Financial services in 2022: an opportunity for metamorphosis

Legacy and cloud-native tech can complement each other for a more productive business and happier customers. 

By Monica Sasso, EMEA FSI chief technologist, Red Hat

For financial services firms and insurers, the customer relationship is built on trust earned over many years.  In turn, these businesses have to be able to trust their foundational IT systems to deliver the requisite uptime, performance and security.  With such high stakes, technology overhaul can feel risky as it represents a leap into the unknown.  The key to successfully balancing reputational risk with the desire for speed and innovation lies in looking at digital transformation more holistically: it must include people, processes and partnerships as core pillars, not just technology. Here we take a look at how these areas offer opportunity for change over the next year and beyond.

The Customer: demand for personalisation

The platform economy is giving rise to a great diversity of new services. Banks that embrace new types of collaborations and ecosystem relationships will reap the fruits. Open APIs are the currency that will enable this, and many banks are already moving in this direction, kick-started by PSD2 in the EU and UK and crystallised by technology advancement and consumer demand.

This evolution towards Open Finance will generate lots of data, which can be used to deliver the kinds of hyper-personalised products that customers increasingly demand. For example, behavioural finance or insurance can inform virtual personal financial personas or “butlers” that analyse customer data to suggest products and predict future spending profiles.  Our favourite streaming services and online shopping services already do this for us and consumers are looking for the same convenience with the added security and stability we expect of our banks and insurers.  All these things are already possible and are underpinned by structured big data, analytics, IoT (internet of things) and artificial intelligence (AI) and machine learning (ML) – technologies that thrive in flexible, cloud-native environments.

When it comes to treasury, corporate and investment banking, edge computing is in the line of sight – that is, moving real-time processing and analytics closer to the exchanges, underpinned by an ecosystem of APIs that add value across the entire chain.  AI and big data can help process volumes of data previously unused. It then becomes possible to gain deep commercial insights from trade and transaction reports, or to manage cash flow seamlessly, or to have real-time dashboards for senior managers to make more informed decisions. The customer’s experience becomes gratifyingly individual.

People and Process: reinventing work

New products and technologies bring about the need for new processes.  People are at the core of providing these business processes, and embracing them requires new ways of working.  Simply put, if organisations want to capitalise on the speed and flexibility that cloud-native software can deliver (and that their consumers demand), they will need to rethink their operating models.

This goes beyond agile development – it should incorporate governance, decision-making and the relationship between management, the business and IT.  In this way, the organisation becomes a harmony of interworking constituent parts, rather than walled-off separate ecosystems. Embracing open source principles and DevOps practices to maximise flexibility, transparency and speed can help break down silos whilst still providing transparency to senior management (ExCos), regulators, shareholders and consumers that demonstrate the organisation is operating in a compliant manner across all three lines of defence.

What this looks like at Red Hat on our best days is having everyone across the company participating in free exchange of viewpoints, contributing ideas and solving problems together.  Collaboration and community balanced with accountability fosters innovation – and we thrive on helping other businesses realise the same benefits.

Technology: reinvigorating IT

Modernising hardware, software and ways of working is no mean feat – financial services organisations have already been on the journey for years. It’s time to reimagine how infrastructure can be used.  Mainframes might not be the best home for all applications, but could be used for select use cases that take advantage of their uptime and their ability to crunch vast amounts of data quickly, such as real-time analytics, AI/Ml workloads or big data management.  Energy usage is an important factor too, with a modern main frame being more efficient than the equivalent servers.

Modernising is not necessarily about “out with the old, in the new”.  It’s about using available resources in an efficient, safe and sustainable manner to generate new value for customers.  And it’s about getting the new and the old to communicate and work better together – using integration capabilities, agile delivery techniques and cloud-native platforms to improve the speed and security of software delivery.

Agile integration comes into play when connecting technologies like APIs are run in containers and when integration roles are extended to cross-functional teams, or ‘citizen integrators’.  Microservices can essentially be ‘dropped’ into existing architecture seamlessly, so they start providing value to internal and external users quickly.

Similarly, moving to the cloud does not mean organisations must close their data centres and start again; rather, data centres can be modernised alongside software and business processes. The data centres of the future are flexible and highly utilised with software-defined storage on a choice of industry-standard hardware.  Event-driven architecture, real-time risk reporting and end-to-end automation can provide operational resilience and increase up-time.  By bringing in the control functions on the journey, compliance teams get the understanding and trust they need to feel comfortable with automation of controls.

Technology: IT of the Future 

The financial services industry is working towards a future IT state that is flexible and portable, underpinned by an open source cloud-native architecture and freedom to choose technology partners without vendor-lock in.  Containers are instrumental here, providing a standardised foundation for moving workloads between private and multiple public clouds or even to the edge.

Containers give options: the business can decide where and how to run workloads. They also consume fewer resources – from the server all the way to the electricity bill – and provide a home for microservices that communicate through APIs.  This is a step change from a single big system running on a mainframe or server.

Containers provide a solid, fungible bedrock for financial services and insurance firms as they modernise – one thing we, as a society, have learned during the covid pandemic, is that flexible resilience is required in all aspects of our personal and professional lives.  Choices with pay-as-you-go services allow CFOs to get the capital and operational expenditure balance right wherever they are on their digital transformation journeys and within their own risk-appetite.

The outlook is bright

Now that technologies from containers to AI to 5G are maturing, more traditional organisations have a golden opportunity to turn what they already have into a productivity powerhouse.  A modernisation strategy that embraces a more open culture and gets cloud-native tech working in concert with existing IT will enable financial services firms and insurers to deepen the trust they are known for and combine it with new leadership in innovation.

