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Innovate or fall: The challenge for banking in a modern cloud world

Innovate or fall: The challenge for banking in a modern cloud world

By Colin Fernandes, EMEA Product Marketing Director, Sumo Logic

The banking industry is facing significant challenges in this new decade. While the recovery of revenue growth has not materialised as expected since the global financial crisis, the industry – along with the rest of the world – now faces the COVID-19 pandemic which has pushed the world into a recession. Prior to the outbreak, banks had already been under increasing pressure to cut costs to compensate for negative interest rates in the Eurozone and low interest rates in the UK. As a result, banks have cut jobs in recent years to reduce their structural costs.

At the same time, traditional banks have looked at how digital transformation can help them survive in this new economy. Moving onto a digital footing enables enterprises to remain competitive and responsive to customer demands with fewer people – essential for established companies that want to compete with new, ‘cloud-native’ challenges.

It’s not surprising then that investment in digital transformation continues to soar. Back In 2018, IDC predicted spending on digital transformation (or DX) would be nearly $2 trillion in 2022. IDC is now indicating investment is growing at 17.5% CAGR. DX is expected to approach $7.4 trillion over the years 2020 to 2023 as companies build on existing strategies and investments to become digital-at-scale future enterprises.

However, the term digital transformation itself has led to much confusion. DX has been interpreted in many different ways depending on the industry or company articulating what it means to them. In broad terms, it should be thought of as both an organisation-wide cultural change and an integration of digital technology into your business. This fundamentally changes how your business operates, as it is based on continuous innovation around how you deliver value to your customers.

In this ‘always-on’ culture, enterprises must build on how they use data to enable rapid development of new features. Gartner terms this approach continuous intelligence (CI), as it takes data from multiple systems and uses it within business processes to accelerate decision-making, enable greater efficiencies and drive forward world-class customer experiences.

New technology offers both risks and opportunity. Transitioning to the world of the cloud has been a concern in terms of data and security for the banking sector. However, the rise of modern applications and the high bar that technology companies have set for customer experiences has increased the pressure for the sector to innovate or suffer the consequences. To avoid the risk of failure, DX projects should be approached with a clear grasp of what the final state should look like. Continuous intelligence is therefore essential to create the necessary feedback loop for constant improvements that digital transformation demands.

Build on DevOps

The digital transformation journey covers changes to processes, infrastructure and people. The logical first step is adopting and expanding the use of DevOps. DevOps removes the barriers between teams by making changes to culture and process for software development. It relies on small, proactive and dynamic teams that must include everyone involved in the lifecycle of a product. DevOps is now expanding into other business teams that want to innovate faster.

Each layer of the digital transformation journey builds on previous phases and DevOps enables an enterprise to build out functionality incrementally, automate testing and improve services. For teams working around customer experience such as marketing and service delivery, looking at the information coming back from applications can show where customers are having trouble or are looking for new functions.

CI provides rapid insight back to the business, which can then be used to plan out the next incremental steps in improving customer experience, application design and the IT needed to provide those services.

Work on your pipeline

The next phase in DX therefore involves accelerating a bank’s ability to add new features and create room for innovation. This is achieved by automating the way code is built and run in all new applications. Alongside this, banks need to consider new approaches to deploying and scaling that software to customers. This is where popular digital transformation technologies come in, such as cloud, containers, Kubernetes and microservices.

These services make it easier to streamline the process for delivering new software updates from development and testing into production. This process can be highly automated using continuous integration and continuous deployment (CI/CD) pipelines. However, it’s not enough to make this process faster.

To make digital truly transformative, information needs to flow from your cloud service in real time so you can act on it, which requires automated processes. What automation and orchestration deliver are the ability to ‘swarm-build’ infrastructure and scale it up and down dependent on customer demand. The most popular method for this is Kubernetes, which can ‘orchestrate’ thousands of Docker-based containers running individual apps.

What is Continuous intelligence?

While technical approaches like DevOps supply the IT backbone for change, CI delivers real-time insight back to the organisation. CI achieves this by continuously ingesting data from multiple systems, combining it for analysis and using the output to help teams with their processes and decisions.

CI makes data available to the users at the point they need it to influence their decisions. The opportunity for banking is embedding intelligence into working practices. Every team should be able to leverage data effectively in their work; CI is as much a way for business teams to understand the impact of their changes for the future as it is for security teams to see new risks faster or for software developers to see optimisation opportunities.

CI is a self-enhancing proposition that will enrich an organisation’s agility and ability to innovate. As an organisation embraces modern applications for more business functions, the increased data these new apps produce will drive forward CI’s capability to see the results of any changes in the right context and at the right time.

CI works optimally if it is used across an organisation’s teams including operations, security and business. As an example, a banking application will produce data on transactions. This is valuable information on how users are responding and the impact that changes have had, but it also provides granular data on the performance and efficiency of the disparate components of an application and pinpoints bottlenecks for developers and enable efficiency gains for customer-facing services. For security teams, the same data can be used to find both patterns and high cardinality and for ensuring compliance measures are working effectively.

This can be a big change in how technology teams approach their requirements, especially within banks, so getting executive support for these projects can help them succeed.

Looking to the future

Digital transformation is a complex journey. It represents a massive shift in how traditional banks run their operations, and it continues to be a potentially risky process. According to research by McKinsey, only 30 per cent of digital transformation initiatives have delivered on their goals so far.

However, the drive to move to digital business processes is a necessary one, as new market challengers make it impossible to rely on previous strategies. With this in mind, digital transformation should be carried out in stages that address the cultural, procedural, technological and observability challenges that exist. Done this way, digital transformation using CI can enable banks to tap into structural cost savings, drive innovation and establish proactive processes that benefit the entire organisation.

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