Banking in the Year Ahead:

Industry Standards and Digital Transformation Become Business Practice

The future of banking is the history of banking flipped on its head. The industry which used to compete based on backoffice efficiencies, will increasingly compete based on frontoffice customer experiences going forward.

Banks Face Competing Priorities

In our IBM Institute for Business Value's latest expert insight, 2023 Global Outlook for Banks and Financial Markets, we stress the significance of collaboration across business and technology teams as a means of navigating the uncertainty ahead. This style of collaboration manifests as a virtuous cycle, generating new revenue opportunities, containing costs and mitigating risks.

Most importantly, these efforts must be underpinned by exponential technologies, such as AI and hybrid cloud, which are reducing operational costs, facilitating enterprise-wide agile innovation and enabling platform-based business models.

This said, the financial services industry is facing significant hurdles that may hinder the realization of these benefits –most notably, the pervasive use of legacy technology. The key to overcoming these obstacles is the adoption of industry standards, a strategy which enables banks to achieve the competing goals of revenue growth and cost takeout while simultaneously managing risks all with finite resources.

Multiple Hurdles Impede Transformation

Beyond the widespread use of legacy technologies and slow pace of industry standards adoption, three additional impediments come to mind.

One, as the role of the independent software vendor (ISV) and partner ecosystem expands, existing business and technology architectures are unable to rapidly incorporate and adopt these capabilities.

Two, as banks move to build digital capabilities or acquire neo-banks, some have generated costly technical interdependencies and redundancies.

Three, and perhaps most pressing, complexity, risk aversion and cultural resistance to operating model transformation is slowing the adoption of the new workforce and workplace models. This is compounded by a misalignment of incentives across business and IT units within financial institutions.

Adopting a Hybrid Cloud Approach and Industry Standards as a Growth Strategy

By adopting hybrid cloud techniques and practices such as application programming interfaces, microservices, containers, DevOps and site reliability engineering, financial institutions can better manage integrated operations and enable four distinct value levers:

• Simplification and acceleration of application development;

• Deployment of application components to any compatible platform in any connected data center, including on-premises, public cloud and edge;

• Ability to secure, govern and operate consistently across deployment locations with resilience; and

• Standardization with the use of open technologies and ecosystems and the simplification of skill requirements.

As a result, business ideas can be implemented and automated at the speed of thought. This pivot realizes the full potential value of shifting from cloud as infrastructure to hybrid cloud as the operating model.

To further overcome challenges, banks must adopt industry standards like Banking Industry Architecture Network (BIAN) to enable faster and more seamless collaboration both interenterprise and with business partners and the ISV ecosystem.

They must also implement a modern reference architecture and supporting data models to ease the movement of information across the banking services landscape while deploying value office and design authority mechanisms to advance alignment between business and IT for critical initiatives.

Other salient priorities include talent transformation initiatives and embracing AI as a catalyst for change. When it comes to AI adoption in banking, domains for consideration include the modernisation of customer care, credit risk evaluation, workforce engagement, and financial crime protection.

Many financial institutions look to BIAN as a starting point to help define and organise their IT and services needs in a standard, rationalised way. As such, BIAN has long been a key partner for IBM. The architectural standards created by BIAN, paired with IBM’s history of deep industry and technology expertise, are enhancing the ability of the financial services industry to create a plug-and-play application landscape. This greatly improves the agility of banks’ IT organizations to deliver on the needs of their businesses.

2023: A Pivotal Year of Execution

In our view, 2023 will stand out as the "year of execution" among forwardthinking financial institutions. By embracing industry standards, they will unleash the acceleration of their execution efforts, enabling them to simultaneously achieve new growth potential, greater efficiencies and superior risk management.