Legacy and cloud-native tech can complement each other for a more productive business and happier customers. 

By Monica Sasso, EMEA FSI chief technologist, Red Hat

For financial services firms and insurers, the customer relationship is built on trust earned over many years.  In turn, these businesses have to be able to trust their foundational IT systems to deliver the requisite uptime, performance and security.  With such high stakes, technology overhaul can feel risky as it represents a leap into the unknown.  The key to successfully balancing reputational risk with the desire for speed and innovation lies in looking at digital transformation more holistically: it must include people, processes and partnerships as core pillars, not just technology. Here we take a look at how these areas offer opportunity for change over the next year and beyond.

The Customer: demand for personalisation

The platform economy is giving rise to a great diversity of new services. Banks that embrace new types of collaborations and ecosystem relationships will reap the fruits. Open APIs are the currency that will enable this, and many banks are already moving in this direction, kick-started by PSD2 in the EU and UK and crystallised by technology advancement and consumer demand.

This evolution towards Open Finance will generate lots of data, which can be used to deliver the kinds of hyper-personalised products that customers increasingly demand. For example, behavioural finance or insurance can inform virtual personal financial personas or “butlers” that analyse customer data to suggest products and predict future spending profiles.  Our favourite streaming services and online shopping services already do this for us and consumers are looking for the same convenience with the added security and stability we expect of our banks and insurers.  All these things are already possible and are underpinned by structured big data, analytics, IoT (internet of things) and artificial intelligence (AI) and machine learning (ML) – technologies that thrive in flexible, cloud-native environments.

When it comes to treasury, corporate and investment banking, edge computing is in the line of sight – that is, moving real-time processing and analytics closer to the exchanges, underpinned by an ecosystem of APIs that add value across the entire chain.  AI and big data can help process volumes of data previously unused. It then becomes possible to gain deep commercial insights from trade and transaction reports, or to manage cash flow seamlessly, or to have real-time dashboards for senior managers to make more informed decisions. The customer’s experience becomes gratifyingly individual.

People and Process: reinventing work

New products and technologies bring about the need for new processes.  People are at the core of providing these business processes, and embracing them requires new ways of working.  Simply put, if organisations want to capitalise on the speed and flexibility that cloud-native software can deliver (and that their consumers demand), they will need to rethink their operating models.

This goes beyond agile development – it should incorporate governance, decision-making and the relationship between management, the business and IT.  In this way, the organisation becomes a harmony of interworking constituent parts, rather than walled-off separate ecosystems. Embracing open source principles and DevOps practices to maximise flexibility, transparency and speed can help break down silos whilst still providing transparency to senior management (ExCos), regulators, shareholders and consumers that demonstrate the organisation is operating in a compliant manner across all three lines of defence.

What this looks like at Red Hat on our best days is having everyone across the company participating in free exchange of viewpoints, contributing ideas and solving problems together.  Collaboration and community balanced with accountability fosters innovation – and we thrive on helping other businesses realise the same benefits.

Technology: reinvigorating IT

Modernising hardware, software and ways of working is no mean feat – financial services organisations have already been on the journey for years. It’s time to reimagine how infrastructure can be used.  Mainframes might not be the best home for all applications, but could be used for select use cases that take advantage of their uptime and their ability to crunch vast amounts of data quickly, such as real-time analytics, AI/Ml workloads or big data management.  Energy usage is an important factor too, with a modern main frame being more efficient than the equivalent servers.

Modernising is not necessarily about “out with the old, in the new”.  It’s about using available resources in an efficient, safe and sustainable manner to generate new value for customers.  And it’s about getting the new and the old to communicate and work better together – using integration capabilities, agile delivery techniques and cloud-native platforms to improve the speed and security of software delivery.

Agile integration comes into play when connecting technologies like APIs are run in containers and when integration roles are extended to cross-functional teams, or ‘citizen integrators’.  Microservices can essentially be ‘dropped’ into existing architecture seamlessly, so they start providing value to internal and external users quickly.

Similarly, moving to the cloud does not mean organisations must close their data centres and start again; rather, data centres can be modernised alongside software and business processes. The data centres of the future are flexible and highly utilised with software-defined storage on a choice of industry-standard hardware.  Event-driven architecture, real-time risk reporting and end-to-end automation can provide operational resilience and increase up-time.  By bringing in the control functions on the journey, compliance teams get the understanding and trust they need to feel comfortable with automation of controls.

Technology: IT of the Future 

The financial services industry is working towards a future IT state that is flexible and portable, underpinned by an open source cloud-native architecture and freedom to choose technology partners without vendor-lock in.  Containers are instrumental here, providing a standardised foundation for moving workloads between private and multiple public clouds or even to the edge.

Containers give options: the business can decide where and how to run workloads. They also consume fewer resources – from the server all the way to the electricity bill – and provide a home for microservices that communicate through APIs.  This is a step change from a single big system running on a mainframe or server.

Containers provide a solid, fungible bedrock for financial services and insurance firms as they modernise – one thing we, as a society, have learned during the covid pandemic, is that flexible resilience is required in all aspects of our personal and professional lives.  Choices with pay-as-you-go services allow CFOs to get the capital and operational expenditure balance right wherever they are on their digital transformation journeys and within their own risk-appetite.

The outlook is bright

Now that technologies from containers to AI to 5G are maturing, more traditional organisations have a golden opportunity to turn what they already have into a productivity powerhouse.  A modernisation strategy that embraces a more open culture and gets cloud-native tech working in concert with existing IT will enable financial services firms and insurers to deepen the trust they are known for and combine it with new leadership in innovation.