Digital Transformation Archives

Exclusive

September 26, 2024 byJeet Vasa

How Cloud-Native Infrastructure is Reshaping Core Banking System

September 26, 2024

In the digital age, banking has rapidly evolved, with customers demanding seamless, 24/7 services. Many banks remain burdened by legacy core banking systems that limit their ability to meet these demands. These older systems often struggle to integrate modern technologies such as artificial intelligence (AI), machine learning (ML), and real-time analytics, resulting in increased operational costs and reduced agility.

In this rapidly evolving landscape of financial services, core banking systems need significant transformation. The advent of cloud-native infrastructure is at the forefront of this revolution, offering unprecedented agility, scalability and efficiency.

What is Cloud-Native Infrastructure?

Cloud-native infrastructure is a set of technologies and practices that enable the development and deployment of applications in the cloud. It is characterized by microservices, containers, and continuous delivery pipelines.

Microservices: Microservices are small, independent services that work together to form a larger application. This modular approach makes it easier to develop, test, and deploy applications.

Containers: Containers are lightweight, portable units of software that package up an application and its dependencies. This makes it easier to move applications between different environments.

Continuous delivery pipelines: Continuous delivery pipelines automate the process of building, testing and deploying applications. This helps to ensure that applications are always up-to-date and reliable.

How Cloud-Native Infrastructure is Reshaping Core Banking Systems

Moving core banking systems to a cloud-native architecture offers numerous advantages.

Enhanced Security: Security is a top priority for any financial institution. Cloud-native infrastructure offers advanced security features, such as automated patch management, encryption and continuous monitoring. These capabilities help banks protect sensitive data and comply with stringent regulatory requirements.

Faster Time-to-Market: In the competitive banking sector, the ability to quickly launch new products and services is a significant advantage. Cloud-native systems enable rapid development and deployment cycles, allowing banks to respond swiftly to market changes and customer needs. This agility fosters innovation and helps banks stay ahead of the competition.

Scalability and Flexibility: Cloud-native infrastructure allows banks to scale their operations effortlessly. Whether it’s handling a surge in transactions during peak times or expanding services to new regions, cloud-native systems can dynamically adjust to meet demand. This flexibility is crucial for banks looking to innovate and grow without being hampered by their IT infrastructure.

Real-World Applications

Emirates NBD, one of the largest banking groups in the Middle East, has been at the forefront of adopting cloud-native technologies. The bank has implemented a cloud-native core banking system to enhance its digital banking services. This transition has enabled Emirates NBD to offer more personalized and responsive services, improve operational efficiency and rapidly deploy new features to meet customer demands.

Mashreq Bank, another major player in the GCC region, has leveraged cloud-native infrastructure to drive its digital transformation. By adopting microservices architecture and containerization, the bank has been able to scale its operations dynamically and enhance its customer experience. The bank’s cloud-native approach has also facilitated the integration of advanced analytics and artificial intelligence, enabling more informed decision-making and innovative product offerings.

Capital One is another notable example. The bank has been a pioneer in adopting cloud-native infrastructure, migrating its entire data centre operations to the cloud. This move has not only reduced operational costs but also enhanced the bank’s ability to innovate. Capital One now uses cloud-native technologies to leverage big data and machine learning, providing customers with tailored financial advice and fraud detection services.

State Bank of India (SBI), the largest public sector bank in India, has adopted cloud-native technologies to support its digital transformation initiatives. SBI’s cloud-native infrastructure has enabled the bank to handle large volumes of transactions efficiently, enhance its cybersecurity measures, and offer a seamless banking experience to its customers. The bank’s cloud-native approach has also facilitated the integration of new technologies such as blockchain and artificial intelligence.

Cloud-native infrastructure is not just a technological trend; it’s a strategic imperative for banks. By embracing cloud-native technologies, banks can position themselves for long-term success in a rapidly evolving digital landscape. As the banking industry continues to innovate, cloud-native infrastructure will play a pivotal role in shaping the future of core banking systems.

October 21, 2023December 18, 2023 byJeet Vasa

Banks have the Generative AI advantage, but must overcome challenges to fully utilise its benefits

Despite the many challenges the industry has faced, the banking sector has continued to prioritise digital transformation and it is only accelerating quicker. Generative artificial intelligence (AI) is the latest in a wave of disruptive technologies that will drastically transform the financial services and banking industry.

By Jay Limburn, VP of AI Product Management, IBM

Many banks and financial institutions are as good as, if not better than most industries when it comes to technological maturity. We have been working on generative AI with banks for several years, and they have been experimenting with the operational advantages of AI across their business. The IBM 2023 CEO Decision-Making in the Age of AI report showed that 75% of CEOs surveyed believe the organisation with the most advanced generative AI will have a competitive advantage. However, executives are also concerned about the potential risks around security, ethics and bias.

Leaders are looking to fuel their digital advantage to drive efficiencies, competitiveness and customer satisfaction, but they have not been able to fully operationalise AI as they face key challenges around implementation.

