Predictions 2023: Modernisation Efforts in the Financial Services Industry

As a global recession looms, banks are facing tough economic conditions in 2023. Lowering costs will be vital for many organisations to remain competitive in a data-intensive and highly regulated environment. Thus, it’s important that any IT investments accelerate digital transformation with innovative technologies that break down data silos, increase operational efficiency, and build personalised customer experiences. 

Going Composable 

With banks eager to modernise and innovate, institutions must move away from the legacy systems that are restricting their ability to show progress. Placing consumers at the centre of a banking experience made up of interconnected, yet independent services offers technology-forward banks the chance to reshape their business models and subsequently grow market share and increase profitability. 

These opportunities have brought to fruition a composable architecture design that allows faster innovation, improved operational efficiency, and creates new revenue streams by extending the portfolio of services and products. Thus, banks are able to adopt the best-of-breed and perfect-fit-for-purpose software available by orchestrating strategic partnerships with relevant fintechs and software providers. This new breed of suppliers can provide everything from know your customer (KYC) services to integrated booking, load services or basic marketing and portfolio management functionalities

This approach is more cost efficient for institutions than having to build and maintain the infrastructure themselves, and it is significantly faster in terms of time to market and time to revenue. Banks adopting such an approach are seeing fintechs less as competitors and more as part of an ecosystem to collaborate with to accelerate innovation and reach customers.

Getting efficient with automation 

Financial institutions will continue to focus on operational efficiency and cost control through automating previous manual and paper-driven processes. Banks have made some progress digitising and automating what were once almost exclusively paper-based, manual processes. But, the primary driver of this transformation has been compliance with local regulations rather than an overarching strategy for really getting to know the client and achieving true customer delight.

The market is eager for better automated and data-driven decisions, and legacy systems can’t keep up. Creating hyper-personalised experiences that customers demand, which include things like chatbots, self-service portals, and digital forensics, is difficult for institutions using outdated technology. And, having data infrastructure in siloes prohibits any truly integrated modern experience. 

Using a combination of robotic process automation (RPA), machine learning (ML), and artificial intelligence (AI), financial institutions are able to streamline processes, thereby freeing the workforce to focus on tasks that drive a bigger impact for the customer and business. Institutions must not digitise without considering the human interaction that will be replaced, as customers prefer a hybrid approach. 

The ability to act on real-time data is the way forward for driving value and transforming customer experiences, which must be accompanied by the modernization of the underlying data architecture. The prerequisite for this goal involves the de-siloing of data and sources into a holistic data landscape. 

Solving for ESG 

Along with high inflation, the cost-of-living crisis, energy turmoil, and rising interest rates, environmental, social, and governance (ESG) issues are also in the spotlight. There is growing pressure from regulators to provide ESG data and from investors to make sure portfolios are sustainable. The role of ESG data in conducting market analysis, supporting asset allocation and risk management, and providing insights into the long-term sustainability of investments continues to expand. 

The nature and variability of many ESG metrics is a major challenge facing companies today. Unlike financial datasets that are mostly numerical, ESG metrics can include both quantitative and qualitative data to help investors and other stakeholders understand a company’s actions and intentions. This complexity, coupled with the lack of a universally applicable ESG reporting standard, means institutions must consider different standards with different data requirements. 

To master ESG reporting, including the integration of relevant KPIs, appropriate, high-quality data is needed that is also at the right level of granularity and covers the required industries and region. Given the data volume and complexity, financial institutions are building ESG platforms underpinned by modern data platforms that are capable of consolidating different types of data from various providers, creating customised views, modelling data, and performing operations with no barriers.

Unlocking Digital Payments 

Pushed by new technologies and global trends, the digital payments market is flourishing globally. With a valuation of more than $68 billion in 2021 and expectations of double-digit growth over the next decade, emerging markets are leading the way in terms of relative expansion. This growth has been driven by pandemic-induced cashless payments, e-commerce, government push, and fintechs. 

Digital payments are transforming the payments experience. While it was once enough for payment service providers to supply account information and orchestrate simple transactions, consumers now expect an enriched experience where each transaction offers new insights and value-added services. Meeting these expectations is difficult, especially for companies that rely on outdated technologies that were created long before transactions were carried out with a few taps on a mobile device. 

To meet the needs of customers, financial institutions are modernising their payments data infrastructure to create personalised, secure, and real-time payment experiences — all while protecting consumers from fraud. This modernization allows financial institutions to ingest any type of data, launch services more quickly at a lower cost, and have the freedom to run in any environment, from on-premises to multi-cloud. 

Figuring Out Security and Risk Management  

Data is critical to every financial institution; it is recognized as a core asset to drive customer growth and innovation. As the need to leverage data efficiently increases, however, according to 57% of decision makers, the legacy technology that still underpins many organisations is too expensive and doesn’t fulfil the requirements of modern applications. Not only is this legacy infrastructure complex, it is unable to meet current security requirements. 

Given the huge amount of confidential client and customer data that the financial services industry deals with on a daily basis — and the strict regulations surrounding that data — security must be of highest priority. The perceived value of this data also makes financial services organisations a primary target for data breaches.

While 2023 may seem like a year with many challenges ahead, financial organisations have already started investing in the infrastructure and data platforms to solve for many of these. This year it is time to double down on how you manage your data and what experience that provides for your customers.