Leena Kallakuri is a vice president of software engineering for Capital One. During her 19-year career, she has led enterprise-scale quality transformations while launching several mission-critical platforms that demanded rapid development and exceptional reliability. She leads software engineering organizations that use application programming interfaces, microservices, and cloud technologies to build next-generation banking solutions that are aligned with digital and mobile-first growth strategies.
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Online banking is expected to become more sophisticated, efficient, and comprehensive as advanced technology evolves. Shifting from legacy systems to more modernized cloud platforms has already produced significant benefits for the financial industry and customers worldwide.
Meanwhile, many financial institutions struggle with challenges associated with providing personalized customer service without compromising privacy and safety, along with the increasing volume of outlets for digital connectivity. As more capabilities are created through the continuously increasing use of artificial intelligence (AI) and machine learning, risks to the security of personal financial information will likewise remain constant. With the rate at which technology is rapidly advancing, it’s essential for financial institutions to prepare to pivot regardless of where they currently are in their tech modernization journey.
Slower than typical technology evolution
For numerous reasons, the banking sector has not adopted new and emerging technologies as quickly as other industries. Perhaps the most notable and justifiable reason is the nature of this highly regulated field, which presents seemingly unending compliance measures that inherently slow down the speed of optimization for any innovative technologies or customer experiences that banks would like to implement as quickly as possible.
A recent survey also found that 30% of banks struggle with the implementation of digital transformation initiatives.
Another significant factor is that many organizations throughout the industry continue to run their systems on legacy software. Building on top of these programs to leverage today’s advanced technologies is not an easy task. Challenges related to integration, the development of new functionalities or features, and the migrating of stacks to modern technology are time-consuming and have led to a somewhat lethargic approach to adoption.
This has compounded a persistent sentiment of risk aversion and exacerbated typical business concerns such as increasing costs, time constraints, and reduced return on investment (ROI) when newer technologies are not implemented as effectively as intended. As more institutions become inclined to embrace new technologies, industry professionals are primed to become even more challenged by the need to migrate from their legacy systems more quickly in the face of an expanding regulatory landscape.
Digital innovations trending with customers
The slower pace toward advanced digital technologies has not waned customers’ expectations about their bank’s capabilities and the options they offer. Mobile banking alone has changed the dynamic of how quickly customers expect delivery of services and real-time insights.
It’s conceivable that today’s customers anticipate more personalized, comprehensive service without having to walk into a bank. While the digital revolution is still unfolding, specific offerings are more accepted as online standards, including budgeting and financial planning, investment management, and fraud monitoring.
Additionally, the rise in digital currencies has contributed to more banks investing in blockchain for transaction purposes and related security. Increasingly, banks are willing to enter the blockchain space. High-profile companies such as JPMorgan Chase, Goldman Sachs, and HSBC are leading the way to blockchain integration. In March, the Federal Deposit Insurance Corporation (FDIC) issued new guidance for FDIC-supervised institutions actively engaging in or interested in crypto-related activities. The guidance provides parameters for managing new and emerging technologies when associated risks are also being managed.
Key strategies to achieve digital modernization
Despite the longstanding slower progression and the need to exercise caution toward technology due to regulatory protocols and the need to err on security, it is critical for today’s financial institutions to develop more innovative ways of working with their customers. The first steps are to identify business goals, assess how advanced technologies can help to meet and maintain them, and base ROI metrics around them.
Examples of significant steps to take to ensure an actual pathway to modernization include:
- Explore the current state of the institution’s technology stack. This is a fundamental factor that guides any migration from legacy. Tools that help to assess business banking digital maturity levels are available to assist this necessary baseline level of evaluation.
- Review the institution’s culture and talent pool. It is imperative for leadership to articulate expectations about the company’s vision for technological advancement and determine if there is appropriate staff in place who are empowered to follow through with the agenda. It’s also important to identify upskilling or cross-skilling needs to maintain appropriate momentum.
- Conduct comprehensive market research. Customer needs will continue to evolve. Understanding market insights helps determine which types of technologies to prioritize while making the migration, including options for cloud solutions and application programming interfaces (APIs) for open banking.
- Shop for the right cloud infrastructure. Seek the most effective scalability, resiliency, and cost benefits for the organization.
- Move from a monolithic architecture to a microservices/modular architecture. According to Deloitte, banks are transitioning from single codebases to a more open, marketplace-based approach for product and service delivery as their digital presence matures. While there’s no one-size-fits-all approach to this move, practical strategies for a smoother transition exist.
Compliance and regulatory guidance
Fundamentally, attaining and maintaining compliance requires coordinated collaboration. In the current landscape, marrying regulatory scope with what customers want is vital. From a strategic standpoint, three key stakeholders ensure the strategy and vision are aligned: the chief information officer, chief executive officer, and chief fraud officer. Ideally, collaborative efforts will include a roadmap for committed funding and resources to reach technology advancement goals and fulfill the company’s vision.
It’s crucial to communicate all established plans with the appropriate regulatory officials who need to understand how any agenda impacts customer service and information safety. Migration to the cloud environment has specific compliance requirements, including scalability and data security services.
Remaining ahead of the curve to serve customers
As with all industries today, AI has emerged from “buzzword” status to the single most influential element poised to impact the future of banking. In the midst of what has already been an uncertain transition, AI is expected to pose significant challenges for banks and regulators alike as they attempt to keep pace with technological advancements, according to a recent report from EY.
One of the most difficult challenges associated with AI is avoiding and eliminating any bias that can creep into algorithms and automated decision-making processes. Another industry assessment also predicts that the potential of quantum computing, or the ability of programs to solve complex systems problems internally, will serve as a source of major innovations brought about by advanced technologies and provide additional digital migration opportunities.
Ultimately, ensuring that all resulting data is leveraged efficiently to personalize products and services offered to customers will determine how well customized financial products connect with any institution’s customers. Committing to long-term investments that produce scalable technologies and incorporate more mainstream AI innovations will support competitive advantages throughout the industry.