The biggest challenge and opportunity…data

Banks are continuing to digitally innovate, and data has emerged as one of the biggest challenges to fully utilising generative AI across the industry. Platforms like ChatGPT caught people’s imaginations and created excitement in the sector. But while they rely on Large Language Models (LLM) to analyse vast amounts of data, the banks need to be able to choose from multiple models and embed their own data sets for analysis.

Instead of having one model to rule them all, banks will need to evaluate which models can be applied to their individual use cases. Banks are aware of the benefits generative AI can bring, so in place of summary capabilities of what the technology can do, they need to look at how to modernise different elements of their business. This requires models to be trained on the bank’s own data sets to get high-level accuracy and to fully operationalise the technology.

The amount of data is overwhelming many organisations, and banks are not excluded. To succeed, financial institutions will need to embed their own data into generative AI models to fully operationalise the technology.

Banks can help shape regulation and governance

One of the other key challenges facing banks with regards to generative AI is regulation and governance. As a new and emerging technology, regulators will not necessarily understand AI, so the natural inclination is to say we cannot use it. Equally, some models cannot explain why it has made a decision. For trust and compliance, financial institutions need to explain their decision-making process.

The more AI is embedded into organisations, the more important it is that leaders have a proactive approach to governance, which means having a legal framework to ensure AI is used responsibly and ethically, helping to drive confidence in its implementation and use.

But in order to help shape the AI regulatory environment and meet these requirements, banks need to take an active part in shaping the regulatory framework and move to models which can explain the decision-making process.

Generative AI will help not lead

The response we have seen from banks to generative AI has been phenomenal. As an industry, financial services and banking can lead the charge around AI regulation and explore new models to leverage their own data for better outcomes.

However, this isn’t without its challenges. Operationalising generative AI has proved difficult due to potential risks, compliance and evolving regulatory requirements, and concerns would be heightened as banks introduce their own data to AI models – which is why most generative AI use cases have so far focused on the customer care space.

Despite these challenges, banks have a huge opportunity to leverage generative AI, which will fundamentally change how we bank and how banks serve customers, and governance will play an active role in ensuring trust as we continue to explore the benefits of generative AI. Importantly, AI is here to help banks, not be the lead in most use cases.

Analytics IBSi Blogs IBSi Flagship Offerings

October 21, 2023December 18, 2023 byJeet Vasa

What’s next in digital transformation in Europe

In Broadridge’s third annual Digital Transformation and Next-Gen Technology Study, 500 C-level executives and their direct reports across the buy side and sell side from 18 countries were surveyed

Mike Sleightholme, President, Broadridge International

On average, respondents’ firms control estimated assets of $121 billion. More than half agreed that digital transformation is currently the most important strategic initiative for their company, and the proportion of IT budgets allocated to digital transformation has increased to 27% on average, up from 11% last year. A further 71% of global respondents also say AI is now significantly changing the way they work.

The biggest increase in technology investment from European firms in the next 2 years will be allocated to cybersecurity – with respondents saying they plan to increase spending by 29% by 2025. This level of backing is followed closely by investments into cloud platforms and applications. Firms are ‘lifting and shifting’ legacy systems in favour of cost-effective, cloud-based infrastructure with microservices and APIs at the core.

Spending on data analysis and visualisation tools is planned to increase by 26% in the next 2 years. As it stands, too many firms are relying on fragmented data sets that could offer valuable insights if they were brought together and combined with powerful analytics solutions. The top driver for these investments is improved customer acquisition and retention. As market competition increases, the benefits that next-gen technologies can bring to the end-consumer are one of the most significant ways that firms may differentiate themselves from one another.

The second biggest factor in the decision-making process are cost savings and efficiencies. As next-gen technologies mature, the financial benefits become more tangible, making it easier to define a business case for investment.

Finally, speeding up the time it takes to bring new products to market is a priority for European firms and ranks as the third biggest driver for investments. This agility allows firms to take advantage of short-lived opportunities to gain market share in new asset classes or client segments as the pace of change accelerates.

The biggest challenge cited by European firms is insufficient budget for innovation. Particularly against today’s economic backdrop, firms are feeling hesitant to invest money into new projects. The second biggest challenge is staff resistance to constant change. Gaining buy-in from the teams that will be using the technology can be as important as buy-in from the C-suite approving investments. Education is important – firms must ensure their teams properly understand why these technologies are necessary, the efficiencies they can create, and how they will help the team, the business, and clients. The third most prevalent challenge for European firms is ongoing market and economic disruption. Against a backdrop of geopolitical tensions, recession fears and persistent inflation, it can be difficult for business leaders to focus their attention on technology investments.

Digital transformation is still at the top of the C-suite agenda, but it is also entering a new phase driven by more powerful technology. Widescale adoption of generative AI, as well as growing maturity in blockchain and DLT, will drive a new wave of exponential change. Other nascent technologies such as quantum computing and the metaverse are on the horizon.

