Banks Need A Tailored Approach to Modernising – Not ‘Rip and Replace’

Increase Agility and Drive Transformation by Modernising with a Hybrid Cloud Approach

By Prakash Pattni, Managing Director, IBM Cloud for Financial Services at IBM

First came the ATM, opening up 24-7 access to cash for bank customers. Then, the introduction of mobile banking more than a decade ago allowed customers even faster access to money whenever they needed it. Fast forward to today’s digital-first world and many of the banks we  know  and trust are turning to the cloud to deliver the fast, personalised customer experiences  that sit  at  the  heart  of their new digital strategies.

Customers are setting the tone for the future of banking and financial institutions must have the right technologies and controls in place to both modernise and compete with digital-native market entrants. At the same time, regulatory requirements are evolving across the globe alongside a growing threat landscape. This makes compliance top of mind for financial services leaders as costly regulatory fines loom over the industry. The evolution of technology has opened the door to security vulnerabilities such as financial fraud, cyber threats, and data breaches that not only threaten a banks own technology environment but those of  ecosystem partners as well. Third and fourth party dependencies in cloud services are creating new levels of risk that need to be managed and mitigated.

With the pressure to deliver faster more personalised digital banking experiences, while adhearing to strict regulations, the approach to modernise through “rip and replace” of existing systems can be high-risk, costly, and disruptive. The decision to sunset certain applications or rewrite and move them to a public cloud can potentially result in a lower return on investment than strategically choosing which applications to modernise, and how. 

The question leaders of financial institutions need to ask is therefore, does modernise have to mean migrate?

Adopting a hybrid cloud approach, including the use of industry-specific clouds with built in security and compliance controls, can provide a smooth path to modernising and upgrading existing implementations. This allows financial institutions to decide what environment – on prem or in the cloud – and which infrastructure type fits best with each of its workloads. When done appropriately, the benefits of application modernisation can lead to increased agility, security, on-demand scalability, and cost savings over time. This helps bring businesses closer to hybrid cloud mastery. 

We use the term hybrid cloud mastery to describe a highly evolved way of operating a hybrid cloud platform that fundamentally improves—and even transforms—business performance. But how do you move towards mastery…

Many financial institutions are on their way to mastery and feel they have a solid cloud strategy in place. The recent IBM Transformation Index: State of Cloud found that 60% of financial services respondents said they had a clear strategy with a roadmap and priorities for cloud adoption. However, a quarter of respondents in financial services agreed that meeting industry requirements is holding them back from fully achieving their cloud objectives. 

As regulators urge financial  institutions  to  use  multiple  clouds  to mitigate concentration risk, a holistic view across their hybrid cloud environment can help companies demonstrate  their  compliance  faster. This frees  up time  and  resources  to  drive the innovation today’s financial institutions need to evolve business models and met consumer demand.

Navigating security and compliance obstacles to modernisation

When modernisation is done using hybrid cloud, cloud security, and best-fit infrastructure selection, it positions enterprises to fully reap the long-term benefits and value of their IT investments. Modernisation should include all aspects of an application - architecture, development, security, adhering to regulatory compliance, and resiliency of the application – with a holistic hybrid cloud strategy running across the whole environment.

A great example is BPER Banca Group, the third largest banking group in Italy, which is expanding its hybrid cloud approach to modernise core banking systems and accelerate its digital transformation plan. The bank is working with IBM to combine a highly resilient mainframe with an industry cloud that has built in security and compliance controls to help drive innovation and address regulatory requirements. As security and privacy remain paramount for financial institutions, this highly secure hybrid cloud environment will allow the bank to innovate quickly while managing mission critical data, services and workflows across multiple platforms.

Similary, Rural Servicios Informaticos (RSI), a Spanish banking IT services company, is modernising to drive innovation and stay competitive in a digital-first world. RSI is responsible for servicing 8 million end-user customers per year and is seeing demand for digital banking services grow while regulatory and compliance requirements evolve. The IT provider is working with IBM to optimise between cloud and mainframe – enabling them to enhance security, manage risk, address regulatory issues with greater speed and flexibility. The mainframe is also designed with energy efficiency in mind. This will allow RSI to achieve greater performance with less energy used, potentially helping the banking IT provider reduce energy consumption by 25%.

Both collaborations show the important role in digital transformation for the mainframe, which has underpinned the global financial system for decades. Mainframe technology continues to evolve to meet the demand of today’s – and tomorrow’s – world. IBM’s latest iteration, IBM Z16, includes AI-inferencing technology that can detect and prevent fraud in real-time in an industry first. This has huge cost-saving implications for financial businesses and customers. It also possesses the latest quantum encryption technology to guard against future cyber-attacks when quantum computers become mainstream and vulnerable to mis-use. 

With hybrid cloud technologies, financial institutions can make use of these mainframe innovations and integrate them with off-prem environments, securing what belongs in the public cloud. 

Modernisation includes a broad range of options to fit business and IT objectives and the first to make full use of these tools will build a platform for innovation that delivers a decisive competitive advantage.