Incumbents vs. disruptors
For decades, banks were frontrunners in automation. But now, large parts of their once cutting-edge technologies have turned into legacy systems that hinder innovation. “New players in the financial services industry, such as Adyen and Revolut, enter the market without the burden of outdated technologies,” explains René Theunissen, partner at Deloitte Consulting and focuses on enterprise technology for banking. “Traditional banks are struggling to keep up with start-ups that optimally profit from new data-driven technologies such as cloud, artificial intelligence (AI) and Machine Learning (ML), as well as lean and agile processes such as DevOps.”
A lot of banks try to copy the way fintech start-ups work. Yet this should not be the only focus of their innovation efforts, says Timo Span, partner at Deloitte Consulting, who specialises in IT banking. “You can’t ignore the core. You need to find a balance in revitalising core enterprise technologies that often work with legacy systems, and introducing new data-driven technologies, processes and products.” Whereas disruptors can operate quickly and flexibly, Span emphasises that incumbents have the advantage of scale, experience and loads of (historic) data that can provide a deep understanding of their clients and their needs.
Four essential tech trends
So, how can banks find this balance in revitalising their core systems and creating new products and services to become truly data-driven? In short, how can banks thrive in a digital society? Deloitte’s annual Tech Trends report explores the landscape of emerging technologies and seeks to understand their impact on business strategy. Four of these technology trends are essential for the banking industry. This article briefly introduces these trends, while subsequent articles in this series will provide more in-depth explorations of each one.
1. Core revival
Modernising legacy enterprise systems and (partly) migrating them to the cloud is crucial to unleash a bank’s digital potential. As Span states: “You can’t ignore the core.” A lot of banks have focused on new initiatives outside their core systems, but this is not a viable strategy for the long run, says Span. “At some point, you need to reconnect these initiatives to your core systems,” he explains. “Moreover, you need to maintain your core systems and develop innovative approaches for extracting more value from legacy core assets.” Revitalising core systems is a massive task, but the good news is that tools to support this process have become more easily available, user-friendly and cost-efficient in the past few years.
2. MLOps: industrialised AI
Banks have been relying on data-analytics for a long time, but with ML technologies they can radically step up their game. ML models enable a shift towards near-real time processing of data, that can help organisations efficiently discover patterns, reveal anomalies, generate insights, make predictions and move towards automated decision-making. If you aim to make ML a key driver of the company’s performance, you need to alter your operations as well. This can be done with MLOps: the application of DevOps tools and approaches to industrialise and scale ML. “Several banks have already developed promising proof-of-concepts of MLOps,” says Theunissen. “In the next few years, we expect MLOps to become a standard practice and an important driver for change in the banking industry.”
3. Machine data revolution: feeding the machine
Legacy data systems are typically siloed and designed to support human decision-making. With the rise of new data-driven technologies such as cloud, AI and ML, organisations are working on a future in which data is easily available across all divisions. “Several banks are taking steps to disrupt the data management value chain from end to end,” says Theunissen. “They are using new data capture and distributed data architecture capabilities, advanced analytics and next-generation cloud-based data stores. In the end, this will enable them to connect the dots and make real-time, at-scale, automated decisions which will radically speed up their primary processes.”
4. Zero trust: never trust, always verify
The last essential technology trend for banks is related to cybersecurity. “Cyberattacks are becoming both more frequent and more sophisticated,” says Span. “This requires banks to beef up their security measures.” The concept of ‘zero trust’ assumes that no user, workload, device or network can be inherently trusted. Every access request should be validated on all available data points, including user identity, device, location and other variables. A zero-trust architecture should be part of every modern enterprise environment, says Span. “For banks in particular, their customers’ trust is the most valuable asset,” he explains. “This trust can only be effectively safeguarded with a zero-trust security approach.”
The way forward
These four technology trends are crucial for banks to move forward in the digital age. But in Span’s opinion, implementing them requires significant effort on the level of technology, process and organisation. “Banks are huge, complex organisations that play an essential role in our society,” he explains. “They have to deal with legacy systems and they operate in a tightly regulated environment. Reviving your core systems, introducing AI- and ML-driven technologies and processes, and implementing an up-to-date, zero-trust cybersecurity architecture all entail profound transformations that will take multiple years to complete.”
It requires courage to adapt and thrive in a digital age. “It’s not an easy task,” emphasises Theunissen. “Of course, all these transformations need to be carefully introduced, assessed and re-evaluated. But in the end, it also entails stubborn determination to pursue change and stay ahead of competition. If banks manage to successfully implement these essential technology trends, they will be ready for whatever the future holds.”