Learn about Ness’ top 5 financial services predictions for 2021.
2020 has been the most unusual and interesting year in recent times. The pandemic has forced most companies to accelerate their digital adoption and blown asunder the idea that we can’t be productive in a work-from-home or globally distributed environment. In particular, the financial services industry has seen significant pandemic-related impacts that will continue well into 2021. These impacts include:
- Being used as the application and distribution mechanism for Paycheck Protection Program (PPP) funds
- A decrease in discretionary credit card spend
- Forced digitization of many banking activities
- A decline in demand for bank loans
- An increase in defaults due to long-term unemployment
- Rising expenses for additional customer support and work from home resilience requirements
These headwinds exacerbate existing macro challenges for financial institutions, including a continued low-interest-rate environment and competition from non-bank market disruptors. From a technology trends perspective, we’ve uncovered five key financial services predictions that will continue to be of importance and likely accelerate as we head into 2021.
1. Focus on Legacy Modernization to Support Innovation
It’s no secret that this industry is prone to bulky legacy systems not suitable to scale in the modern world. For those that continue to look upon this topic as rather technical in nature with no business impact, the pandemic has provided ample evidence that legacy platforms and technical debt impact the business by constraining time-to-market, reducing the ability to adjust to changes rapidly and dramatically hindering the pace of innovation.
While many view innovation as a separate topic, legacy modernization and innovation are two sides of a similar goal. It’s challenging to be an innovative company if your core business platforms do not allow you to be agile and quick to respond to new market opportunities. Senior IT executives need to consider their current time to market or time-to-release new functionality and key constraints to accelerate those changes. A CIO for a top 10 bank recently discussed that his time-to-release new functionality is 58 days, and he needs to cut that in half within a year. This scenario is all too common for these financial institutions and large enterprises.
There are multiple migration patterns established, and the tooling is continuously improving to make it easier for organizations to modernize. Most organizations will also see a cost-efficiency improvement compared to the constant maintenance, server updates, and people skills required to run outdated systems. Combined with time-to-market improvement, reducing this cost of serving a company’s technical debt will enhance an organization’s ability to innovate and be agile.
2. Acceleration of Cloud Transformation to Reduce Costs & Time to Market
Not surprisingly, financial services companies have been relatively slow adopters of the cloud due to concerns over security, data residency requirements, and regulatory requirements. According to Information Age, around 70% of financial service organizations say their cloud projects are in the initial stages. Despite this limited adoption, the pandemic is accelerating public and hybrid cloud adoption as the financial service firms must pivot to more readily available infrastructure and seek out cost savings opportunities. While infrastructure cost saving is the most frequently cited benefit of moving to the cloud, most have come to realize that the business value is of equal importance, if not more important. For example, at AWS Reinvent, the CIO of JPMorgan Chase highlighted that they are modernizing 6,000 applications as part of their innovation roadmap. The key reason is to increase agility and productivity, reducing time-to-market for new products and services.
Other benefits we see financial services firms gaining in cloud models are advanced data analytics that improves customer insights or risk management. Leading to revenue generation and new market penetration; costs that move from CapEx to OpEx, freeing up funds available for innovation spend; improved security; and ability to access and deploy new technologies more quickly. This last point is crucial as the major cloud service providers continue to make investments in emerging technologies, including IoT, machine learning, artificial intelligence, and natural language processing.
3. Increase Agility with Cloud Platforms as a Service
There will be an increase in adopting cloud-centric solutions to enable agility and build flexible and scalable businesses. We have seen that companies that rely on the cloud to provide scalable solutions as-a-service are prospering because they can scale to meet demand quickly. The success of Salesforce has brought about other enterprise cloud platform solutions, including ServiceNow and Workday. Companies such as Zoom and Ring Central have shown themselves highly agile as they increased their coverage and quality of service. We are seeing many of these platforms tailor offerings to financial services. Salesforce’s Financial Services Cloud helps financial advisors build deeper relationships with clients and become more productive by automating relevant client information from disparate IT systems and their Einstein service, which helps with next best action.
Banking software as a service (BaaS), driven by API and Open Banking, will continue to emerge and become an integral part of the growth strategy for many banks. The global digital banking platform market is expected to grow double digits through 2027, reaching $10.87B. In the US, we see BaaS examples where fintech platforms such as SoFI and Betterment launch deposit accounts powered by white label BaaS bank partnerships. Goldman Sachs made a notable entry in BaaS earlier this year with its offering and partnership with Saga, a UK provider of a range of consumer services for over 50-year-olds.
4. Elevate the Customer Experience with Data and Analytics
Data is the rocket fuel of the financial services industry, powering everything from retail banking transactions to trading algorithms, customer service calls handling insurance quotes, and more. Yet, most financial services organizations are burdened by legacy systems, siloed data from acquisitions, data privacy concerns, and past failed data consolidation efforts. According to Gartner, Inc., “Almost half of global financial services organizations are still in a very early or even immature stage of their digital transformation journey.”
The reality is that data is growing exponentially, and that won’t stop anytime soon. Financial services companies will need to leverage cloud providers (such as AWS, Azure, Google, and IBM) to capture, process, store, and analyze data all in one place. Analytics platforms, data warehouses, and visualization tools, from Cloudera to Snowflake to SAS, will continue to snowball. Leveraging these expanding capabilities of cloud providers and data and analytics companies will become a top priority for financial services organizations of all sizes. These benefits are multifold and include gaining a 360-degree customer view, enhancing risk management, better predicting future scenarios, and elevating the user experience by providing customized and tailored offerings and services.
5. Greater Shift to Contactless Payments
The last of our financial services predictions for 2021 is the expectation of a greater shift to contactless payments. The pandemic effects have accelerated the adoption of mobile wallets as retailers will increasingly turn to contactless payments and roll out online enhancements for one-click payments and auto-renew subscriptions. Regulators have also buffeted this shift to contactless payments, and many recommended/mandated a shift to cashless systems to curb the spread of the virus. We see industries that historically had low digital payments penetration (restaurants, gas stations, B2B) that prove resilient as a new normal sets in — creating overall growth in real-time consumer payments, as seen in P2P, P2B, and BTB.
As we look to 2021, now is the time for the financial services industry to grow out of its legacy roots and embrace modernization to keep pace with today’s digital demands. This will not only help save costs today but prepare this industry for future agility and resiliency.
To learn more about Ness’ financial services predictions, contact us today.
– Bob Graham, Senior Vice President – Financial Services