While regulations, consumer demands, and technology have always shaped financial services, the pandemic has made innovation an imperative for survival. Global market forecasts call for non-cash transactions to surpass the one-and-a-half-trillion mark by 2025, according to Research and Markets. This statistic is a leading indicator of consumer demands for more convenience, speed, and varied services across channels. It will require traditional financial services to innovate faster to remain competitive with fintech.
The two-pronged needs of digital transformation to fuel innovation possibilities create a wealth of challenges for financial services, which they are addressing slowly. IT infrastructure changes and cloud migration alone cannot be the means for financial services organizations to compete in a quickly changing marketplace. It requires a more strategic approach to using these technologies as a means of creating a culture of innovation based on business outcomes.
Challenges Creating Innovation Possibilities in Financial Services
Buzzwords like flexibility, scalability, and agility must have specific meaning for financial services to create real innovation possibilities. Customer data is still the foundation, and the most valued asset for the creation of new value-adding products and services. But financial organizations must implement a more holistic and agile platform approach. This is the only way to overcome challenges like legacy technology and technical debt that stand in the way of innovation.
Financial services organizations must make their legacy technology stack and new cloud-based application architectures interoperable and scalable. This enables successful integration with internal systems and external partners. It can then foster innovation possibilities of services, products, and operations. With application development as a primary means of spurring innovation possibilities, financial institutions must have the architecture that can drive those outcomes, including:
- CI/CD pipelines
- Low Code/No Code platforms
- Containerization and microservices
- APIs and gateways
It’s important to understand these tools and platforms are only foundational building blocks to innovation based on their placement in a back-end environment. They’re only useful if they work in service to integrate financial capabilities within online/mobile app environments across new products, services, and distribution channels. This has led to several emerging approaches, such as banks either creating their own digital banking platforms and/or embedding fintech products into these platforms.
The goal is to meet the consumer demands for convenience, speed, versatility and hyperpersonalization for a seamless and personal customer experience. Every consumer demands the ability to manage their finances differently and actualize unique preferences, like:
- Repeat transaction automation, such as autopay and autosave
- Niche product provisioning for distinct consumer groups
- Tailored investment suggestion and platform support
Technology approaches like multi-cloud, AI-driven applications, edge computing, and other technology approaches are the building blocks. They are integral to creating a holistic financial services ecosystem capable of innovation to meet customer demands. Banks and investment firms will spend $623 Billion on technology products and services in 2022, according to Gartner. AI, privacy enhancing systems (PEC), and automation/autonomic systems will lead the pack.
Banks will surely spend more on application cloud migration each successive year. Banking industry CIOs say replatforming applications in the cloud has enabled them to adapt to changing market needs over the past year, according to a MIT Sloan CIO Symposium/Genpact Study.
This approach requires meeting the elusive needs of secure innovation, such as emerging security threats and regulatory compliance. Creating innovation possibilities through digital transformation requires financial institutions to see how it can drive present and future business outcomes.
How Innovation Drives Financial Services Business Outcomes
With thousands of transactions each day, financial services must meet customer demands across an increasing number of channel preferences. Post-pandemic financial services applications must respond to broadening customer needs for speed, convenience, and security.
This intersects with the growing demand for cross-platform services where digital finance transactions now cross over to other sectors like retail, healthcare, and utilities. The challenge for the financial services sector is removing the friction and time need in the transfer process between banking apps and other business sites.
While third-party providers and fintech have taken the lead through ecommerce, as one example, traditional financial services are following close behind. Financial institutions can deliver cross-platform transactions by either creating platforms with embedded payment services or partnering with providers. The innovation goal for these services is to build a real-time, 360-degree view of the customer journey that:
- Integrates channels, touchpoints, products, services, and ecosystems
- Automates workflows across people, systems, and data
The broader financial services beyond banking to wealth managers, investment firms, and insurers is driving an end-to-end digitalization approach of competing through innovation. These complex products and regulation environments require an ability to use data for management and monitoring. The new products/services must use innovation to work seamlessly with predicting emerging service needs or risks.
