By Rob Kim, Vice President of Technology Strategy, Presidio

Financial institutions in the US have always had to be cautious in their deployment of new technologies given the stringent requirements around resiliency of their platforms in addition to the compliance around regulatory requirements for governance. Any interruption to the business can (and will) result in substantial negative impact. Without reliable performance and near 100% guaranteed availability, it can cost you millions of dollars – even for a single second. So, it’s understandable that for workloads that support these business-critical transactions, digital adoption would be more scrutinized.

But that was pre-pandemic. Digital transformation is no longer an option for financial services – it’s a mandate. Technology investments are needed to gain a competitive edge and differentiate in financial services. Democratization of IT resource access and low/no code programming has spawned a rise in the citizen developer and this innovation has led to transformation in all sectors – including FinServ.  And the money is following innovation. Business leaders eager to make these investments and are demanding their IT counterparts to jumpstart digital initiatives to achieve successful business outcomes.

But, investing in new technologies without setting a solid and secure foundation is like building a house on shifting sands. Innovation will always be out of reach if institutions do not dedicate resources to the transformation process. Integrating disruptive technology and automation while simultaneously prioritizing data security and continuity, visibility and safeguards is critical, albeit a difficult and arduous task.

The State of the State

Banking and financial institutions in many ways have embraced digital innovation as a first mover, albeit in areas specific to digitizing the end-user experience (i.e., mobile banking). However, most of the back-office clearinghouse activities are still running on legacy platforms, including mainframe. Further, as the demand for processing and analyzing an exponentially expanding data (including the integration of multiple data sources/services) – all to gain more precise insights on existing and prospective clients – limiting the digital modernization to cloud-first initiatives will not enough.  A focus on modernizing the legacy environments need to be put back on the table to maximize the innovation benefits and value derived from the cloud-first strategies. Couple that with the impact of the “Great Resignation” on increasing costs to operationally maintain legacy platforms, the move to modernize becomes more a priority. These pressure points are only exacerbated by an increasing need for organizations to diversify the workforce.

Crypto and the Move from Paper to Digital

Another key factor has been the introduction and adoption of blockchain and its application into commercial banking’s most basic function – to act as a centralized financial ledger. The massive boom in blockchain and distributed ledger technologies, is only the start, as cryptocurrencies represent a little less than 11% of the $19T+ in circulation – but the growth is rapid and staggering. Just look at the press around social investing during this year’s Super Bowl ads (etoro.com and crypto.com). Legacy payment organizations, retail banks, credit unions, lenders, etc. are all being significantly affected – if you don’t play in this space, you may be disintermediated. Customers expect financial institutions of all kinds to be able to support their ventures in this evolving space, but do these institutions have the foundation set to be able to support this long-term?

Other areas of growth and impact include:

• Non-Fungible Tokens – adding NFT to highly valued brand names are producing net new revenue streams for many consumer product companies – investing in digital technology that more than will pay for itself.
• Advanced blockchain forensics – used to track and recover stolen funds. While ransomware mitigation in the form of MDR and XDR programs are in high demand, specifically for financials, the recent rise in breaches and hacks in 2021 resulted in returned stolen funds or claw-backs from authorities.
• Advanced Digital check-out – The move to digital is not just about the convenience of payment methods (over traditional paper currency), it’s also about enhancing security of transactions and flexibility to change methods post transaction.