When asked about the longer-term future, 65% of European firms believe that blockchain and DLT will become the core of financial markets infrastructure in 10 years’ time. Nearly a third believe that the metaverse will become a key channel for client interaction within the next 10 years. However, firms said they only plan to increase investment in the metaverse by 4% over the next 2 years, indicating a wait and see approach.

This is an exciting time for the financial services industry, adapting to the rapid pace of change may pose huge challenges for business and society, senior leaders should keep a firm eye on the opportunities created by digital and next-gen technologies as they evolve.

Analytics Digital Banking IBSi Blogs

October 21, 2023December 18, 2023 byJeet Vasa

Digital Banking: Prioritising Financial Inclusion

In recent years, digital transformation and the rise of FinTech technologies have made digital banking increasingly accessible. Now, there is a wide variety of digital services available as banks continue to focus on delivering the best, most convenient services to their customers.

By Hans Tesselaar, Executive Director at BIAN

There is clear momentum happening in online and digital banking, with 416 million active users of online banking in Europe alone, an increase from 398 million in 2022. This is reflected globally, with 170 million users in 2023 in Latin America, expected to spread to almost 198 million next year. Emerging technologies can support this expansion, but it’s the responsibility of the industry as a whole to ensure financial inclusion and economic growth for all, which is a priority amid this growth.

Digital inequalities caused by this shift must be addressed through collaboration and emerging technologies, an area where some developing countries are leading by example. The role of industry standards is also incredibly important when looking to better deliver digital services to all.

Counting on industry standards

We can look to the Union Bank of the Philippines as an excellent example of this. The extensive use of legacy technology within banks means the speed at which these established institutions can bring new services to life is often too slow and outdated. This challenge is also complicated by a lack of industry standards, meaning banks continue to be restricted by having to choose partners based on the ease and cost of integration. This is instead of their functionality and the way they’re able to transform the bank.

To truly digitise, banks need to overcome these obstacles surrounding interoperability with a coreless banking model. This approach to transformation empowers banks to select the software needed to obtain the best-of-breed for each application area without worrying about interoperability and being constrained to those service providers that operate within their own technical language or messaging model.

By translating each of that proprietary messages into one standard message model, communication between different parts of organisations is, therefore, significantly enhanced, ensuring that each solution can seamlessly connect and exchange data.

Adopting emerging technologies to increase accessibility

While some elements of financial inclusion and digital adoption require a more considered approach, there are instances where emerging technologies are bringing transformative services to the unbanked.

The Union Bank of the Philippines, for example, overhauled its quick loans retail engine (RLE) to serve as the central platform for the bank’s loan and credit products, leveraging its reusability and ease. Using a combination of low-code, based on the BIAN Models, and the adoption of BIAN APIs, the bank sought to establish a seamless, fully digital experience that could scale up to meet the country’s huge demands for loans by the unbanked.

This has enabled the Union Bank of the Philippines to overcome the issues preventing the RLE from scaling to the mass market to reach the 51.2 million unbanked Filipinos. Through this innovation, those who otherwise wouldn’t have access to a fully digital quick loan service now do.

This is just one example of many, as fintech adoption continues to grow in emerging markets due to the increasing use of mobile phones and the internet, the large unbanked population, and the growing middle class. It will be no surprise to see more of these examples where banks look to digital services to reach the mass market over the coming years.

Creating a supportive ecosystem

As FinTech adoption continues to grow in emerging markets, banks must form an ecosystem alongside fintech, service providers, and aggregators. This will help banks when it comes to the speed they can introduce new products.

An effective ecosystem strategy will make banks more relevant to their customers, providing an opportunity to drive better relationships and bigger wallet shares by providing the speed, scale, and differentiated products that make the most of the opportunity presented by the significant shift to digital banking. With this approach, banks can focus on offering services to meet the demand of all customers, whether that be digital, analog, or reaching the unbanked population.

The journey to digitalisation

To be truly inclusive, banks must assess their customer base and look to meet its needs.

Where digital adoption risks leaving customers behind, banks must ensure these customers are prioritised through collaboration, access to offline services, and a slow, steady digital transformation process. In other cases, digital transformation is the answer to bringing financial services to the mass market. In both situations, industry standards can be the key to unlocking new technologies and providing services to those who otherwise wouldn’t be able to access them.

Putting the customer first and taking a collaborative approach will be how the industry brings all customers along on the digitalisation journey. As long as the priority for banks remains on financial inclusion and innovation increasingly supports this, there will never be a customer left behind.

Digital Transformation

Banks have the Generative AI advantage, but must overcome challenges to fully utilise its benefits

The biggest challenge and opportunity…data

Banks can help shape regulation and governance

Generative AI will help not lead

What’s next in digital transformation in Europe

Digital Banking: Prioritising Financial Inclusion

Counting on industry standards

Adopting emerging technologies to increase accessibility

Creating a supportive ecosystem

The journey to digitalisation

Call for support

Follow us

Follow us

Quick links

Recent Post

Recent Posts

Subscribe