying on 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 hub digital integration (DIH) comes into play.

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

By implementing a DIH architecture, financial institutions can overcome the following integration barriers:

#1: Respond to 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, embracing mobile and digital banking as part of their routine. As a result, the volume of digital transactions per second has increased significantly. 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 store customer data in silos.

As customer appetite for digital services increased, banks had to meticulously connect each new service to its supporting APIs and SoRs, in a continuous patchwork process. This type of architecture was adequate 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 leads to system issues that require costly support and maintenance while impairing the customer experience. If there’s a clear shift in customer sentiment in the age of Covid, it’s a lower tolerance threshold for slow digital responsiveness: in the eyes of the end user, every second a mobile screen takes to charge feels like an eternity.

#2: Expand existing digital offerings

Keeping up with the current peak in demand for digital services is not enough. To stay competitive in today’s ecosystem, financial services must continually expand their digital offerings, launching new mobile and other digital services at a rapid pace. This is, once again, the time when the current banking infrastructure becomes a significant bottleneck for innovation, with each new application requiring development work on countless API and SoR components. This lack of agility hurts traditional banks in their competition with lean and mobile-native neo-banks.

#3: Free customer data from siled legacy systems

The financial services sector is characterized by a high rate of mergers and acquisitions, with banks taking over other banks. Every merger and acquisition incorporates decades of customer data, which is siled in the legacy infrastructure of the acquired entity. The implications are two-fold: first, the potential synergies of the merger are overshadowed by the challenge of effectively consolidating the acquired bank’s customer data with that of the acquiring bank. Second, the newly acquired bank finds itself stuck with additional legacy systems that can hinder its digital transformation plans. Banks need to find a way to quickly access customer data across all types of SoRs, by creating a unified data model.

#4: Take advantage of mainframes

Mainframes are the backbone of the entire banking industry and will continue to be for years to come. However, one of the downsides of mainframes is that scaling the mainframe business is a time-consuming and expensive process. With these limitations in mind, the unprecedented increase in digital transactions can compromise mainframe performance, potentially jeopardizing critical banking processes and core banking functionality. One way to address this challenge is to offload high-frequency transactions from mainframes, protecting core systems.

Adi Paz

Marianne R. Winn