Financial services have always been data driven. Growth and profitability rose over the years in tandem with data mining technologies and methodologies from Hadoop to artificial intelligence (AI) and decision intelligence.
However, the resulting layers of technologies can interfere with the adoption of even newer and more disruptive technologies, such as generative AI (GenAI), blockchain and cryptocurrencies.
The challenge now is in balancing the old with the new within the boundaries of growing regulations and across fluctuating economies.
Decision-makers in these organizations are clearly aware. The number of senior executives who said data and analytics was their top investment priority over the last two years rose by 50%, according to an EY survey.
Yet pivoting in a heavily regulated and uncertain economic environment is challenging.
“Global challenges and economic uncertainties will always be around to add pressure on to financial organizations, but if CEOs and CIFOs can navigate market conditions with one eye on the present and the other eye on the future, their businesses will reap the rewards,” said Scott Schober (@ScottBVS), president and CEO at Berkeley Varitronics Systems.
We asked the CIO Experts Network, a community of B2B technology experts and thought leaders, to weigh in on the biggest challenges facing financial organizations in their ongoing technology transformation efforts. They also explored how current market conditions, emerging tech and cost pressures are impacting organizations.
Most agree that digital transformation intersects with nearly every facet of the business. CIOs and other members of the C-suite have a strong vantage point from which to assess both the problems and opportunities.
Legacy technologies in the age of AI and blockchain
Older technologies represent significant investments that are still usable, so they continue in service as a legacy of the past and the bane of the future.
“Legacy technologies are complex and costly to maintain. This stops top talent from innovating and driving new products that might be the company’s next competitive advantage,” said Peter Nichol (@PeterBNichol), Chief Technology Officer at OROCA Innovations.
Financial organizations in general — and banks in particular — have tried to rebuild systems for years with mixed results. A dilemma expressed by many CIOs is the challenge of innovating with new technology while “keeping the lights on,” supporting day-to-day operations. The tendency to favor the urgent widens the gap between how financial services firms could reimagine their businesses to exceed client expectations and meeting the demands of current infrastructure.
“While incremental modernization is a mitigation strategy, operational inefficiencies and processes designed around broken systems each result in delayed time to market for new products. The result? An increasingly frustrated customer,” Nichol added.
Holding on to legacy systems means anchoring the organization in the past and dragging it further behind an evolving market.
“Companies fortunate to experience growing customer bases quickly realize this gift comes with the burden of increased transactional volumes, which legacy systems struggle to meet,” Nichol said.
Finding the sweet spot in a blend of old and new technologies may work for a while, but this plan isn’t sustainable.
“Financial institutions must carefully prioritize wise tech investments that move the needle competitively while managing risk and expenses,” said Gene De Libero (@GeneDeLibero), Principal at Digital Mindshare.
Building on disruption
Financial organizations must contend with large-scale systems, massive data sets, significant compliance requirements and rising costs.
“None of this is new to financial organizations, but increased competition, globally disparate data privacy regulations, and emerging generative AI capabilities will create a competitive gap between digital trailblazers who accelerate their digital transformation and those who are roadblocked by technical debt and execution complexities,” said Isaac Sacolick (@nyike), president of StarCIO and author of Digital Trailblazer.
These challenges can make it difficult to assess how to add disruptive technologies despite technical debt and complexities. At the same time, technologies like GenAI can serve not only as a platform to build new services but also a tool to modernize older infrastructure, particularly legacy code; to optimize operations; to mitigate risk; and to augment functionality.
“Financial organizations must translate monolithic financial software into discreet services in the cloud. It’s essential for nimble financial operations, new service development and continual feature updates for customers,” said David Geer (@geercom), thought leader and cybersecurity expert.
The challenges become steeper when architecture and networks must also change to adapt now and for future technologies. Moving forward, the goal must be to design a future-proof tech stack, allowing for innovation with minimal reliance on one-off use cases, which become burdensome to maintain.
“Maintaining high-quality customer experiences while back-end technologies and customer UI/UX undergo major surgery is challenging. If the organization does not consider emerging technologies, such as AI and blockchain, when transforming, the new technologies it works to create may not be the most competitive ones,” Geer added.
Balancing technologies, risks and rewards
Innovation remains a balancing act for enterprises, according to David Kadio-Morokro, EY Americas Financial Services Innovation Leader.
“Innovation has always been a balancing act between the need to incrementally improve — and profit from — today’s operational requirements and building solid foundations for tomorrow’s transformational changes and technologies,” Kadio-Morokro said.
“Financial services leaders must be bold to continuously experiment, fail and learn what’s possible while navigating the daily urgency of supporting the enterprise and managing short-term hype cycles,” he added.
While there are many things to consider, members of the CIO Experts Network offered tips on moving forward to assist in achieving the perfect balance, or at least to avoid tipping the scales too far one way or the other.
Specify tech and consultant requirements
Be sure to determine the requirements and control the consultants’ costs from the outset.
“When it comes to technology transformation efforts, requirements are often never finalized, which will significantly add to costs when the project starts. And consultants who designed the system will require more time to redesign things,” said Ben Rothke (@benrothke), Senior Information Security Manager at Tapad.
Prepare to pay more to bring talent back
Many financial organizations are struggling to bring the talent back in-house so that they can leverage digital technology to its fullest extent. With emerging tech in particular, upskilling the existing workforce is also a necessary element alongside external recruitment.
“For companies that have outsourced all or a majority of their product management function, for example, their executive teams have become accustomed to a certain cost profile. While bringing product management back in-house will better serve the company in the long term, the company will likely become less profitable during the transition to more balanced workforce composition, which can be a tough pill to swallow in uncertain market conditions,” said Michael Bertha (LinkedIn), partner at Metis Strategy.
Step carefully
Security must remain a top priority, but it must not be overly burdensome either.
“We all want to get to the next quarter, especially if its forecast is rich in profit, but as technological transformation increases in speed and scale, CISOs must keep their eye on the ball by staying the course and being patient,” Schober said.
While financial institutions work to continue to keep pace with change, it’s helpful to build more agility into new systems as you go. Work to achieve balance between technologies and forces in the moment but allow for any or all to change over time in your planning.