Five Steps Towards Modernizing Financial Services Applications
In recent years, traditional financial services companies have come under attack from rapidly evolving financial technology companies – or “FinTechs” – who use software and digital disruption to their advantage. In the Netherlands, Ireland and the UK, almost three-quarters of digitally active consumers adopted some form of FinTech product in 2019.
While the digital origins of many fintechs play into the preferences of younger, tech-savvy consumers, the truth is that traditional financial services companies have often been the early adopters of new technologies, from credit cards to online banking. line, or even to the blockchain. These mainstream organizations are also investing millions in modernizing customer experiences to keep pace with their more agile FinTech counterparts. However, if they want new applications to deliver the desired tangible business results, the applications must integrate seamlessly with the core systems. Unfortunately, this is often where things don’t quite go as planned.
Paving the way for success
A major problem for many traditional financial services companies is speed. The speed at which they can create new services, whether it’s a customer experience, a back-end operation, or anything in between. In such a regulated industry, doing things at a fast pace can be extremely difficult. Organizations have often accumulated terabytes of data over decades, housed in core systems and legacy applications designed to be robust and handle large volumes of transactions. They weren’t designed to go fast or change quickly.
Surrounding core microservices and API systems to access things like account balances, developers have the scale and ease of access developers need when building new digital apps. for end users, such as payments or financial planning. Taking such an approach to modernize legacy cores and applications helps traditional financial services organizations compete with FinTechs by improving user experience, delivering innovative services, and leveraging huge data moats without making drastic changes. To this end, organizations seeking to level the playing field in technology need to do five key things:
1. Assess where the risks can be taken
The modern approach to software is one of a single, continuous and iterative process. High performing software development teams embrace a generative culture. Product teams must have the freedom to innovate, which means the freedom to fail.
For this reason, teams should work to identify areas where they can afford to take a certain level of risk. Typically, this means looking away from core banking systems and peripheral systems, such as mobile banking apps. For example, a product team at a bank can examine end-user engagement systems to identify areas where they can benefit and afford to introduce modernization practices.
2. Understand the regulatory environment
Not only is the financial services industry rife with regulation, it is also arguably the most heavily watched industry in the world. In addition to existing regulations regarding industry specific issues like lending, insurance and financial crime, organizations should also take into account the various consumer data protection laws introduced around the world, such as the European GDPR. .
When looking to modernize applications, it is essential to consider all of the options available to protect consumer data. All Personally Identifiable Information (PII) collected – whether from online forms or sensors in vehicles – should be anonymized unless identification is absolutely necessary. In these cases, end-to-end encryption is strongly recommended. Modern solutions such as service meshes allow you to capture PII directly into your system and then leverage hyperscale platforms to anonymize on-premise data processing. A hybrid cloud approach can be extremely beneficial for this process.
3. Focus on security and stability
Security issues need to be considered early on when modernizing applications, not later, after the fact. If you run into security or stability issues, you risk losing customers or being fined by a regulator, which will have a huge impact on the bottom line of the business.
With so many different technologies available, financial services organizations should ensure that everything they move to is secure by default and has a proven track record. For this reason, using open source technology wherever possible may be the best approach. Open source products usually have huge communities that scrutinize the code very closely, which helps iron out bugs and security issues, ensuring a more secure product.
As stability and security are ultimately the result of longevity, proven technologies should be preferred. Over the past two decades, most systems in financial organizations have been written in Java, which is robust but not easily changed. Instead, teams looking to modernize applications can use a framework like Spring. It has a massive community that closely monitors and fixes vulnerabilities, so these products would be secure by default.
4. Bring on the good side of people
People, processes and technology are essential in delivering solutions. In most cases, technology is the easiest to do. Financial services organizations have always operated with a project-driven mindset, which over the years has allowed development teams to get used to a start-stop approach. But such an approach is not conducive to successful application modernization, where teams need to see products not as a series of projects, but as a lean product to which they make continuous improvements.
The structure and capabilities of the product team are also important. Tech managers need to recognize that it’s nearly impossible to build a full team with experts in everything from UX to networks to data centers. But it’s essential to have a strong Product Owner with a deep understanding of customer needs, someone who can clearly articulate requirements and expectations and give definitive answers to engineers’ questions. At VMware Tanzu, we also believe in having testing, quality assurance, and production support within the core product engineering team.
5. Plan for your success
Fast-paced businesses are in a better position to adapt and outperform than large, slow-paced businesses. This does not mean that large companies like banks and insurers cannot grow into fast moving businesses, but the time required will likely be much longer.
At VMware Tanzu Labs, we believe that all businesses must become software companies to be truly successful in the age of cloud computing. When modernizing applications, we usually start small to focus, align with impactful results, and act quickly like a FinTech company. Financial services companies typically strive to increase speed, stability, scalability, security, and cost savings in this process.
Looking forward to
Financial services organizations have a wealth of data to create unique experiences for their clients and compete with the growth of FinTechs. But to use it constructively and sustainably, they need to take a modern approach to software development that supports a culture of continuous learning and innovation.
VMware Tanzu has partnered with banks and other financial institutions to accelerate software delivery and modernize applications while reducing operating costs and risk. For more information, check out this Forrester study, which surveyed 100 financial services CIOs and SVPs and found that application modernization improves customer experience and increases revenue.