Platforms, platformization, and banking as a service
Traditional financial services need to compete with fintech companies by either offering their own platforms for service innovation or joining forces with them, as many fintech companies are looking for banking partners. These application-based fintech providers that embed payments into their platforms see a 2- to 5-time increase in revenue per customer, according to research from J.P. Morgan.
Banks are increasingly looking at banking-as-a-service solutions using an existing licensed, secure, and regulated infrastructure. They can deliver services through the bank’s API platform or through a third-party fintech platform. These “super apps” deliver a destination platform for consumers and merchants.
The goal is to create a digital clearing house of broad lifestyle and financial services. These services all feature embedded payment capabilities that let the consumer complete transactions without leaving the application. This makes it easy for consumers to complete a wide variety of transactions across products and services in one place.
This all-encompassing platformization approach to digital touchpoints enables seamless connection between services. Traditional Banks and other financial service providers can then strengthen and grow client relationships while improving operational productivity, compliance, and the bottom line.
The platform approach can also drive innovation possibilities for banks mired in outdated IT infrastructures and monolithic architecture. This legacy debt includes everything from mainframes to databases, user interface, and server applications still being run in on-premises data centers.
This makes it difficult to have a clear cloud strategy that can drive application development for services where financial services providers embed payments into the platform to meet varied customer needs. Financial services organizations that want to deliver these types of innovation possibilities must have a strategy for assembling the building blocks of digital innovation.
The Building Blocks of Innovation in Financial Services
Digital innovation is a state of being geared to quickly developing, identifying, and realizing innovative possibilities tied to tangible business outcomes. Because innovation represents many roads with unlimited destinations, it requires a guide to developing those roads for each organization. In financial services, digital transformation approaches like application development pipelines, cloud services/management, and other IT architectures and platforms are the building blocks of innovation.
An innovative culture that generates possibilities while illuminating the path to realization requires these building blocks to work cohesively. It must also be agile enough to avoid locking the organization into a specific environment with limited destination possibilities. They can focus these building blocks of innovation on new services and products that:
- Foster improved customer experiences
- Minimize customer friction by using automated authentication to keep customer experiences seamless, instead of jumping through multiple security hoops
- Prevent low-latency roadblocks that stall transaction/interaction experiences, which can lead to customer churn, abandonment, and lost revenue
- Enable CI/CD ecosystem integrations and automated security and performance policies into the DevOps pipeline for smooth operation and security across multi-cloud environments
- Deliver transparent API management across Kubernetes clusters and clouds using a simple, fast, and scalable multi-cloud architecture
- Use security stack orchestration for faster and more cost-effective security changes without downtime
- Use automation, AI, and analytics to lower risks while delivering improved services and products to customers
There are two challenges to creating this culture of innovation and creation. The first is that financial services institutions and their IT organizations are already too busy with current system management and projects. They also often lack the in-house expertise in AI, application development pipelines, and cloud services knowledge across all major providers. This is where a co-creation partner can help bridge the gap.
Techolution as Your Innovation Co-creator
There are limitless innovation opportunities that bring benefits to consumers and businesses. The challenge is that limited IT budgets, overworked IT teams, and costly expertise are major hurdles to creating this environment. Techolution has amassed years of experience and expert teams focused on innovation delivering business outcomes in finance.
Financial institutions often need consulting and supplemental expertise over project lifecycles. That’s why the Techolution integrated teams partner with financial services organizations by delivering fractional or end-to-end support. Our fixed-bid model is based on specific business outcomes that cultivate innovation possibilities. IT leaders can then work within budgets without compromising scope or outcomes.
By delivering a cloud-agnostic approach and cultivating a mix of open source and proprietary tools, we can collaborate on developing solutions that meet customized needs and budgets. The Techolution approach is to become a co-creation partner with financial services institutions so that incremental projects deliver innovation results today and as part of a long-term strategy of agile innovation.
To learn how Techolution can be your innovation co-creator in financial services, download our banking eBook here.