Although banking is one of the more traditional industries, with the collapse of banks such as Silicon Valley Bank and First Republic, there are lingering issues making digital transformation a particular challenge for banks of all sizes. And while the pandemic has led to reordering priorities for many banks, in some cases putting digital transformation behind shorter-term goals like reducing costs or improving products and services, a solid digital foundation is table stakes for a modern banking institution.
Customers are looking for personalized and seamless omnichannel interactions from all the companies they deal with, and that includes banking. And IT transformation can make a difference here. Those banks that are farthest on the digital transformation maturity scale see significant positive impacts. Banks at least halfway through their transformation see at least a 25% increase in loan volume, productivity, and customer retention.
Modernizing the technology stack isn’t easy: one-quarter of bank decision-makers say that technology is one of the biggest challenges to IT transformation. Bringing the back office of banking into the 21st century has an impact both on how the bank operates and what customers experience.
Legacy technologies present an obstacle for banks looking to transform their IT systems. More than half of banking executives cite drawbacks like data integrity and data quality as limiting factors of working with legacy solutions. And legacy systems and modern applications do not necessarily play well together—it is harder to support older systems and their outdated operating systems, and harder to connect them to modern applications.
Another unique challenge to legacy systems is the dearth of updated documentation or knowledgeable staff. The older the technology is, the harder it is to keep the software and security up to date. And as staff members move on to other opportunities, it is not uncommon to find no one or only a few people who can manage the technology.
Banking institutions, especially regional banks often deal with traditional technology focused on their headquarters—everything goes through the central office. This hub and spoke networking model restricts a bank’s ability to be agile and responsive to customer needs.
Benefits of IT transformation
Moving data and operations to the cloud is one option for modernizing banks’ IT stacks. For bank executives who are concerned about cybersecurity and the impact of new technologies on operations, the key to a successful digital transformation is reducing the risks. That means ensuring solutions and managed services providers understand and can handle regulatory compliance requirements.
- Out of on-premises, the systems and processes are documented and the movement of banking staff will not affect the ability to work with the technology.
- Improved redundancy, to prevent disruption to the system and provide business continuity in the event of a disruption.
- Cost-effectiveness, with predictable spending and taking advantage of the provider’s economies of scale.
- Managed services, with familiarity with other banks and other enterprises in different industries, can provide insight into how best to serve customers.
- Minimization of cybersecurity threats.
- Compliance made easier, including SOC 2 and auditors’ letters instead of having to do them in-house for each request.
- Insurance against internal turnover by using an outside IT vendor.
A smooth digital transformation
Whatever the existing level of technology, the key to success for any bank making a digital transformation is planning. To ensure a successful transformation, set aside enough time to determine:
- The current state of the existing system, including identifying the component networks, applications, and equipment.
- Which applications and data need to stay on-premises and what can go to the cloud, including re-engaging the data center.
- The teams involved in the transition, including business and operational teams, as well as IT and development teams.
- The impact of the transition period and the final state on customers, what they need and want to do and how the new systems can enable those transactions.
Even with good planning, the transition will take time, and there will be surprises along the way. Banks looking for digital transformation to build operations for the 21st century can look to UPSTACK for help. We work with bank and financial services clients to identify the right systems and vendors to build a resilient and secure IT system to meet today’s needs and be ready for tomorrow’s. Contact us today to learn how we can help.