PSD2 and payment fintechs push banks to accelerate software migration
Amid changing regulations, mounting customer expectations and increasing competition from an array of fintech and payment startups, the banking sector is experiencing some serious disruption.
Financial services has quickly become a software-driven industry. Customers are demanding innovation and want to be able to interact with their chosen bank at a time that suits them, across a combination of both online and offline channels.
This means banks have to be prepared to change how they operate and embrace the era of big software through the likes of software-as-a-service (SaaS), big data, cloud, containers and microservices. If they don’t, they will likely be overtaken by faster and more innovative competitors.
Spurred by the PSD2 regulation, the introduction of open banking has also played a key role in this shift. Open banking refers to the use of open APIs (application programming interfaces) that enable third-party developers to access U.K. banks’ customer data and build applications and services on top.
It is heavily dependent on the use of open source software and, with 99% of payment executives saying their bank plans to make major investments in open banking by 2020, will likely be an integral part of the future of financial services.
The challenge is that although these technologies present several opportunities, they also bring complexity. Where applications used to be relatively contained and simple to manage, they now have to be rolled out across hundreds or thousands of on-premise and hosted physical and virtual machines.
Not only does all this have to be accomplished as cost-efficiently as possible, with the right mix of products, services and tools to match the requirements of the business, customer data also has to be kept secure.
To address these issues, organizations have to realize the importance of the IT department in enabling innovation while also ensuring security and business continuity.
The position of IT across all industries, not just financial services, has been significantly elevated as the big-software revolution has continued to take hold.
Indeed, many IT departments now enjoy strategic recognition, rather than simply being consigned to supportive, back-office functions. For example, in a recent Brocade survey, 97% of respondents recognized the IT department as important to enabling their organization to innovate and grow, highlighting how IT teams’ knowledge is now frequently tapped into when it comes to shaping strategic direction.
However, there are still challenges that need to be overcome, with nine in 10 (91%) IT decision makers saying there are issues preventing their IT department from delivering on business demands. For example, IT departments often spend large proportions of their time maintaining data security (73%) and legacy systems (63%), which will restrict the time they have available to innovate and digitally transform their organizations.
For those banks that haven’t yet realized the value of IT, now is certainly the time to do so. Technology has already transformed business processes in financial services and, with the growth of big software and open banking, having access to a robust IT infrastructure that leverages the capabilities of these technologies is only going to increase in importance.
As such, the emphasis for IT teams is now geared more toward building platforms that enable banks to innovate and solve specific business problems, rather than simply keeping the lights on.
With their ability to understand the business value of technology, IT departments can bring a huge amount of value to strategic boardroom discussions. Given the widespread disruption opportunities available to fintech startups, this expertise could prove invaluable.
It’s no secret that technology has significantly changed the way banks and financial institutions work and will continue to do so over the coming years as the momentum behind big software grows.
IT teams, therefore, are perfectly positioned to understand these latest digital trends and in turn use cutting-edge innovations to solve their organization’s specific needs.