IT Modernization: Failure is not an option

  • Posted on October 1, 2018
  • Estimated reading time 3 minutes
IT modernization banking tips

Guess which industry really wants to focus on digital transformation? Banking. Surprised?

According to the Gartner 2018 CIO survey, bankers were the keenest to get this in motion (26% of respondents) compared to other industries (17%). Planned spend on digital marketing is also much more prominent in the banking sector (22%) than others (12%). However, IT (or legacy) modernization is the foundation for digital transformation – and it’s not that straightforward.

Our research into this area shows:

  • 3 in 4 banks believe conventional systems (typical systems in use today) are not even fit to address digital business requirements

  • Only one-third of banks’ systems are ‘modern’ i.e. the next wave of IT technology to empower business in the digital world; the remainder are either legacy or conventional (types of IT systems businesses are running on today)

  • Banks believe modern software engineering skills, such agile or DevOps, will help them realize their digital ambitions, but 66% lack funding and only the minority (26-42%) report that they are experts across any of the techniques in use

  • 49% of banks see operational risk as a major issue, followed by security – either with cloud technologies (39%) or legacy systems (37%)

Financial firms have cited regulation and compliance as the biggest challenges to overcome in cloud migration. The nature of regulatory direction is not always clear and navigating the regulatory landscape is complicated. There are external regulators to contend with (e.g. The Fed, FCA) and internal stakeholders (e.g. risk boards, security).

Failure is not an option, however. The recent legacy upgrade fiasco by TSB in the UK has led to the resignation of their CEO, Paul Pester. How can banks get it right?

  1. There is no cookie-cutter approach here, but having a strategy helps. Put together a business case that includes both IT and business benefits – our research indicated that many senior executives struggled with this. Even ‘simple’ tasks, such as moving from a number of data centres to the cloud or assessing the apps portfolio, can be complicated. Show how modernization can increase business goals (productivity, faster time to market etc). Find executive champions that ‘get it’, support with business KPI’s and independently validated ROI approaches that demonstrate quantifiable business benefits.

  2. Banks need public cloud providers to accept stringent data security obligations. Public clouds can be run from data centres located anywhere in the world, yet banks' need to protect data and comply with national/regional legislation. (However, cloud providers operate security standards that often exceed those of the banks themselves. They can hire world experts and apply advanced approaches without the legacy IT issues that most banks have to contend with.)

  3. Acquire Agile and DevOps expertise, identify areas of key operational risk and assess your service management and security capabilities. Invest in your own people, but don’t do it all in-house: there’s just too much to be done and time isn’t usually on your side.

  4. Any solution will be hybrid – and complex – including options around IaaS, PaaS, SaaS, on-premise and whether to move mainframes into the cloud; 100% off-premise is rarely the answer. In fact, you will probably need to choose more than one cloud provider whatever your solution.

  5. Microsoft provides a range of tools/information on its Service Trust Portal to support firms through their regulatory due diligence and risk assessments. This covers specific responses to regulatory documents (e.g. EBA) and includes the regulatory implications for cloud provision in specific countries (e.g. USA, Australia, Singapore, Japan and the UK). Microsoft Azure is trusted by 80% of the world’s largest banks and 85% of GSIFIs.

One thing is sure. Banks cannot keep building on their legacy architecture and stay compliant, competitive and cost effective - especially, when compared to cloud-enabled organisations. If banks don’t modernize their IT systems and approaches, they simply will not be able to address the emerging digital needs of their business - despite what they say about their appetite for transformation.

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